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

Suraksha Life, an Indian insurer, is launching a new savings product. The product team wants the actuary to set the premium rates so that the launch target is met, even though the actuary's calculations show the proposed rates would leave the product loss-making under prudent assumptions. Which action best reflects the actuary's core role in this situation?

The actuary should report the assumptions and the projected loss to management, explain the consequences, and recommend revised pricing or features. Changing assumptions to fit targets or staying silent would breach professional integrity, while clear, reasoned advice is the core of the actuarial role.

  1. AAdopt the target rates and note the shortfall only in an internal email
  2. BReport the assumptions and the projected loss to management, explain the financial consequences, and recommend revised pricing or product featuresCorrect
  3. CWithdraw from the project without informing anyone
  4. DChange the assumptions until the target rates appear adequate
  5. Delegate the decision to the sales head because commercial targets override technical findings

Explanation

The actuary's role is to measure and communicate financial risk using sound assumptions and to advise management clearly. Altering assumptions to fit a target undermines integrity, and silent acceptance or withdrawal fails the duty to advise. The correct approach is to present the findings and offer workable alternatives.

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