Ch 31: Monitoring and feedback into ACC

Question 1

Experience monitoring has two strands

Answer 1

• Actual vs expected investigation into one specific area (like morbidity)
• Or investigate the financial impact of any difference between actual and expected by performing an analysis of surplus

Question 2

Reasons for monitoring experience

Answer 2

• Update assumptions for future experience
• Monitor any trends in experience
• Monitor actual compared to expected experience and take corrective actions as needed
• Provide management information to aid business decisions
• Make more informed decisions about pricing and about the adequacy of reserves

Question 3

Purpose of new business experience analysis

Answer 3

• To check strains caused by the volume of new business sold against the capitak set asie for this purpose
• To check mix of business in each of the significant homogeneous cohorts against mix assumed in the pricing basis
• To check staffing levels in terms of numbers and competence against those required by the business written
• To check commissions paid against those assumed (where averages were estimated in pricing basis) (comes down to mix of distribution channel)

Question 4

Reasons to perform an analysis of surplus

Answer 4

• Show the financial effect of divergences between the valuation assumptions and the actual experience, exposing which assumptions are the most financially significant
• Show the financial effect of writing new business
• Provide a check on the valuation data and process, if carried out independently
• Identify non-recurring components of surplus, thus enabling appropiate distribution of surplus to with-profit PHs or to shareholders or to members
• Comply with regulatory requirements

Question 5

Analysis of embedded value profit (change in embedded value over a year) uses:

Answer 5

• Validate the calculations, assumptions and data used
• Reconcile the values for successive years
• Provide management information
• Provide data for use in executive remuneration scheme
• Provide detailed information for publication in the company’s accounts, in particular value of new business taken on by the company
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