Tools to mitigate risks

• The company should model the capital it requires for a variety of different new business assumptions and, if necessary, explore the possible routes for attracting new capital (e.g. from shareholders, from issuing debt, from a parent company etc).
• Alternatively, it could also consider financial reinsurance.
• Out-sourcing administration
• pay lower commission → less incentive to sell → lower business volumes
• less underwriting → worsening mortality experience → losses and/or higher premiums.
• Reduce guarantee
• Decrease payment frequency
• Actuarial finance, if possible

• Ask some professionals in a particular area to better understand the risk.
• introducing reviewable premiums
• Prudent assumption
  Higher margins can be built into the assumptions to reflect the uncertainty regarding future experience (but, this is likely to adversely affect competitiveness).
• Limit the critical illnesses covered to the standard definitions used by other companies.
• bonus rate can be adjusted to reflect actual experience. profits from one source can be used to offset losses elsewhere. BUT, need to consider impact on PRE and on new business volumes.
• offer the contract as an additional ‘rider’ benefit only, rather than as a stand-alone contract （reduce the risk of anti-selection）
• introducing some risk sharing (e.g. by means of a significant excess) to ensure that risks of anti‐selection and moral hazard are reduced.

Mortality risk

• Reinsurance
• underwriting
• waiting period
• age limitation
• Exclusion clause
• Mortality linked securities

Data risk

• reconcile the current data with the data used in previous valuation
• individual check on unusual data points
• individual spot checks

Investment risk

• match assets with liabilities
• aviod high exposure to single counterparty
• balance the risk and expected returns to deliver required return
• Liquidity issue: maintain sufficient liquidity base, project the need for liquidity

Expense risk

• monitor expense risk regularly
• use prudent assumptions about expense inflation / new business volumes
• WP: reflect higher expenses in lower bonus
• UL: allow reviewable charges
• Set minimum single premium to avoid large volume of small policies, thereby reducing risk of not meeting fixed and/or per-policy expenses.

Withdrawal risk

• higher surrender penalties
• good sales practice and customer services
• competitive bonus rates

In addition, the insurer should monitor the actual mix and volume of new business written to ensure that it does not depart too much from that assumed in the pricing basis.
Regular monitoring allows adverse trends in actual experience to be detected quickly and for corrective action to be taken.
reflect losses in bonus declaration and reviewable charges. change practices re administration, expenses, selling, underwriting etc
Also, future assumptions can then be updated in the light of actual experience to help minimise the risks arising from new business.