Question

What is the role of the Margin for Adverse Deviation (MAD) in reserving for life insurance liabilities?

a.

MAD is used to inflate reserves for higher profitability.

b.

MAD is used to underestimate future liabilities.

c.

MAD is mandated by regulations to provide a buffer against adverse future experience.

d.

MAD is optional and not typically used in reserving calculations.

Posted under IC 92 Actuarial Aspects of Product Development

Answer: (c).MAD is mandated by regulations to provide a buffer against adverse future experience. Explanation:The Margin for Adverse Deviation (MAD) is required by regulations to provide a buffer against adverse future experience. It ensures that reserves are prudently calculated to cover potential losses or unfavorable circumstances.

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Q. What is the role of the Margin for Adverse Deviation (MAD) in reserving for life insurance liabilities?
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