Modelling

Question 1

What should be the focus for data?

Answer 1

Quantity and quality together

Question 2

What reasons are there for poor quality data?

Answer 2

SRG

Systems - poor design of data system
Recording - poor control of data recording
Good processes implemented, time lag in enough data

Question 3

What are the consequences of poor quantity of data?

Answer 3

Non-homogeneous grouping

Low credibility of grouping

Question 4

What is the consequence of poor quality data?

Answer 4

Unreliable results

Question 5

Why is the proposal form important for data?

Answer 5

Prime information source
Well designed/unambiguous questions
Ratings facotrs/underwriting to be included
Cross checking and validity of claims possible
Updating policy information
Historical data gathered from it

Question 6

What is risk classification?

Answer 6

Splitting data into homogeneous groups

Question 7

Why do risk classification?

Answer 7

Appropriate use of data
Experience of group stable
Inaccurate provisions if didn't do it
Sensitivity testing needs to be done
If group contains few model points, need to group with more at cost of homogeneous

Question 8

What historical data should be used in basis in general?

Answer 8

Investment return, benefit growth, demographic assumptions, changes in a persons life

Question 9

What parts of past investment return would you look at?

Answer 9

div yield
returns on asset classes
inflation data

Question 10

What parts of historical beenfit growth would you use?

Answer 10

Salary levels for country/industry/company

nflation index

Question 11

What demographic assumptions would you look at historical data for

Answer 11

Mortality for decrements

Question 12

What changes in a persons life would you look at in using past historica data?

Answer 12

Leaving employment
illness
retiring
regulation
past price inflation

Question 13

Why wouldn’t you use past averages in your basis?

Answer 13

Social and economic changes

Use what effect the changes caused in the past for your future predictions

Question 14

What are unsuitable uses of unadjusted historical data?

Answer 14

Economic
Inflation
Norminal data
Dividend levels
Mortality data

Question 15

Why shouldn’t you use past inflation in your basis?

Answer 15

linked to past conditions, better to use current govt bonds and projections

Question 16

Why not use past nominal data for econ assumptions?

Answer 16

Price inflation will strip out fluctuations

Question 17

What historic economic data is unsuitable for using unadjusted in your basis

Answer 17

Inv returns
salary
dividend growth

Question 18

How would you use historical economic data in your basis

Answer 18

Strip out fluctuations caused by fiscal changes

Question 19

How would you adjust dpast dividend levels for use in basis

Answer 19

Adjust for tax changes on dividend income

Question 20

How would you adjust mortality data (historic) for use in basis

Answer 20

for mdeical advances and tends

focus on more recent data more

Question 21

What are the problems with grouping past data in homogeneous groups?

Answer 21

Information desired unlikely to be available
Available data small so uncredible results
The balance in the homogenous group may change over time, with workers shifting
adjust it in a subjective way

Question 22

What are the problems with getting data from the state or groups of companies?

Answer 22

Stats recorded may change
Errors are possbiel, especially in older records
Census data has ppl who can#’t afford or buy insurance
Correct mortality table should be used and adjusted

Question 23

What factors determine accurace of assumptions use in basis

Answer 23

Purpose of assumption
Sensitivity of result to assumption
Best estimate or MAD
Individual cashfolws important (use accurate)
Capital value only important (not accurate is allowed)
Consideration of financial consequences
Expert witnesses must use same assumptions type (BE /MAD)
Awareness of implict assumptions in model like mortality not changing in open pens scheme

Question 24

How do you allow for risk in assumptions?

Answer 24

Change risk discount rate
Stochastic discount rate
Apply MAD’s to expected values

Question 25

What are the 3 main profit criterion?

Answer 25

NPV, IRR, DPP

Question 26

What factors increase risk in a new product?

Answer 26

Historical data lacking
Guarantees that are high
Options that are risky
Costs of overheads
Complexity of design

Question 27

What 2 things do you compare when deciding whether to invest?

Answer 27

Risk vs return

Question 28

What is the moitoring the experience anagam and bits?

Answer 28

I DESPAIRS

Interpret modelling results
Determine proposed soln
Examine if current models can be adapted
Select most appropriate model or new one
Proposal formalise
Alternative soln considerationa and effects
Implication of model
Result on overall problem
Stakeholoder implications of resulots

Question 29

Why monitor actual experience?

Answer 29

Method of financing benefits approporaite
Assumptions to finance benefits correct
Updating assumptions for future experience
Mangament info providing
Adverse trends, notice and correct

Question 30

Is grouping suitable in an experience investigation, why?

Answer 30

Large/stabe/consistent data
Too few data makes groups un credible
Data may be few due to model points or infrequnct/volatile
Might group data into larger year bands
Grouping shouls be same as before

Question 31

How do you compare mortality experience?

Answer 31

Actual deaths/Exposed to death vs assumed deaths

Question 32

How do you compare withdrawal experience?

Answer 32

Lapses/Exposed to lapse vs assumed lapses

Question 33

How do you compare interest rates expereince?

Answer 33

Actual vs Estimate

Put actual in model and note difference to results

Question 34

How do you compare investment returns experience?

Answer 34

Actual vs expected

Do outperformance AOC

Question 35

What do you need to take into account when looking at Actual vs Expected and deciding whether to change assummption

Answer 35

Abnormal period or permanent change
Would trend likely to continue
Are the ppl we’re looking at homogeneous with the group effected by future experience
May choose new asssumptions based on our experience and adjust them for our uncetrainty about the experience

Question 36

Why review investment strategy regularly?

Answer 36

Liability structure changes
New business
M&A's
Legisaltion
Free assets/surplus changes
Performance significantly out of line with other funds

Question 37

What should you do in assessing investment performance?

Answer 37

Compare target return to actual return of an indexed fund

Indec fund having maintained the asset proportions set in the benchmark

Question 38

What constraints may effect performance of investment strategy

Answer 38

Shortage of cashfolw
restriction of funds for investment
forced sale of investments at unsuitable time

Question 39

What things shouldn’t you do in assessing investment strategy performance?

Answer 39

Set the performance targets too generally, if your invesmtnet restriction high on assets and classes
Compare return to valuation discount rate due to year on year volatility of returns

Question 40

What current data can we use in basis setting?

Answer 40

Inflation index - fixed and IL current yields
Policy statments - by governemtn/BOE for econ factors
Scheme sponsor - Info on salary increases and likely future rate of withdrawal