A1: Acronymns

Question 1

Types of actuarial advice

Answer 1

Factual advice
Indicative advice
Recommendations

Question 2

Aims of a regulator

Answer 2

Give confidence in the system
Reduce financial crime
Inefficiencies in the market corrected (and
efficient and orderly markets promoted)
Protect consumers

Question 3

Functions of a regulator

Answer 3

Setting sanctions
Enforcing regulations
Reviewing and influencing government policy
Vetting and registering firms and individuals
Investigating breaches
Checking prudential management and
conduct of providers
Educating consumers and the public

Question 4

External environment factors

Answer 4

Corporate structure
Regulation and legislation
Environmental issues and climate change
Accounting standards
Tax
Economic outlook (eg interest rates,
inflation, growth and exchange rates)

Governance
Risk management requirements
Adequacy of capital and solvency
New business environment
Demographic trends

Lifestyle considerations
International practice
State benefits
Technology
Social and cultural trends

Question 5

Investment and risk characteristics of assets

Answer 5

Security (default risk)
Yield (real or nominal, expected return)
Spread (volatility of market values)
Term
Expenses or Exchange rate
Marketability

Tax

Question 6

Characteristics of investors

Answer 6

Tax position
Regulation on investor
Assets already held
Income / cashflow considerations
Tastes (liabilities, education, fashion)
Other assets and other investors
Risk appetite

Question 7

General reasons for holding cash

Answer 7

Protect monetary values
Opportunities (to take advantage of)
Uncertain liabilities
Recently received cashflow
Short-term liabilities

Question 8

Economic situations in which cash is
attractive

Answer 8

General economic uncertainty
Recession expected
Interest rates expected to rise
Depreciation of domestic currency expected

Question 9

Characteristics of a prime property

Answer 9

Comparable properties for rent reviews /
valuation
Age, condition and flexibility of use
Location
Lease structure

Size
Tenant quality

Question 10

Theories of the yield curve

Answer 10

Liquidity preference
Inflation risk premium
Market segmentation
Expectations

Question 11

Main difficulties of overseas investment

Answer 11

Mismatching domestic liabilities
Taxation (may not be able to recover
withholding taxes paid)
Volatility of currency

Question 12

Other, more practical problems with
overseas investment

Answer 12

Custodian needed
Additional admin required
Time delays
Expenses incurred / expertise needed
Regulation poor
Political instability
Information harder to obtain (and less of it)
Language difficulties
Liquidity problems
Accounting differences
Restrictions on foreign ownership /
repatriation problems

Question 13

Ways of valuing assets

Answer 13

Smoothed market value
Historic book value
Adjusted book value
Market value

Fair value
Arbitrage value
Discounted cashflow
Stochastic modelling

Question 14

Regulatory influences on assets held

Answer 14

Types of assets that a provider can invest in
Extent to which mismatching is allowed
Currency matching requirement
Hold certain assets, eg government bonds

Single counterparty maximum exposure
Custodianship of assets
Amount of any one asset used to
demonstrate solvency may be restricted
Mismatching reserve

Question 15

Factors affecting investment strategy

Answer 15

Accounting regulations

Size of the assets (absolute / relative)
Accrual of liabilities in the future
Diversification

Currency of the liabilities
Uncertainty of the liabilities
Tax treatment of the assets / investor
Environmental / social / governance issues
Risk appetite

Institution’s objectives
Nature of the liabilities
Voluntary and legal restrictions
Existing portfolio
Solvency requirements
Term of the liabilities
Other funds’ strategies (competition)
Return (expected long-term)