IAI Actuarial Core Principles · Business Management · Skills and knowledge for working as an actuary in financial services
An actuary advising an Indian health insurer completes a pricing exercise and the board approves it. The Chief Actuary then says the control cycle is finished and no further work is needed on the product. Which statement best explains why this view is mistaken?
The view is mistaken because the Actuarial Control Cycle is continuous. After approval, experience must be monitored against assumptions, and changes in conditions or regulation feed back into a new round of specifying the problem and developing the solution, regardless of board approval.
- AThe cycle is continuous: emerging experience, changing conditions and new regulation require the problem and solution to be reassessed, so monitoring feeds a new cycleCorrect
- BThe cycle ends only when profits exceed the first-year target
- CMonitoring is optional for products approved by the board
- DOnly the regulator is responsible for reviewing assumptions after launch
- The cycle applies only to pension schemes, not to insurance products
Explanation
The control cycle is iterative. Monitoring compares experience with assumptions and the findings reopen the specification and solution as conditions change, for example medical inflation or regulatory changes. Board approval does not end the actuary's responsibility, and the cycle is not limited to pensions or tied to a profit target.
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