Page 51 - ic92 actuarial

Foundations of Casualty Actuarial Science

continue unchanged. If inflation is now 5%, and the
unemployment rate is 6% of the workforce, the value
of DFA will continue unchanged, into the future. The
Static assumptions are generally left implicit in the
analysis. Inflation, employment, investment yields,
interest rates, and a host of other variables are assumed
to continue unchanged.

Dynamic analysis assumes that various external factors
may change in the coming years, and the results of
analysis may depend on those external factors.

7) Discuss the concept of dynamic analysis.

Ans. Dynamic Analysis links the results of the analysis to the
underlying assumptions. The reserving actuary begins
with the static best estimate indication as the anchoring
point. The major assumptions like expected future
inflation rate/ unemployment rate are made explicit, and
the manner in which they affect the reserve indication
is modeled.

The actuary then varies each assumption, and quantifies

Sashi Publications - www.sashipublications.com 51

Copyright@ The Insurance Times. 09883398055 / 09883380339