Chapter 18 Responding to Experience

Appropriate response to emerging experience is a critical success factor in managing an

organization

Role of actuary
- To make sure that the solution achieves fairness and equity
- Should be mindful of the broad spectrum of interested parties
- To consider the limitations in the data or system used to produce and report the
experience
- Good communication, both oral and written, is essential otherwise
miscommunication

General considerations
Legal constraints, the taxation consequence, professional standard and guidance notes,
fairness and equity, business plan and objectives, competition, and capital requirement.

It is important to understand the underlying true cause of result.

Managing the business

Business plans
o Project business plan and risk management framework then compare against
the board financial objectives and risk appetite.
o If it is not as expected, company can use this information to make operational
changes to correct for any adverse trends in the business
o It is important to understand the underlying cause of the experience
variations so that appropriate actions can be taken
Financial control systems
o Helps to monitor financial progress and take action to address impending
issues
o Often monitored by producing monthly management reports. To provide
early warning of emerging problem areas so that they can be addressed
before they become more serious
Audit controls
o External audit
o Internal audit
Expense controls
o Measuring expense performance
o Improving expense performance
o Outsourcing
Claim controls
New business and termination controls
Capital management
o Charging for capital
o Optimizing capital requirements
Allocating interest to accounts
Smoothing of returns

Unit Pricing

Review of insurance pricing

Pricing review cycle
Pricing changes
Pricing response
Experience refunds

Defined benefit superannuation

- The actuarial review
- The pace of funding
- Responses to actuarial review

Participating life insurance

- The origins of the actuarial profession
- Participating policies
- Allocation and distribution of profit
- Allocation of profit
- Fair and equitable
o Reasonable expectations
o Fair return in relation to risks accepted
o Generational equity
- Distribution of profit
- Method of distribution
o Uniform reversionary bonuses
o Terminal bonuses
- Asset share methods