Acronyms

Question 1

Desirable features of an exposure measure:

Answer 1

VENOM ADA 1-3
* Verifiable
* Easy to obtain
* Not open to manipulation
* Objective
* Measurable

• Acceptable to the market
• Defines the risk
• Acceptable to the PH

Question 2

Reasons for using reinsurance

Answer 2

DASS LIFE 5-7
* Diversification
* Avoid single large losses
* Smooth results
* Solvency improvement
* Limit exposure to single events or accumulations
* Increase capacity to accept risk
* Financial assistance
* Expertise

Question 3

Regulatory influences on assets held

Answer 3

TECH SCAM 9
* Types of assets that provider can invest in
* Extent to which mismatching allowed
* Currency matching requirements
* Hold certain proportion of total assets in specific class, eg government bonds.
* …
* Single counterparty maximum exposure
* Custodianship of assets
* Amount of any one asset used to demonstrate solvency restricted
* Mismatching reserve

Question 4

Objectives of regulation

Answer 4

HEMP CREAM 9
* Help growth and competition
* Economies of scale in investment
* Mobilise long-term savings
* Protect PHs

• Create liquidity
• Reduce transition costs
• Efficiency of the financial system
• Allocate resources efficiently
• Manage risk

Question 5

Disadvantages of regulation

Answer 5

EPIC BLOC 9
* Economies of scale fewer
* Premiums increased
* Investment return lower
* Costs

• Barriers of entry
• Less insurance coverage
• Opportunity cost
• Complex capital calculations

Question 6

Reasons UW cycle exist

Answer 6

CREED(D)S 9
* Chasing hard rates
* Reduced insurance capacity after large losses
* Ease for new entrants
* Economics of scale maintained at all costs
* Deliberate under-pricing b key players to drive comp out
* Delays between selling and assessing profitability
* Simplistic capital regimes which encourage writing more business when rates are falling and vice versa

Question 7

Uncertainty of claims experience:

Answer 7

JC CASTLED REPLICA 10
* Judicial decisions
* Crime rates

• CATs
• Attitude of PHs to claiming
• Sizes of claims volatility
• Types of cover provided
• Latent claims
• Escalation of claims
• Delays -> incidents/reporting/settlement
• RI risks
• Economic conditions -> external environment
• PH’s characteristics incl possible anti-selection
• Legislation/regulation
• Interpretation of wording
• Currency risks
• Accumulation risks

Question 8

Quality and quantity of data:

Answer 8

: SEMI COMA 11
* Size of company
* Existence of legacy systems
* Management and staff
* Integrity of data systems
* Class of business
* Organisation’s nature
* Method of sale
* Age
* (RI vs DW)

Question 9

IWD adv

Answer 9

PECS 11
* Pricing if no internal data
* Experience compared
* Credible
* Strategy (business)

Question 10

IWD disadv

Answer 10

HOOD C 11
* Heterogeneity
* Opt out
* Out of date
* Detail and flexibility
* Crap in crap out contributors

Question 11

Sources of data

Answer 11

TRAINERS GC 11
* Tables
* RI
* Abroad contracts
* Industry wide data
* National statistics
* Experience own
* Reporting and published accounts
* Similar contracts

• Government reports
• CRESTA

Question 12

Data problems (historical)

Answer 12

QUERIED BEST ARCHER 11

Question 13

Quality proposal form:

Answer 13

CURVED AAI 11
* Comprehensive (all UW info and rating factor info)
* Unambiguous, well designed questions
* Relevant and Reliable information produced
* Verify key policyholder information
* Easy Coding
* Data checks before inputted into a model
* Additional information dependent on claim size
* All information on proposal, endorsement, claim form must be held
* Interpretation must be limited

Question 14

Features of good quality data:

Answer 14

COACH LUCID 11
* Completeness
* Objective and quantifiable as far as possible
* Accurate
* Consistent with previous data
* Homogonous grouping into model points
* Lowest level
o Such as date of birth rather than age at entry
* Up to date
* Checks should be able to be performed
* Integrated into one system
* Detail level and documentation appropriate
o Audit trail

