Margins

Question 1

What is the difference between an implict and explicit margin?

Answer 1

Implicit margins are added in the process of valuing the provisions, whereas explicit margins are added thereafter

Question 2

What needs to be considered when using explicit margins?

Answer 2

The explicit margin should not offset any implict margin, unless both have been quantified and disclosed.
Any diversification benefit & correlation between classes of business modelled must be considered

Question 3

What are the 2 main elements a margin should allow for?

Answer 3

1. Sufficiency

2. Uncertainty

Question 4

What methods can be used in the calculation of an explicit margin?

Answer 4

1. Bootstrap techniques

2. Prescribed regulatory risk margin calculation

Question 5

When applying actuarial judgement, what is the main factor to consider?

Answer 5

The purpose of the valuation, disclosure and appropriateness