Name 4 considerations when setting assumptions
- How they’ll be used
- Client needs
- Consistency between assumptions
- Legislation
Which assumptions should be given the most attention?
Those with most financial significance
Name the 2 types of assumption
Demographic
Economic
Give an example of a demographic assumption
Mortality rate
Give an example of an economic assumption
Investment return
What 2 types of data are used for setting assumptions
Historical data
Current data
How can you get a market view of future inflation?
Using the relationship between current yield for fixed-interest & index-linked bonds
Name 5 reasons historic information usefulness may be limited
- Credibility
- Relevance
- Fluctuations over time
- Inflation
- Data recording methods
- Heterogeneity
What do you need to be careful of when using past data?
That it doesn’t necessarily provide a view of future experience
Why is past data not necessarily relevant to future experience?
Social & economic conditions change over time
