Business integration

A superior valuation process will not simply produce a liability estimate. It will also:

• Integrate with company systems, the revenue account process and the reporting framework;
• Link to the budgeting and planning process;
• Input effectively into the pricing process; and
• Provide useful operational information (performance measures, KPIs, claims experience, claims management performance targets, etc) to the actuary and to management.

Performance tracking requires inter-valuation testing of the last valuation model and should highlight any significant deviations of claims experience from the valuation forecasts. The question then arises: what is "significant"?

In our view, "significant" means "statistically significant", and such significant variations of actual to forecast indicate where a correction in the valuation model is required. However, in order to identify statistically significant deviation, the valuation forecast must be stochastic in nature.