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Argumentative Analysis Of Mammoth Mart

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Below are the assumptions that we should consider when performing a sensitivity analysis:

• Claim rate

Actual claims amount incurred will have an impact to the profit. If the future actual claims incurred are higher than the expected claims, premium collected may not be sufficient to pay for future claims and caused a lower profit or even loss to the company. Best estimate claim rate assumed in our pricing are based on Sensible’s rate as per current Sensible’s experience adjusted to the current average occupation mix of Mammoth Mart. Mammoth Mart’s own experience might different from Sensible’s experience. If Mammoth Mart’s actual claim rate is higher than the best estimate claim rate assumed, it means we have underestimated the claims outgo which caused more than expected claims payout. Besides, the best estimate claim rate is assumed to be level throughout the term. However, the exposure and sum at risk in each age band will change as the employees grow older each year. The Mammoth Mart also might hire more blue collar employees in the future result in a change to the average occupation mix. The gender mix of Mammoth Mart might change in the future as well. Therefore, it is important to analyze the sensitivity of profit toward the change in claim rate.

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However, the actual internal expense might exceed the budgeted amount if there is no close monitor on the money spent. Besides, the future cost might increase due to price inflation or economic slowdown. The premium collected might not sufficient to cover the actual internal expense if it had exceeded the 5% expected claims assumed. This will caused a lower profit or even loss to the company.

• Investment income

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