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

Rohit, an actuary, has completed a pricing review for a health insurer in Pune. The final report states a recommended premium increase but does not mention that the claims-inflation assumption is highly uncertain and that a plausible alternative would change the increase materially. Which statement best describes the problem?

The report fails because it omits a material uncertainty. Actuarial advice must communicate significant assumptions and limitations so the reader can judge how far to rely on it. A single clean recommendation that hides a material sensitivity may mislead, even if the uncertainty is mentioned orally.

  1. AThere is no problem, because a single recommendation is clearer than a range
  2. BThe report is acceptable provided the uncertainty is disclosed orally to the sponsor
  3. CThe report fails to communicate the limitations and uncertainty that a reader needs in order to rely on the advice appropriatelyCorrect
  4. DThe problem is only that the report is not long enough
  5. The problem is that actuaries should never state a recommendation

Explanation

Actuarial advice should state the significant assumptions, uncertainties and limitations so that users can understand and rely on it appropriately. Disclosing them only orally leaves the written advice misleading, and clarity does not justify omitting material uncertainty.

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