IAI Actuarial Core Principles · Business Economics · Relationship between economics and business
A life insurer in India is assessing how the business environment affects its strategy. Which development is best classified as a change in the firm's external economic environment rather than an internal factor?
A rise in the repo rate is an external economic factor. It arises outside the firm, alters bond prices and yields, and affects pricing and demand. Training, guidelines, board changes and systems are internal decisions controlled by the insurer.
- AA rise in the repo rate that lowers bond prices and changes investment yieldsCorrect
- BA decision to retrain its sales staff
- CA new internal underwriting guideline
- DA change in the insurer's board composition
- A new in-house policy administration system
Explanation
Interest rate changes arise outside the firm and affect asset values, product pricing and demand. The other options are choices made inside the firm and are under its control.
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