C - CIA MfAD

Question 1

CIA MfAD

examples where a large MfAD is appropriate (compared to the best estimate assumption)

Answer 1

• if the actuary has low confidence in the best estimate assumption
• an approx with low precision is being used
• the event assumed is farther in the future
• the potential consequence of the event is more severe
• occurrence of the event is more subject to statistical fluctuations

–when stochastic model indicates variability not identified in deterministic approach

Question 2

CIA MfAD

features a risk margin (PfAD) methodology should have.

Answer 2

• easy to calculate
• facilitate disclosure of information useful to stakeholders
• provide information useful to users of financial statement
• be consistent :
• -for methodology, across lifetime of contract
• -in assumptions
• -between entities
• -between reporting periods

-vary by product

Question 3

CIA MfAD

Discuss documentation of MfADs

Answer 3

• Actuaries to document critical considerations in their selections of MfADs
• Actuaries conducting stochastic analyses document what components are modeled as random variables as well as primary assumptions
• documentation for both explicit and stochastic techniques would include support for key decisions

Question 4

CIA MfAD

Discuss reporting of MfADs

Answer 4

• in the USER’s best interest to be aware of the MfADs selected by the actuary.
• Disclosure in a report should balance between too little and too much
• should ask the question: what qualitative and quantitative information best serves the user’s understanding and decision making?