0 - Introduction Flashcards
What makes the ACC “actuarial”?
The ACC incorporates the following basic elements, which are common to all actuarial and risk management work:
- The estimation of the financial impact of uncertain future events
- a long-term rather than a short term time horizon, but decisions to be made in the short term in the light of likely future outcomes
- consideration of stakeholders (requirements and risk appetite), legislation. regulation, tax and competition
- The use of assumptions based on appropriate historical experience
- Monitoring and periodically analysing the emerging experience in order to update models and strategies
- The application of professional judgement
What does the “specifying the problem” stage of the ACC involve?
- Setting out clearly the problem from the viewpoint of each stakeholder
- Assessing and analysing the risks for each stakeholder
- Considering the strategic courses of action available to mitigate the particular risks in question
- In particular, analysing the options for designing solutions to the problem to transfer risk from one set of stakeholders to another
What does the “monitoring the experience” stage of the ACC involve?
- Analysing periodically the actual experience against expected
- Identifying causes of departure from expected experience and determining whether each source is one-off or likely to recur
- Feeding back into the specifying the problem and developing the solution stages of the ACC
- Making sure the model is ‘dynamic’ (i.e. assumptions are consistent) and reflects current experience
THE MONITORING OF NEW CONTRACTS OR NEW ELEMENTS OF CONTRACTS SHOULD OCCUR MORE FREQUENTLY.
List 10 applications of the ACC in actuarial work
- Asset-liability management (e.g. setting investment strategy)
- Monitoring the effects of investment mismatching
- Considering insurance and reinsurance options
- Determining the profitability of the contract
- Considering the need for and calculation of provisions
- Determining the (current and future) solvency levels
- Assessing capital requirements
- Determining premiums / contributions
- Assumption setting for contract / scheme design
Outline why the ACC is suitable for use in risk management
Risk management also involves the following cyclical process:
- analysing situations, products and projects to determine the risks to which they are exposed
- quantifying the financial consequences of the risk events occurring
- considering and quantifying appropriate methods for managing, mitigating and transferring the risks
- monitoring the situation and the risk management procedures implemented as time develops
- modifying or changing the risk management approaches adopted over time, in light of emerging experience
Key Topics Under the General Commercial and Economic Environment
ESPERIA, a magical environment far away
- External environment
- Stakeholders
- Providers of benefits
- Economic Influences
- Regulation
- Insurance products
- Asset Classes
Key topics in developing the solution
- Selecting Appropriate Actuarial Models
- Selecting Appropriate Assumptions
- Interpretation of results
- Implications of results on Problem
- Implications for all Stakeholders
- Determine a Proposed Solution and Alternatives
- Formalise a proposal
Developing the solution
MODEL CONSTRUCTION
- An examination of the major actuarial models currently in use and how they may be adjusted for the
particular problem to be solved
- Selection of the most appropriate model to use for the problem, or construction of a new model
- Consideration and selection of the assumptions to be used in the model.
MODEL RESULTS
- Interpretation of the results of the modelling process
- Consideration of the implications of the model results
on the overall problem.
- Consideration of the implications of the results for all
stakeholders
SOLUTION
- determining a proposed solution to the problem
- consideration of alternative solutions and their effects on the problem
- formalising a proposal
- communicating the proposed solution and the alternatives
Investment risk
The uncertainty associated with the outcome of making an investment
Credit risk
The risk that a person or an organisation will fail to make a payment that they have promised
Market risk
Risks related to changes in investment market values
Inflation risk
Risk of real liabilities being larger than anticipated due to inflation.
Underwriting risk
Risk of failures in underwriting leading the insurer to take on risks at an inadequate price.
Insurance risk
Risk of more claims being made than expected
Exposure risk
Risk of more claims arising from a particular event due to the insurer having greater exposure to a particular peril than had been appreciated.
Might be due to inadequate diversification within the portfolio of business written.
