Setting Assumptions

[Matthew H]

Hi there,

The ASET solution to Apr 2015 Q5iii reads:

• "The general factors to consider when setting the assumptions are:
  • the degree of prudence required for supervisory reserving
  • the margin (if any) that should be included for adverse deviations"

In my mind, these two bullets are saying exactly the same thing?

Thanks,
Matt

 

[Mark Willder]

Hi there,

The ASET solution to Apr 2015 Q5iii reads:

• "The general factors to consider when setting the assumptions are:
  • the degree of prudence required for supervisory reserving
  • the margin (if any) that should be included for adverse deviations"

In my mind, these two bullets are saying exactly the same thing?

Thanks,
Matt

Hi Matt

I agree that these points are looking at the same broad issue, but they're not quite the same.

The first point says that we should consider the degree of prudence required in the reserves. So we need to consider what the regulator wants to achieve. Maybe they want reserves to represent a 80% confidence level of being sufficient, or maybe they want them to be 85%.

Then the second point looks at how big the margin needs to be to achieve that level of prudence. Maybe we need to add a margin of 10% to expenses or 20%.

I hope that helps to clarify the difference.

Best wishes

Mark

 

[Matthew H]

Hi Matt

I agree that these points are looking at the same broad issue, but they're not quite the same.

The first point says that we should consider the degree of prudence required in the reserves. So we need to consider what the regulator wants to achieve. Maybe they want reserves to represent a 80% confidence level of being sufficient, or maybe they want them to be 85%.

Then the second point looks at how big the margin needs to be to achieve that level of prudence. Maybe we need to add a margin of 10% to expenses or 20%.

I hope that helps to clarify the difference.

Best wishes

Mark

Hi Mark,

Yes, that clears it up.

Thank you,
Matt