Question

Why are the assumptions used for reserving exercises more prudent compared to those used for pricing?

a.

To minimize profits for the insurance company.

b.

To increase premiums for policyholders.

c.

To ensure liabilities are honored even in adverse future conditions.

d.

To reduce the financial stability of the insurance company.

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).To ensure liabilities are honored even in adverse future conditions. Explanation:The assumptions used for reserving exercises are more prudent to ensure that liabilities are honored with a high degree of confidence even in adverse future conditions. This helps maintain the financial stability and reliability of the insurance company.

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Q. Why are the assumptions used for reserving exercises more prudent compared to those used for pricing?
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