Actuarial Control Cycle PDF

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Actuarial Control Cycle Management tool that provides a logical framework within which to make business decisions ((Check diagram p161)) 1. The General Economic and Commercial Environment Actuaries must be aware of environment within which they operate Must consider medium- and long-term trends Collect information on, and consider potential changes in 1. Consumer needs 2. Competition 3. Premium rates charged by competition 4. Taxation 5. State of the economy 6. Cultural attitude towards buying insurance 7. Products available in market 8. Distribution channels available 9. Investment available 10. Reinsurance available 11. Availability of capital 12. Commission structure allowed 13. Statutory reserving and minimum solvency requirements 14. Legislation and regulations 15. Underwriting restrictions 16. Expected volume of business sold 17. Anticipated growth in volume 18. Data for estimating mortality 19. Information to judge expected level of expenses 20. Company’s attitude towards risk and returns 21. Relevant professional guidance 2. Professionalism Affects way actuaries carry out work and present advice Actuary has professional responsibility towards - his/her employee/client - policyholder - actuarial profession - regulatory authorities Actuary should - act with integrity - consider any conflicts of interest - provide relevant and ethical solutions - have appropriate experience

- consider the role of the profession in society 3. Specifying the Problem Specify problem Assess risk Provide framework for assessing alternative strategies for handling risks Identify and assess risks faced 1. Adverse mortality 2. Adverse critical illness or sickness rates 3. Adverse investment performance 4. Adverse currency movements 5. Different mix of new businesses by size and nature 6. Different mix of new businesses by sales source 7. Offering onorous guarantees 8. Offering onorous options 9. Taxation changes 10. Regulatory changes 11. Lack of data 12. High expense inflation 13. Poor withdrawal experience 14. Charging too low premiums in order to gain market share 15. Management of company 16. Counterparty failure 17. Political risks 4. Developing the Solution Involves review of actuarial models of cash flows currently in use How they may be adjusted for particular problem to be solved Initial assumptions selected for use of the model by considering - expected volumes of business - main expenses - mortality rates and sums assured Investigate alternative strategies for risk management Predict future results Communicate results clearly so that informed decisions can be made 5. Monitoring the Experience Monitor experience and give feedback into other stages of cycle Monitor expectation v actual experience for - mortality - expenses - withdrawal - business mix and volume

Identify and understand discrepancies Reasons for discrepancies - problem may not have been fulle understood - models or assumptions may have been inappropriate - the general commercial environment may have changed in way not anticipated...