Applying Judgement and Communicating Advice
The final skill SA3 rewards is judgement under incomplete information: turning analysis into a recommendation that a board, a regulator or a reinsurer can act on, with the assumptions and the uncertainty visible.
Structuring an answer
- Restate the decision the client actually faces - a price, a reserve, a capital plan, a reinsurance purchase.
- State assumptions and where the data is weak: thin triangles, changed case philosophy, a new product with no history.
- Quantify a central estimate and show the calculation so the examiner can follow it.
- Test sensitivities: a 10% move in the loss ratio, a single large loss, a different development factor, a 1-in-200 event.
- Recommend, with conditions and a review trigger, and say what you would do next.
- Note limitations - model risk, expert judgement applied, peer review status.
Worked example
A board asks whether to release ₹50 crore of prior-year reserves to profit. The central estimate may support a release, but ask: (a) is the favourable development credible and expected to persist, or a one-off from faster settlements? (b) is the tail - latent claims, a catastrophe, a large claim in the latest year - still covered? (c) what does the range imply, and what would the regulator say if the release were reversed next year? A defensible answer: release ₹20 crore, retain the balance against tail uncertainty, disclose the sensitivity, and revisit after the next quarterly development.
Traps
Giving no recommendation at all; spurious precision where the range is ±₹40 crore; answering a different question from the one asked; hiding bad news; failing to say what evidence would change your mind.