Pitfall [PRICE-P]

wilsonchan18wilsonchan18
in Frei.RskTrans

I am lost here. At first, I thought Pitfall means some items that we cannot use to do the risk transfer test like Profit Commission so fail to really justify whether the Risk been Transferred. But when I go down the list, I see Interest Rate say should only considering insurance risk, not sure how this is related. Same goes to Commutation Timing and Premium, there are like more than a Instruction/Recommendation rather than Shortfall?

Or did I miss anything? Thanks.

Wilson

Comments

  • Staff-T1Staff-T1

    Pitfalls in the context of this battlecard represents what you would need to consider when doing a risk transfer test. It's not saying don't do all these things. Mainly these are what you should consider - And then what you should or should not do with these considerations

  • wilsonchan18wilsonchan18

    Thanks :smile:

  • s7duongs7duong

    I'm confused about this card. Which points are the pitfalls, and which ones are recommendations?

    I'm currently reading it as:

    When performing a risk transfer test, the analyst
    1. should not consider cedant's profit commissions
    2. should not consider reinsurer's expenses
    3. should not consider varying interest rates in their scenarios
    4. should not consider non-insurance risks; should only consider insurance risks
    5. should not use prescribed payment patterns; should use varying payment patterns
    6. should not ignore commutation fees; should consider commutation fees
    7. should not consider circumstances besides the circumstances relevant at the evaluation date
    8. should not use PV of gross premiums
    9. should not apply premium adjustments to undiscounted premiums

  • grahamgraham
    edited September 2024

    Well, the terms used in the source text are pitfalls and practical considerations (recommendations), but the distinction is somewhat arbitrary because it depends on how it's phrased.

    • When a point is phrased as something to avoid (should not consider), it reads more like a pitfall.
    • When phrased as something to do or to consider, it feels more like a practical consideration or recommendation.

    Your list of 9 bullet points is correct, whatever you call them. In past exam problems, you are generally given a potential risk transfer scenario and asked to provide comments rather than simply being ask to list the pitfalls or practical considerations. That's the most likely type of question to appear on the exam.

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