UNDERWRITING RISKS | Dealing with underwriting risks entails factoring in the biometric risks (mortality, longevity and disability) while allowing for the unpredictability of client behaviour (surrender rates and commutation rights).

The underwriting parameters such as mortality, disability and cancellation rates are determined on the basis of in-house historical data and also partly on external statistics. These parameters form the basis for the setting of premium rates and the evaluation of insurance portfolios. There is currently an emphasis on the future development of life expectancy, which poses a great challenge in the area of pension products and, in particular, the occupational pensions business in Switzerland. The fact that the parameters for the evaluation of future business build on historical data gives rise to a parameter risk. In order to assess this risk, various sensitivity analyses deliberately deviate from the best-possible estimates for biometric parameters, to take into account the impact of additional factors on the evaluations. In addition, extreme scenarios and their impact on business activities are simulated. A pandemic, for instance, is not only modelled by adjusting the relevant underwriting parameters, but also by taking into account their possible influence on the capital markets. Considering these factors makes it possible to determine the funding necessary to cover the underwriting risk.

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