0. What is A311 all about

Question 1

The Actuarial Control Cycle

Answer 1

Specifying the problem
Developing the solution
Monitoring the experience
General commercial and economic environment
Professionalism

Question 2

What does ‘Specifying the problem’ involve?

SACA

Answer 2

• Setting out clearly the problem from the viewpoint of each stakeholder
• Assessing and analysing the risk for each stakeholder
• Considering the strategic courses of action available to mitigate the particular risks in question
• Analysing the options for designing solutions to the problem that transfer risk from one set of stakeholders to another

Question 3

What does ‘Developing the solution’ involve?

Answer 3

• Examining the major actuarial models currently in use
• Selection of appropiate model/ construction of new model
• Considering and selecting assumptions
• Understanding the sensitivity of the results to the assumptions
• Interpreting the results
• Considering the implications on problem and stakeholders
• Determining the proposed solution to the problem
• Considering alternative solutions and their effects on the problem
• Formalising a proposal
• Communicating the proposed solution (and alternatives) to the stakeholders responsible for decision making

Question 4

What does ‘Monitoring the experience’ involve?

AIFM

Answer 4

• Analysing periodically actual experience against expected
• Identifying causes of departure from expected experience and determining likelihood of each source
• Feeding back into the specifying the problem and developing the solution stages
• Making sure the model is ‘dynamic’ and reflects current experience

Question 5

What makes the actuarial control cycle ‘actuarial’?

Answer 5

• The estimation of the financial impact of uncertain future events
• A long-term rather than short-term horizon, but
• Decisions need to be made in the short term in the light of likely future outcomes
• The recognition of stakeholders’ requirements and risk profiles
• The use of models to represent future financial outcomes
• The use of assumptions based on appropriate historical experience
• The need to allow for the general business environment – the impact of legislation , regulation, taxation and competition
• Interpretation of the results of modelling to enable practical strategies to be developed
• Monitoring and periodically analysing the emerging experience
• Modifying models/strategies in the light of this analysis of the emerging experience
• The application of the professional judgement

Question 6

Application of the ACC in Actuarial work

MADAMDDACCC

Answer 6

• Monitoring the effects of investment mismatching
• Asset-liability management
• Determining the profitability of a contract
• Assumptions setting for contract/scheme design
• Model validation
• Determining The solvency levels (Current and future)
• Determining premiums/ contributions
• Assessing capital requirements
• Considering Insurance and reinsurance options
• Considering other risk management options
• Considering the need for and calculation of provisions

Question 7

Outline why ACC is suitable for use in risk management

Answer 7

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 to managing, mitigating or 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

Question 8

When does risk occur?

Answer 8

• Asset values/proceeds are important in isolation to the stakeholder and are not as expected,
• Liability values/outgoes are important in isolation to the stakeholder and are not as expected.
• Asset values/proceeds and liability values/outgoes are not important in isolation to the stakeholder, but the relative values and/or net cashflows are important and are not as expected

Question 9

Risks affecting Assets

Answer 9

Market risk
Credit Risk

Question 10

Risks affecting liabilities

Answer 10

External risk
Exposure risk
Inflation risk
Insurance risk
Operation risk
Underwriting risk
Finance risk