September 2012 Question 4. 7, 5

q4. The solution says:
"Risks: different risks are run with each approach, development risk if keeping the existing model whereas a new model introduces counterparty risk". Will counterparty risk be to the extent that the party who sells the model doesn't help with the development or workings of the model etc.?

 

Q5. solution says "Pre-set limits trigger assumption changes". Is pre-set limits something the company documents and compares with actual assumptions and change their parameters according to pre-set limits?

 

The solution says "A less detailed level of underwriting would reduce the homogenisation of the risks that the company is exposed to. This could lead to higher fluctuation of claims experience and thus need to hold higher reserves". Why is homogenisation so important?

 

5. Yes, it's possible. but I wouldn't worry about this level of detail.

 

Thanks.

 

Thanks
Is it because the company could use one mortality table to price all similar risks instead of many mortality tables for pricing?

 

but the risks are less likely to be similar if you underwrite less

 

I mean if you underwrite more.