18. Risk Management and Controls

Question 1

Role of Actuarial Function

Answer 1

Main responsibility:
- provide assurance to Board regarding accuracy of calculations, appropriateness of calculations underlying the insurance liabilities, capital needed by insurer

Following functions performed:
- inform Board on reliability and adequacy of TP, MCR, SCR
- assess appropriateness of methodologies, assumptions, and underlying models
- assessing sufficiency and quality of data in actuarial calculations, accuracy of calculations
- comparing best estimate against experience when evaluating liabilities
- overseeing calculations where approximations used - for example, due to insufficient data
- expressing opinion to Board on:
* ALM, UW, RORT policy appropriateness
* appropriateness of standard formula
* actuarial matters in ORSA
** economic capital requirements
** stress, sensitivity, scenario testing,
** forward-looking projection of economic and regulatory financial soundness position
** management actions
- actuarial soundness of terms and conditions
- awarding bonus to participating ph according to PPFM
- use of Own model - ORSA, SAM

Question 2

Reasons insurer seek reinsurance

Answer 2

FLIRTIN LIPS

• Financial assistance
• Limit amount paid on particular claim
• Increase capacity to write new business
• Reduce capital requirements
• Technical assistance - CAT RI
• Insurance parameter risk reduce
• New business strain reduce - risk premium
• Limit total claim payout
• Increase profit, return, risk-adjusted return on capital
• Payout fluctuation (reduce) - original terms
• Separate out different risks from a product

Question 3

Factors to take into account when setting retention limits

Answer 3

F FREE RATES
* Free assets level, important attached to stability of ratio
* Familiarity of company with underwriting the type of business
* Risk appetite of the company (insurance risk)
* Expected distribution of benefits
* Existence of profit-sharing arrangement
* Retention limit on other products
* Average benefit level
* Terms on which reinsurance can be obtained
* Effect on regulatory capital requirement of increasing or decreasing the retention limit
* Sum assureds – nature of any increases