Skip to content

IAI Actuarial Core Principles · Business Management · Strategy, competitive advantage, strategic decision process and PEST analysis

The IRDAI announces that, from the next financial year, insurers must follow a revised solvency and capital framework that will raise required capital for long-term guaranteed products. A private life insurer's strategy team records this in its PEST analysis. Under which heading, and with what likely strategic implication, is it best recorded?

It belongs under political/legal because it is a regulatory requirement from outside the firm. Higher capital for guaranteed products is mainly a threat to returns, which may push the insurer to change its product mix. It is not an internal weakness or a social or economic factor.

  1. APolitical/legal; a threat to returns on guaranteed products, possibly prompting a shift in product mixCorrect
  2. BEconomic; an opportunity since interest rates will rise
  3. CSocial; a change in customer attitudes to savings
  4. DTechnological; a need to upgrade policy administration systems only
  5. Internal; a weakness in the insurer's capital management

Explanation

Regulatory changes imposed by a regulator are political/legal factors. Higher capital for guaranteed products reduces returns on capital and is a threat, which may lead to altered product mix. The change is external, not an internal weakness, and is not inherently economic, social or technological.

Did you get it right without looking?

One question tells you little. A timed set on Strategy, competitive advantage, strategic decision process and PEST analysis shows your real accuracy, how long you take and where you lose marks.

Practise Strategy, competitive advantage, strategic decision process and PEST analysisFree diagnostic mock

More Strategy, competitive advantage, strategic decision process and PEST analysis questions