In_____________, the actuary varies the assumptions and the models to test the sensitivity of the reported or carried loss liabilities.

Question

Options

• Apotential test
• Blatent test
• Cearned premium test
• Dprospective test

• A
  2% (1)
• B
  5% (2)
• C
  9% (4)
• D
  84% (36)

Explanation

Prospective test (D) is correct because it is the actuarial method in which assumptions and models are varied to assess how sensitive the reported or carried loss liabilities are to those changes - it is a forward-looking ("prospective") analysis designed to stress-test reserve estimates under different scenarios.

Why the distractors are wrong:

• A. Potential test - not a recognized actuarial term in loss reserving methodology.
• B. Latent test - "latent" in actuarial contexts typically refers to latent/hidden exposures (e.g., asbestos claims), not a sensitivity-testing procedure.
• C. Earned premium test - this relates to premium adequacy or rate sufficiency analysis, not to testing the sensitivity of loss liabilities.

Memory tip: Think "pro-SPECTIVE = pro-SENSITIVITY." Just as a prospective view looks forward at what could change, a prospective test asks "what if our assumptions change?" - linking the forward-looking concept to the idea of varying inputs to test reserve sensitivity.

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