IAI Actuarial Core Principles · Business Management · Issues and challenges in each main practice area
Rohan, the Appointed Actuary of Navjeevan Life, calculates that the company's internal economic capital model shows a surplus, yet the regulatory solvency margin is only just met because of conservative prescribed reserving rules. The CEO suggests telling shareholders that capital is 'ample' based solely on the economic capital result, and to avoid mentioning the regulatory position. Which response is most consistent with the Actuaries' Code and sound practice?
Rohan should insist that both the economic and regulatory capital positions are presented, with their bases and differences explained. The Actuaries' Code requires communication that is clear and not misleading, so omitting the tight regulatory position would breach that duty.
- AAgree, because economic capital is the more sophisticated measure and the regulatory result is therefore irrelevant
- BAgree, provided the economic model has been peer reviewed internally
- CRefuse to take part in any communication on capital until the regulatory rules are changed
- DInsist that communication presents both measures, explains their bases and differences, and does not mislead about the regulatory positionCorrect
- Leave the communication to the CEO since capital statements are a management responsibility rather than an actuarial one
Explanation
The Code requires communications to be clear, complete and not misleading. Omitting the binding regulatory position would mislead users, so both measures should be shown with their bases explained. Peer review does not cure an omission, refusing to engage is unhelpful, and the actuary cannot abdicate responsibility for actuarial content.
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
- Aarav, an appointed actuary at an Indian life insurer, notices that a new non-participating savings product has guaranteed returns well abov…
- A Mumbai-based life insurer sees its persistency fall sharply after it pays high first-year commissions to agents who sell endowment plans. …
- Many Indian actuaries are now working in areas such as enterprise risk management, data science, climate risk and banking, outside tradition…
- An actuary at a Pune consultancy is asked by a client, a large manufacturer, to estimate the financial impact of climate-related physical an…
- A Mumbai-based health insurer wants to use data from customers' wearable fitness devices to offer discounted premiums. The appointed actuary…
- A unit-linked insurer in India guarantees a minimum maturity value on a fund invested largely in equities. Markets fall sharply, and the fun…