Q. Why is establishing the importance of the investment assumption crucial in modeling?

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Q. What are the two key factors that contribute to sensitivity to the investment assumption?

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Q. How does the size of reserves affect sensitivity to changes in investment return?

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Q. What is reinvestment risk?

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Q. How does the expectation of future positive cash flow impact the investment assumption?

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Q. In what scenario would future reinvestment yields still be important even if the predicted cash flow is negative?

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Q. How does the degree of matching affect the influence of future investment rates on the investment return assumption?

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Q. Why is the expected time between changes to the company’s pricing basis for a contract important in establishing the investment assumption?

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Q. What is an important consideration when determining the likely future return of the investment mix for the contract?

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Q. Why is the intended investment mix for a contract affected by the level of free assets or capital available to the company?

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Q. What is the purpose of using interest rate models and equity pricing models in estimating likely future returns?

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Q. How do complex stochastic models contribute to the estimation of likely future returns?

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Q. What is interest rate risk in the context of insurance firms?

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Q. How does falling interest rates impact the reinvestment risk for insurance companies?

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Q. In response to low interest rates, what strategy do insurance companies often employ to attract buyers?

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Q. How do insurance companies mitigate the risk of interest rate fluctuations affecting their investments and liabilities?

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Q. What is disintermediation risk in the context of insurance?

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Q. How can a prolonged low interest rate environment impact insurance companies?

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Q. What measures do insurers take to mitigate interest rate risk?

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Q. How does rising interest rates affect insurers whose duration of assets exceeds that of their liabilities?

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