Actuarial Control Cycle

Question 1

Commercial and economic environment

Answer 1

• Consider data – new product/business = lack data = may need to source externally
• Consider typical exclusions to include in policy

Question 2

Specify problem

Answer 2

• State likely objectives (profit/ marketshare within given timeframe
• Main risks relate to claims – understand likely sources and freq/sev
o Give examples of claim events
• Determine rates appropriate for each policy as likely to pose different levels of risk

Question 3

Developing solution

Answer 3

• Model – build new, adapt existing, purchase externally
• Reflect features of particular risks
• Consider reserving basis
• Set assumptions relating to key areas of experience (claim freq/sev)
• Sens test/ scen analysis (esp for new product)
• Compare premium rates to competitors

Question 4

Monitor experience

Answer 4

• Assess claims and compare with assumptions
• Need to understand why experience differs from experience, update assumptions if need be
• Monitor sales volumes
• Monitor external factors, eg if competitors change rates insurer may have to follow suit
• Monitor whether sufficient profit can be made from product while remaining competitive, may need to leave market

Question 5

Professionalism

Answer 5

• In developing and managing the product there will be a requirement to act in a professional manner
o Adhere to technical and professional standards