Ch 26: Nature of risks (aims and impications)

Question 1

Aims of management of an insurer relating to risk

Answer 1

• Maximise (or optimise within an acceptable level of risk) the profits of the insurer, whether these go to shareholders or to mutual policyholders
• Maximise (or optimise within an acceptable level of risk) the return that the insurer achieves on its available capital

Question 2

Aim of te actuary is to enable insurer to meet its aims with regards to:

Answer 2

• Its risk profile
• Resources available to it
• Public interest need for the insurer to avoid insolvency
• Requirements of other applicable legislation

Question 3

Problems that will confront the actuary in achieving their goals:

Answer 3

• Policy data (completeness and accuracy)
• Product design (what products to offer + benefits and design features given risk profile and resources)
• Product marketability (balance price and volumes of business taking into account competition)
• Pricing (Expected profit and its variance from new contract at particular premium rate + charges and will the insurer have the resources to sell at these terms?)
• Return on capital or members’ funds (What return on capital is expected in development and issue of new contracts)
• Profitability (What is expected profit and its variance from existing business)
• Supervisory reserves (what assumptions should be used to ensure reserves and cap reqs provide adequate security)
• Investment (how should assets be invested to maximise expected return within resources available)
• Capital management (will insurer be able to achieve its short-, medium-, and long-term plans given resources available to it?)
• Risk management (How can underwriting and reinsurance be used to manage risk and increase profits whilst keeping its risk profile within the resources available to it?)
• Claims (Are claims procedures adequate, properly followed and are effective fraud control measures in place?)