QQ

Question 1

For data obtained from external sources we should compare (5)

Answer 1

• the terms of the policy cover offered
• levels of risk underwritten
• the loadings included for expenses and profit in the premium
• socio-economic differences

We should also establish the time period of the data in order to make appropriate allowance for inflation.

Question 2

Measures to mitigate the effects of inadequate data (6)

Answer 2

• add. prudence in the model structure
• only write a subset of risks/perils until actual experience becomes available
• consider only accepting liability covers with low limits & exposures
• use more reinsurance (lowering the retention)
• examine the sensitivity of the pricing models
• monitor key statistics to spot problems early