Acronyms

Question 1

Benefits of a good risk management process

Answer 1

SAVIOURS 25
* Strategic decision making improved
* Avoid surprises
* Volatility of profits reduced
* Improved profits via capital efficiency
* Opportunities exploited for profit
* Understand interdependencies/aggregation
* React quickly to emerging risks
* Stakeholders given confidence

Question 2

Inappropriate advice

Answer 2

(CRIMES) 27
* Complicated products
* Rubbish (incompetent) adviser
* Integrity of adviser lacking (due to sales-related payments)
* Model or parameters unsuitable
* Errors in data relating to beneficiaries
* State-encouraged but inappropriate actions

Question 3

insurable interest

Answer 3

FIA MUD PIS 28
* Financial/quantifiable
* Interest in risk being insured
* Amount payable relates to size of loss

• Moral hazard avoided
• Ultimate limit on liability
• Data available to assess the risk
• Probability of occurrence low
• Independent risks
• Similar risks pooled

Question 4

Importance of risk reporting

Answer 4

FRAUD CRIME 29
* Financing (appropriate price, reserves, capital requirements)
* Rating agencies
* Attractiveness to investors
* Understand better (risks and financial impact)
* Determine appropriate control systems

• Changes over time
• Regulation
• Interactions
• Monitoring effectiveness of controls
• Emerging risk identification

Question 5

Responses to risk:

Answer 5

: PIRATE 30
* Partially transfer
* Ignore (reject need for financial coverage- trivial or already diversified)
* Reduce
* Accept (retain all)
* Transfer
* Evade (avoid)

Question 6

Evaluation of risk mitigation options

Answer 6

FIRM 30
* Feasibility and cost
* Impact on frequency/severity/expected value
* Resulting secondary risks
* Mitigation required in response to secondary risks

Question 7

Reasons for using reinsurance

Answer 7

DASS LIFE 30
* 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 8

Reasons for using ART

Answer 8

DESCARTES 30
* Diversification
* Exploits risk as an opportunity
* Solvency improvements/ source of capital
* Cheaper cover than RI
* Availability of RI not adequate
* Results smoothed
* Tax advantages
* Efficient risk management tool
* Security of payments improved

Question 9

Issues to include in model of future solvency position:

Answer 9

OASESS 35
* Outstanding financial obligations, including minority interests and tax
* Amount and timing of loan/debt redemption
* Surplus asset’s current value
* Estimation of future post-tax profits available to equity shareholders
* Staff relationship problems -> industrial relations such as with trade unions
* Staff benefit schemes especially if in deficit

Question 10

Key principles to consider when determining discontinuance terms

Answer 10

PRANCE 35
* Policyholder reasonable expectations PRE
* Regulation may prescribe benefits such as max surrender penalties
* Administration expenses and Asset share
* New business disclosure and communication
* Competitive considerations
* Ease of calculation (fair vs simple)
* Frequency of change of discontinuance terms (not too frequent)
* Cost of determining and implementing discontinuance terms

Question 11

bank placed under

Answer 11

curatorship