Question

What is the purpose of the "Margin for adverse deviation" (MAD) used in reserving?

a.

To underestimate liabilities and minimize reserves.

b.

To overestimate liabilities and maximize reserves.

c.

To provide a buffer against adverse future experience.

d.

To inflate the valuation interest rate for higher returns.

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).To provide a buffer against adverse future experience. Explanation:The "Margin for adverse deviation" (MAD) used in reserving is intended to provide a buffer against adverse future experience. It ensures that reserves are prudently calculated to guard against unexpected losses or unfavorable conditions.

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Q. What is the purpose of the "Margin for adverse deviation" (MAD) used in reserving?
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