IAI Actuarial Core Principles · Business Management · Using data, company functions, people skills, influence and clear communication
An actuary advising a general insurer produces a reserving report. The reserves are shown as a best estimate of Rs 480 crore. Internally the actuary believes the outcome could reasonably range from Rs 430 crore to Rs 560 crore, but the management wants only the best estimate shown. The report will be relied on by the board and shared with the regulator. Which course is most consistent with the Actuaries' Code?
The actuary should show the Rs 480 crore best estimate together with a reasonable range, explain the main uncertainty drivers, and note that the range does not bound outcomes. This proactively gives users the material information needed to rely on the advice appropriately.
- AShow only Rs 480 crore, as a best estimate is by definition the complete answer
- BShow Rs 480 crore and a reasonable range, explaining the main drivers of uncertainty and that the range is not a bound on outcomesCorrect
- CShow only the upper figure of Rs 560 crore to be prudent without explanation
- DShow the range alone without a best estimate to avoid false precision
- Give the best estimate in the report and the range only on request from the regulator
Explanation
Users, including the regulator, need both the central estimate and an indication of uncertainty with its drivers, and a caution that the range is not a limit. Giving only one figure, an unexplained prudent figure, or withholding the range until asked would fail to communicate material information proactively.
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