T_Big Picture and Revision

Question 1

Monitor experience as part of control cycle in order to:

Answer 1

Develop earned asset shares

Update assumptions

Monitor adverse trends -> corrective actions

Provide management information

Question 2

Data requirements: for modelling experience

Answer 2

Reasonable volume – stable and consistent

Sufficient homogeneous risk groups (but consider credibility)

Agree period

Question 3

Different data needed for the different types of investigation for experience modelling

Answer 3

Mortality (e.g. Age, sex, smoker status, etc)

Withdrawal (e.g. Distribution channel, frequency, etc)

Expense (e.g. Direct/indirect, etc)

Investment (e.g. Asset types, associated expenses, etc)

Question 4

The multinational life company for which you work has just released its financial year-end results. The analysis of change in the embedded value shows a substantial increase in the value of in-force business from the previous year.
Discuss possible reasons for this increase.

Answer 4

• Experience may have been better than expected (i.e. a positive experience variance).
• Substantially more new business sold in the year.
• A change in valuation basis. Changes in basis assumption may result in an increase in the value.
• Reduction in the discount rate used.
• Exchange rate movements.