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F102 > Acronyms > Flashcards

Acronyms Flashcards

1
Q

What are the assumption risks facing an insurer?

A

POCE WIM

Policy data
Other data
Claims exp on health & care
Expense

Withdrawals
Investment return
Mortality

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2
Q

What are the other risks facing a life insurer?

A

M3C2 DFG LV

Mix - nature & size
Mix-source
Management
Competition
Counterparties

Distributors
Fraud
Guarantees and options

Legal, reg, fiscal
Volume

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3
Q

What assumptions are there to be set?

A

M4 PREP IE

Mortality
Morbidity
Margins
Market consistent valuation

Persistency
Risk discount rate
Expenses and commission
Profit criteria

Investment return
Expense inflation

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4
Q

What are the reasons for reinsuring?

A

PF RRT

Parameter and random fluc
Financial reinsurance (finance new business strain)

Reduce costs
Regulatory/tax arbitrage
Technical assistance

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5
Q

What are some considerations that need to be made before reinsuring

A

CAL TC

Costs of reinsurance
Amount of reinsurance
Legal risks

Type of reinsurance
Counterparty risk

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6
Q

What are the factors of the general business environment affecting a life insurers?

A

FEEL RP

Fiscal
Expense and commission
Economic
Legal

Regulatory
Professional Guidance

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7
Q

How does the regulatory regime affect life insurers

A

Gvt may impose restrictions on:

TRAP DUAT

T: Type of contract a life insurance company can offer
R: RATING FACTORS: Restrictions on rating factors used to calculate premiums
A: Restrictions on types of assets or amount of any particular assets.
P: Premium rates, charges

D: Restriction on dbn channels (sales procedures, training requirement, cool-off period, right of cancellation)
U: Restrictions on ability to underwrite (to avoid discrimination)
A: Indirect constraint on amount of business (minimum reserving and SCR)
T: Terms and conditions (e.g how paid up policies and surrender values are to be calculated)

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8
Q

What are the principles when setting surrender values

A

PALACE DICES

Policyholders reasonable expectations (PRE)
Avoid discontinuities
Later durations-maturity values
Asset shares
Continuing policyholders
Early durations- premiums paid

Document clearly
Infrequent changes
Competition
Ease of calculation
Selection against the insurer

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9
Q

What principles need to be considered for alterations

A

SCRAAP FEES

Stability of basis before and after alteration
Consistency with boundary conditions (increase in benefits consistent with taking out new policy
Regulation and professional guidance
Anti-selection risk
PRE

Fairness and reasonable amount of profit
Ease of calculation and administration
Ease of communication/explanation
Surrender value

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10
Q

Why do we monitor experience?

A

AATM
1. Asset share: Develop earned asset share
2. Assumptions: Update assumptions for future experience
3. Trends: Monitor adverse trends so as to take corrective actions.
4. Management information

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11
Q

What are the key ideas of with profit?

A

ECSEDED

Expectations
Competition
Smoothing
Experience
Discretion
Equity
Defferal

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12
Q

What are the key ideas relating to actuarial funding?

A

STENCIL MUM

Surrender penalty (unit-related)
Takes advanced credit for future management charges so that
Expenses are better matched in nature and timing thereby reducing
New business strain
Capital and accumulation units
Investment risk is reduced
Lower unit fund initially

Management charges are high on capital units
Unit-linked policies
Mortality risk is increased

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13
Q

What are the principles of surrender values?

A

Acronym (PALACE DICES)

Policyholders reasonable expectations (PRE)
Avoid discontinuities
Later durations-maturity values
Asset shares
Continuing policyholders
Early durations- premiums paid

Document clearly
Infrequent changes
Competition
Ease of calculation
Selection against the insurer

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14
Q

How is underwriting used to manage risk?

A

FAMOSS

Fairly - treat all risks fairly
Avoid antiselection
Mortality experience is in line with pricing assumptions
Over insurance avoided through financial underwriting
Special terms for substandard risk
Substandard risks identified

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15
Q

What is the mitigation for mortality risk?

A

M2U2R2

  1. Include margins as a buffer
  2. Monitor the experience
  3. Policy underwriting
  4. Claims underwriting.
  5. Reinsurance
  6. Transfer risk back to the policyholder (Design, with profits)
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16
Q

What are some ways to mitigate withdrawal risk?

A

DCS

  1. Design (Have an appropriate SV, recoup profit later)
  2. Make sales better or more appropriate (Consider commission structure)
  3. Commission clawbacks
17
Q

What are some ways to mitigate expense risk?

A

MUPP

  1. Price conservatively
  2. Premiums should increase over time to match charges to expenses
  3. Monitor and control
  4. Underwrite efficiently
18
Q

What are some ways to mitigate investment return risk?

A

D2M2I

  1. Product design = unit linked
  2. Match/Immunise
  3. Diversify
  4. Invest similarly to competitors
  5. Margins in assumption (use sensitivity testing an scenario testing to ensure margins are sufficient)
19
Q

What makes contract design more risky?

A

GOOD HP

  1. Lack of historical data
  2. High guarantees
  3. P/holder options
  4. Overhead costs
  5. Complexity of design
  6. Selling a product in an untested market
20
Q

What are the constraints on negative non-unit reserves?

A

FP3 RS2
1.R: Local regulation
2.S: Sum of unit and non-unit reserves should not be less than any guaranteed surrender value
3.P: There should be adequate non-unit surrender penalties to ensure that the value of the future cashflows is not lost on a surrender
4. P: Future profits need to emerge in time to pay the loan
5. F: Taking account of the negative non-unit reserve should not lead to future negative cashflows (no valuation strain)
6. S: Sum of all non-unit reserves should not be negative
7. P: Negative non-unit reserves should be determined prudently

21
Q

What corrective actions can be taken after identifying trend while monitoring?

A

DIS RUPP W

  1. Repricing of products
  2. Redesign of products
  3. Change in investment strategy
  4. Change in sales strat (dbn channel)
  5. Change reinsurance strat
  6. Change underwriting strat
  7. Change profit distribution strat
  8. Re-organise workforce to make more efficient use of expensive resources

F102 (38 decks)

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