Question 15

Rating analyses: for existing class

Answer 15

REP REAP 12
* Recent periods: estimate ultimate cost claims
* Existing rates: estimate profitability (referebce to recent claims experience, removing abnormal features), compare actual vs expected
* Project forward to a new rating period, make assumptionns about future claims trends and inflation

• Review existing rating structure (relative levels of premiums charged for diff PHs), in-depth requires sophisticated models
• External data: compare final rates
• Adjust for lifetime value
• Profitability of old years on new rates, to assess profitability of business on the new rates if claims exp was to be the same as previous years

Question 16

Expense analysis items:

Answer 16

COSMIC 12
* Computer costs
* One-off capital costs
* Salaries and related expenses
* Maintenance costs (heating, rent etc)
* Investment costs
* Claims handling costs

Question 17

Reinsurance analyses:

Answer 17

CRAVE CAPES 12
* CAT RI
* Reinstatements
* Amount of risk to retain
* Value for money
* Extent of accumulations

• Cost of commutation
• Appropriateness of cover
• Profitability of layers
• Effects on capital
• Solvency of RI (credit risk)

Question 18

Main reasons for monitoring business written:

Answer 18

DIAGRAM 12
* Double check assumptions (ACC)
* Influence the market
* Assess performance vs goals
* Gain market intelligence
* Regulators satisfy
* Assist with reserving
* Manage risk

Question 19

Key policy experience items monitored:

Answer 19

CALMNESS Q 12
* Cancellations
* Alterations in premium rates
* Lapses
* Mix of business
* New business volumes
* Endorsements
* Strike rate (Quotes resulting in written business)
* Source (persistency/profitability)

• Quotation volumes

Question 20

Features of a good system for monitoring business

Answer 20

ACCREDIT DOT 12
* Allow for key drivers
* Calculations not overly complex
* Clear results
* Results validated
* Easy to collect data
* Documented
* Inputs consistent
* Tailored output

• Data validated
• Output consistent over time and with other analyses
• Timely production of results

Question 21

Investment and capital analyses:

Answer 21

RICE AD 12
* Risk assessment
* Investment policy
* Capital requirements
* Evaluate existing portfolio
* Allocate capital between classes
* Determine return on capital

Question 22

Analysis of experience: Experience analyses

Answer 22

REP PEACE 12
* Risk exposure and aggregations
* Estimation of claim trends
* PH behaviour

• Pricing and sales of policies
• Environmental changes
• Anything else management require
• Claims reserve estimation/claims experience
• Expense analysis and allocation

Question 23

Claims analysis: main claims analyses are

Answer 23

INNER CRAP 12
* Impact/incidence of large claims
* New claim types
* Nill claims
* Expenses vs indemnity cost
* Re-opened claims

• Changing frequency and severity
• Recoveries on gross claims
• Assessing accumulations
• Partial payments

Question 24

Problems with inwards RI reserving:

Answer 24

SIGH CLUB 17
* Sparse data
* IT constraints
* Grouping of data
* Hetergoenous exposure

• Cedants use different reserving bases
• Longer reporting delays
• Upwards developments of claims
• Benchmarks less relevant

Grouping of data difficult:
Type of contract -treaty/fac
Type of cover- prop/non
Basis for cover
Line of business
Attachment point(XS)
Territory
Type of cedant

Question 25

Adjustments to data BEFORE pricing

Answer 25

TRIM RILLS CRUNCH 18
* trends
* risk
* inflation
* mix
* RI
* IBNR
* Large claims
* Light experience
* Sales channel
* Cover
* Regulation
* UW
* Nil claims
* Claims handling
* Heavy experience

Question 26

Considerations when using ILFs

Answer 26

A LAST CUT 18
* Assumptions
* Limits (nature of)
* ALAE
* Secular changes (not influenced by short-term factors)
* Trend
* Cover
* ULAE
* Territory/jurisdiction

