Chapter 39: Monitoring

Question 1

What are the reasons to monitor?

Answer 1

1. Update methods and assumptions for future experience
2. Monitor trends, particularly adverse trends and take corrective action
3. Provide information for management and other stakeholders

Question 2

How to perform a monitor analyse of experience

Answer 2

Data requirement:

• Sufficient data to be credible,
• Stable
• Consistent
• Accurate

Grouping of data

• Data should be grouped in homogeneous groups
• Group by rating factors, so policyholders in the same group can be charged the same premium

Financial Assumptions

• Claim severity
• Investment return
• Inflation
• Expenses

Financial Approach

• Actual vs expected
• Actual vs similar funds
• Actual vs benchmark

Demographic Assumptions

• Claims frequency
• Business mix
• Take up rates

Demographic Approach

• Actual vs number of lives/exposed to risk
• Need info on the number of lives and info on exposed to risk
• Compare to standard table
• Compare to assumptions in pricing and reserving basis

Question 3

Why is care needed when using a monitoring analysis?

Answer 3

1. Is the past experience typical or is it to be repeated in the future
2. Was the time period sufficient to pick up on any abnormal or random events, trends or cycles
3. Was the data split into sufficient homogeneous groups
4. Balance in homogeneous groups changes over time
5. Delays or errors in data