174 / 203
173
Assumptions, methodology and limitations of sensitivity analysis
The effects of the specified changes in factors are determined using actuarial and statistical models,
as relevant. The level of movements in market factors on which the sensitivity analysis is based were
determined based on economic forecasts and historical experience of variations in these factors.
The sensitivity table demonstrates the effect of a change in a key assumption while other assumptions
remain unchanged. However, the occurrence of a change in a single market factor may lead to changes
in other market factors as a result of correlations.
The sensitivity analyses do not take into consideration that the Group’s assets and liabilities are
actively managed. Additionally, the sensitivity analysis is based on the Group’s financial position at
the reporting date and may vary at the time that any actual market movement occurs. As investment
markets move past pre-determined trigger points, management action would be taken which would
alter the Group’s position.
Underwriting risk: Long-Term Insurance
Underwriting risk is the risk that the actual exposure to mortality, disability and medical risks in respect
of policyholder benefits will exceed prudent exposure.
Underwriting risk is controlled by underwriting principles. The underwriting process takes into account
actual and prospective mortality, morbidity and the expense experience.
The Head of Actuarial (‘HAC’) reviews and attests annually on the reliability and adequacy of technical
provisions and the Solvency Capital Requirement. He expresses an opinion on the Underwriting Policy
as well as the soundness of the premium rates in use and the profitability of the business, taking into
consideration the reasonable benefit expectation of policyholders. All new rate tables are approved and
authorised by the Executive: Actuarial prior to being issued. Regular investigations into the mortality
and morbidity experience are conducted. All risk-related mortality lump sum, disability and critical
illness liabilities in excess of specified monetary limits are reinsured. A sickness experience report is
annually presented analysing claim patterns and trends. The latest report indicated no significant
deterioration in claim patterns.
Reinsurance outwards: Long-Term Insurance
A comprehensive, Board approved, reinsurance strategy is in place for the Group. Certain life, disability,
dread disease and physical impairment risks are reinsured. The risks to be reinsured have been decided
upon by balancing the need to reduce variability of claims experience against the cost of reinsurance.
The reinsurers contracted with have been assessed on their ability to provide the Group with product,
pricing, underwriting and claims support, as well on as on their global credit rating.
Claims risk: Long-Term Insurance
Pro-active training of staff takes place to ensure that fraudulent claims are identified and investigated
timeously. The legitimacy of claims is verified by internal, financial and operating controls that are designed
to contain and monitor claims risks. The forensic investigation team also advises on improvements
to internal control systems and performs forensic investigations on perceived fraudulent claims.
The Forensic Investigations department investigates all suspected fraudulent claims.
Products and pricing risk: Long-Term Insurance
Some of the mitigating measures in place to address this risk include:
• Ongoing analysis of risk experience (such as the sickness and mortality investigations).
• Use of reinsurance - this protects the insurer in that some of the risk of insufficient rates is passed
onto a reinsurer.
• Margins in the premium rates – generally additional margins are included in the setting of premium
rates to arrive at a more prudent set of rates and should protect against experience being slightly
worse than anticipated.