Technical Actuarial Standards

Question 1

Board For Actuarial Standards’ Reliability Objective

Answer 1

That the users for whom a piece of actuarial information was created should be able to place a high degree of reliance on

• the information’s relevance,
• transparency of assumptions,
• completeness and
• comprehensibility, including the communication of any uncertainty inherent in the information.

Question 2

The purpose of TAS D

Answer 2

To assist the achievement of the Reliability Objective by ensuring that:

• data used in work within its scope is subject to sufficient scrutiny and checking so that users can rely on the resulting actuarial information
• any actions taken because data is inaccurate or incomplete increase the reliability of the resulting actuarial information.

Question 3

All documentation required by the standard shall: (3)

Answer 3

• contain enough detail for a technically competent person with no previous knowledge of the particular exercise for which the data is being used to understand the matters involved and assess the judgements made;
• include a statement on the purpose of the documentation; and
• be clear, unambiguous and complete for that purpose.

Question 4

TAS D:

Data Requirements

Answer 4

• Whenever work is undertaken an assessment shall be made of the data required in order to deliver the actuarial information needed by the user.

An assessment may take account of previous assessments made for similar exercises. An assessment might result in the conclusion that no additional data is required, or that none is available.

Question 5

TAS D:

Data Definitions

Answer 5

• The definitions of all items of data shall be documented.

Question 6

TAS D:

Validation

Answer 6

A set of checks shall be constructed and performed in order to determine the extent to which, taken overall, the data is sufficiently accurate, relevant and complete for users to rely on the resulting actuarial information.

The checks that have been performed shall be documented.

Question 7

The extent of checks to be carried out will need to depend on matters such as: (3)

Answer 7

• the source of the data
• the terms of the engagement
• the extent and nature of checks known to have been carried out by other parties.

Question 8

4 Examples of possible checks

Answer 8

• A comparison with data used for a previous exercise
• Checking that data values lie within reasonable limits
• Checking that the data is consistent with data from other sources
• Spot checks

Question 9

The purpose of TAS M

Answer 9

To assist the achievement of the Reliability Objective by ensuring that models:

• sufficiently represent the matters that are relevant to the decisions for which the actuarial information based on them will be used
• are fit for purpose both in theory and in practice

and that the information based on them:

• includes explanations of the purposes the models are intended to serve, how the inputs to the models are derived and what the outputs from the models are intended to represent
• includes explanations of the significant limitations of the models.

Question 10

TAS M - Fitness For Purpose:

Satisfactory representation

Answer 10

The model shall be a satisfactory representation of some aspect of the world in the context of the purpose for which it is being used.

The explanation of how it is a satisfactory representation shall be documented.

Question 11

The explanation of how the model is a satisfactory representation might need to include factors such as: (5)

Answer 11

• the relevance of the aspect of the world that is modelled to the purpose for which the model is being used
• the extent to which all phenomena relevant to the purpose and structure of the model have been modelled
• the compliance of the model with regulatory requirements
• the rationales for fundamental qualitative assumptions and prior beliefs
• records of calibrations for quantitative assumptions

Question 12

The explanation of how the model is a satisfactory representation can be supported by techniques such as: (3)

Answer 12

• comparing the outputs of realisations with actual experience
• quantitative analysis of the predictive properties of the model using back-testing
• analysis of movements
• sensitivity testing

Question 13

TAS M - Fitness For Purpose:

Checks

Answer 13

A set of checks shall be constructed and performed in order to determine the fitness for purpose of the model as a whole and of its specification, implementation and realisations.

• The checks that have been performed shall be documented.

Question 14

The fitness for purpose of the model can be assessed through the use of checks such as: (6)

Answer 14

• checking that the specification accounts for a specific aspect of the world
• checking that an implementation accurately meets the specification
• checking that an implementation accepts all possible valid inputs and handles invalid inputs appropriately
• checking that a realisation uses the intended inputs
• performing a quantitative analysis of the predictive properties of the model
• comparing the outputs of the model with those of a different model

Question 15

Data might be unsuitable for the purpose of the model for reasons as: (3)

Answer 15

• the data is inconsistent with assumptions that form part of the specification
• the data definitions are inconsistent with those assumed or set out in the specification
• the data is insufficient to be statistically useful

Question 16

Sufficient statistically useful data may be unavailable for the implementation for reasons such as: (2)

Answer 16

• the volume of business in-force or the size of the pension scheme is too small for statistically useful data to become available
• the incidence of the event being measured is too infrequent for statistically useful data to become available

Question 17

3 Steps to be followed if any data points are removed from the data used for a realisation other than because they are erroneous:

Answer 17

• the data points that have been removed shall be documented and the aggregate report shall describe them
• the rationale for their removal shall be documented
• the aggregate report shall explain the implications of their removal.

Question 18

3 Reasons why data points might be removed

Answer 18

• analysing claims other than those relating to catastrophes
• analysing only administrative or running costs that are expected to recur
• analysing mortality only for ages for which there is statistically useful data.

Question 19

The relationship between an estimate that is not neutral and a neutral estimate might be indicated using methods such as: (4)

Answer 19

• describing the level of pessimism or optimism in the estimate
• explaining how the derivation of the estimate differs from that of a neutral estimate, for example by including a specific margin for prudence;
• comparing the estimate with a neutral estimate and explaining the differences; and
• quantifying the probability of the estimate being exceeded.

Question 20

Explanations of the limitations of models and the implications of those limitations might include descriptions of: (8)

Answer 20

• the exclusion of relevant phenomena from the specification
• simplifying assumptions that have been made
• the extent to which the implementation might not fully meet the specification
• the sensitivity or otherwise of the outputs to key assumptions (both qualitative and quantitative)
• the suitability or otherwise of the outputs for purposes other than those intended.
• the extent to which the system-wide effects of individual actions and other systemic risks have been taken into account;
• the number and variety of realisations that have been used; and
• the amount of checking that has been performed and the degree of reliance that can be placed on the outputs of the model.