IAI Actuarial Core Principles · Business Management · Skills and knowledge for working as an actuary in financial services
An actuary at a general insurer in Mumbai has priced a motor own-damage product. Twelve months after launch, claim frequency is 15% above the pricing assumption, while the other assumptions are close to expectation. Which action best reflects the monitoring stage of the Actuarial Control Cycle?
The best action is to analyse actual experience against the assumptions, find the cause of the 15% higher frequency and feed the findings back into pricing and the next cycle. Monitoring is about learning and adjusting, not reacting blindly, ignoring the gap or manipulating figures.
- AAnalyse the experience against assumptions, identify the cause of the frequency deviation and feed the findings back into the pricing and the next cycleCorrect
- BWithdraw the product immediately without further analysis
- CIgnore the difference because only one assumption has deviated
- DChange the original problem specification so the deviation disappears
- Restate past premiums so the loss ratio appears to meet target
Explanation
Monitoring compares actual experience with assumptions, investigates why differences arose and feeds the learning back so assumptions, pricing or the design can be revised. Withdrawing without analysis or ignoring the deviation does not use the control cycle. Altering history or the specification to hide the gap would be unprofessional.
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