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IAI Actuarial Core Principles · Business Management · Using data, company functions, people skills, influence and clear communication

At Sanjeevani Pensions, the investment function wants to move assets into longer-dated, higher-yielding bonds. The risk function objects, citing the liabilities' shorter duration and capital strain from mismatch. Which statement best describes the appropriate resolution?

The decision should balance higher expected return against the duration mismatch and capital strain, using shared data and the agreed risk appetite, with escalation through governance if the functions disagree. Neither function should decide alone, and marketing or HR have no proper role in this decision.

  1. AInvestment should decide alone, since it earns the returns that fund benefits
  2. BRisk should decide alone, since it has veto over every business function in all matters
  3. CThe matter should be settled by the marketing function, which understands customers
  4. DThe decision should weigh expected return against the asset-liability mismatch and capital impact, using shared data and agreed risk appetite, with governance escalation if neededCorrect
  5. The decision should be deferred to the HR function

Explanation

Investment and risk functions have legitimate but different objectives. The balanced approach uses common data and the board-approved risk appetite to evaluate return against mismatch, escalating via governance if unresolved. Giving one function sole authority ignores the trade-off.

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