Sample interview questions: Can you explain the concept of actuarial reserve and its significance in economic risk management?
Sample answer:
Actuarial Reserve
An actuarial reserve is a fund maintained by insurance companies and pension plans to cover future obligations, such as claims, expenses, and pensions. It serves as a cushion to ensure that the insurer or pension plan has sufficient financial resources to meet its obligations, even in times of economic uncertainty or adverse events.
Significance in Economic Risk Management
Actuarial reserves play a vital role in economic risk management by:
- Ensuring solvency: Sufficient reserves protect insurers and pension plans from insolvency, ensuring that they can continue to meet their obligations.
- Smoothing income streams: The accumulation and release of reserves over time helps to smooth out fluctuations in insurance premiums and pension contributions, reducing volatility and stabilizing cash flows.
- Providing a cushion against financial shocks: Reserves provide a buffer against unexpected events, such as natural disasters, market downturns, or changes in mortalit… Read full answer