IAI Actuarial Core Principles · Business Management · Issues and challenges in each main practice area
An actuary at a standalone health insurer is asked by the CEO to certify that the proposed premium increase is adequate. The actuary's analysis shows the proposed 6% rise is insufficient, but the CEO wants it signed off because a larger rise might lose a key hospital-network contract. Consistent with the Actuaries' Code, what should the actuary do?
The actuary should give an honest professional opinion that 6% is insufficient, explain the basis clearly, and decline to certify adequacy. The Actuaries' Code requires integrity and non-misleading communication, so commercial pressure, silence or manipulating assumptions is not acceptable.
- ASign off the 6% rise, since the CEO is accountable for commercial decisions
- BSign off but add no comment, to preserve the working relationship
- CState the professional opinion that 6% is insufficient, explain the basis and limitations clearly, and decline to certify adequacyCorrect
- DResign immediately without informing the board
- Inflate the claims assumptions so the 6% appears adequate
Explanation
The Code requires integrity and competence, and communication that is clear and not misleading. The actuary must give an honest opinion and not certify what the analysis does not support. Signing off, staying silent or manipulating assumptions would breach these duties; resigning without informing anyone does not discharge the duty to communicate.
Did you get it right without looking?
One question tells you little. A timed set on Issues and challenges in each main practice area shows your real accuracy, how long you take and where you lose marks.
More Issues and challenges in each main practice area questions
- A large Indian manufacturer runs a defined benefit gratuity and pension scheme. Its finance director notes that falling long-term government…
- Bharat General Insurance's actuarial team finds that its solvency position is comfortable today, but a stress test combining a sharp equity …
- An actuary reviewing a company's gratuity scheme finds that members are living longer than the mortality table used in the last valuation as…
- An Indian general insurer's investment team proposes moving a large share of its portfolio into long-dated corporate bonds to boost yield. I…
- A retirement-benefit fund's liabilities are linked to future salary growth and inflation. The actuary notes that holding only fixed-coupon g…
- Actuaries in India are increasingly working outside traditional life and general insurance, for example in enterprise risk management at ban…