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IAI Actuarial Core Principles · Business Management · Skills and knowledge for working as an actuary in financial services

An actuary at a Pune general insurer builds a spreadsheet model to estimate reserves for a motor portfolio. The model gives results that look plausible, and the actuary's manager suggests it be used straight away for the board report. Which action BEST reflects the technical competence expected of the actuary?

The actuary should test the model, check results for reasonableness against the data and independent estimates, and document its limitations before relying on it. Plausible-looking output, a file that opens correctly, or hidden assumptions do not amount to proper validation of the work.

  1. AUse the model immediately because the results look plausible to the manager
  2. BReplace the model output with last year's reserve to avoid any difference from prior reporting
  3. CTest the model for errors, check reasonableness against the data and independent estimates, and document its limitations before relying on itCorrect
  4. DAsk the IT department to confirm the spreadsheet opens without error and treat that as validation
  5. Remove all assumptions from the report so that no one can question the model

Explanation

Competent technical work requires validation, reasonableness checks and clear documentation of limitations. Plausibility alone is not validation, and merely copying last year's figure or confirming the file opens does not test the model. Hiding assumptions harms transparency.

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