Question

What is a limitation of using the internal rate of return (IRR) in insurance?

a.

It cannot be calculated accurately for insurance contracts

b.

It may not provide a unique rate of return if there are multiple changes in profit

c.

It always agrees with the net present value in evaluating profitability

d.

It is not affected by changes in market conditions

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (b).It may not provide a unique rate of return if there are multiple changes in profit Explanation:A limitation of using the internal rate of return (IRR) in insurance is that it may not provide a unique rate of return if there are multiple changes in profit within the profit signature. This can make it difficult to interpret the results accurately.

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Q. What is a limitation of using the internal rate of return (IRR) in insurance?
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