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IAI Actuarial Core Principles · Business Management · Issues and challenges in each main practice area

A Chennai life insurer's group term business shows claims 30% above expectation after a pandemic wave. The appointed actuary is asked by the CFO to keep the same valuation mortality assumptions to protect reported profit, although the experience is credible and likely to persist for some time. Which course best fits the Actuaries' Code and sound practice?

The actuary should analyse the experience, recommend prudent assumption changes with documented reasoning, and communicate the effect on profit and solvency to the CFO and the board. Integrity and objectivity override pressure to protect reported profit. Ignoring credible evidence or acting without analysis would breach the Actuaries' Code.

  1. AAnalyse the experience, recommend prudent assumption changes with documented reasoning, and communicate the effect on profit and solvency, even if this disappoints the CFOCorrect
  2. BKeep the assumptions unchanged and disclose nothing, since the CFO is the client
  3. CCut the assumptions mid-year without any analysis to avoid risk
  4. DDelegate the decision to the sales head and sign off the valuation
  5. Treat the whole excess as a one-off and ignore it irrespective of the evidence

Explanation

Credible, persistent experience requires a considered review of the basis. The actuary must act with integrity and communicate clearly, giving reasoned advice rather than yielding to commercial pressure. Ignoring evidence or acting without analysis falls short of competence and objectivity.

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