Question 27

Advantages of original loss curves

Answer 27

SIDE 18
* Simple to implement
* Internal consistency
* Data (OLCs can be used when no credible data)
* Easy to explain

Question 28

Considerations when using exposure curves (first loss scales) for treaty pricing

additional to those when pricing directly or facultative business

Answer 28

A DISCO 18
* Availability of exposure curves
* Deductibles (treatment of)
* Insuring reinsurances
* Stacked limits
* CAT XL rating
* Original loss ratio (estimation)

Question 29

Approaches to risk loading when pricing RI

Answer 29

PRIM
* [based on target loss or combined ratio]
* [based on profit target]
* Proportion of standard deviation of expected losses
* Required return on capital (based on)
* Investment-equivalent pricing
* Marginal impact on capital

Question 30

Factors affecting choice of inflation rate

Answer 30

SLED
* Size of loss
* Location
* Excess layer or ground-up losses
* Drivers of inflation

Question 31

Important considerations when pricing stop loss

Answer 31

RITA
* Regulatory minima
* Insuring reinsurance
* Terms of the stop loss
* Amount of recoverable layer returned by cedant

Question 32

Modules in a CAT model

Answer 32

H-FIVE
* Hazard
* Financial analysis
* Inventory
* Vulnerability
* Event

Question 33

Parameters for an earthquake model

Answer 33

TAMED
* Type of fault
* Area of fault rupture
* Moment magnitude
* Elapsed time since last rupture of that fault
* Depth (focal)

Question 34

Main factors when setting investment strategy

Answer 34

• Characteristics of liabilities
• Asset considerations
• External influences
• Insurer specific considerations

A SAD CUTER INVESTOR
* Accounting considerations
* Size of assets relative and absolute
* Accrual of future liabilities
* Diversification
* Currency of liabilities
* Uncertainty of liabilities
* Term of liabilities
* Existing portfolio
* Risk appetite
* Investment objective
* Nature of liabilities
* Voluntary and regulatory restrictions
* ESG
* Solvency (statutory + internal + credit rating agencies)
* Tax treatment of investments
* Other strategies (competition)
* Return on assets

Question 35

Why capital required?

Answer 35

REG CUSHION
* Regulatory requirements
* Expneses -> start up/develoment/expansions
* Guarantees can be offered (guranteed renewal premium?)
* cashflow management
* Unexpected events cushion
* Smooth results
* help show financial strength
* Investment freedom
* oppertunities to take advanatage of (Mergers&Aquistitions)
* New business strain financing

*credit rating
*meet other stakeholders requirements such as subordinated debt

Question 36

Main data items for capital modelling

Answer 36

CRUDE CALF PUP
* Claims payment profiles (sizes, frequencies and settlement patterns)
* RI programmes
* Unpaid gross claims
* Details of operational risks (available in risk map)
* Expenses
* Credit exposures (broker balances as example)
* Asset values
* Large losses
* Future RI costs
* Planned premiums (gross and net)
* Unexpired premiums (gross and net)
* Planned RI programmes

Question 37

Main assumptions that must be set for capital modelling

Answer 37

REDUCE DOG CRITIC
* RI share of ultimate claims and RI bad debt
* Exhaustion of RI and reinsurer
* Downgrade assumptions
* Ultimate gross claims including claims management costs
* Ceded premiums
* Expenses
* Dividends
* Operational losses
* Gross written premium
* CAT claims
* Reserve movements (gross) split by COB
* Inflation
* Tax
* Investment returns split by asset class
* Claims payment profiles

Question 38

Model requirements:

Answer 38

SCARCER FILES_S_PP
* Simple enough, not too complex but adequately reflects risk profile
* Clear and complete output
o Reasonable output
* Adequately documented
* Range of implementation methods (flexible)
* Communicable
* Easy to understand by management
* Refinable and redevelopable
* Frequency of cashflows -> time horizon
* Independent verification
* Lengths of run not too long
* Expenses not too high
* Sensitivity and scenario testing applicable
* Sensible joint workings of variables -> dynamic
* Parameters appropriate
* Parameters identified and verifiable