2014 - SOA - Experience Studies—Understanding the past while planning for the future, Product Matters, by Matthew Dunscombe and Alex Zaidlin, Society of Actuaries - 32p
The experience study process serves as a primary foundation of actuarial work. Some of the first known actuarial work used experience study information to solve problems. The use of experience studies spans several centuries: from 17th century astronomer Edmund Halley using data on births and deaths for the town of Breslau for an analysis relating to annuities, all the way to 21st century actuaries who are now preparing to use assumptions derived from experience study output in principles-based reserve calculations.
Experience studies can help actuaries understand key drivers behind historical results. More importantly, conclusions drawn from experience analysis can play a starring role in the development of assumptions for pricing, valuation, and financial analyses. Some of the recent and expected changes in the capital requirements and financial reporting standards require companies to better understand their experience in order to value their business. Because of the need to derive company-specific assumptions, experience studies will continue to increase in importance to insurers in the United States and around the world.
By way of definition: an experience study is an exercise in analyzing certain events that occurred within a predetermined time period and that pertain to a given population. This population is often a block of insurance business. The study typically contrasts the occurred events (actual figures) with previously established expectations (the expected figures).