Dear friends, Got a few questions on the following pass years: 1. 200509 Q6(iii) Describe the other factors you would consider before deciding to change premium rates for existing business. One of the point is "Future experience expectations, durational effects" Can i understand what does "durational effects" mean? 2. 200909 Q7(i) Explain how restrictions on mismatching may be implemented by a regulator. One of the point is "Restrict valuation assumptions to encourage matching" Can someone shed some light on how actually valuation assumptions (prescribed or guidance on setting bases) can encourage matching? Many thanks!
1. I'm not too sure what the examiners meant by durational effects either. Perhaps they meant to allow allow for trends. 2. One way to encourage matching is to allow insurers to discount at a higher rate of interest if they are matched. This gives the insurer the benefit of lower reserves. Solvency II in the EU does exactly that. If the insurer can demonstrate that it holds corporate bonds to match its annuity business, then it can apply to the regulator to add a matching adjustment to the discount rate. Best wishes Mark
