Acronyms Flashcards
Contract Design Stakeholders
ALPACAS
Actuaries Lawyers Providers of benefits Accountants Customer Administrator Shareholders / Financial backers
Contract Design Factors
AMPLE DIRECT FACTORS
Administration systems Marketability Profitability Level and form of benefits Early leaver benefits
Discretionary benefits Interests and needs of customers Risk appetite of the parties involved Expenses vs charges Competition Terms and conditions of contract
Financing (capital requirements) Accounting implications Consistency with other products Timing of contributions or premiums Options and guarantees Regulatory requirements Subsidies (cross)
Reasons for calculating provisions
BAD MEDICS
Benefit improvements for a benefit scheme
Accounts and reports (published and internal)
Discontinuance / surrender benefits
Mergers and acquisitions Excess of assets over liabilities and so whether discretionary benefits can be awarded Disclosure information for beneficiaries Investment strategy Contribution / premium setting Supervisory solvency reports
Considerations when using past data to set future assumptions
BEST ARCHER
Balance of homogenous groups underlying the data may have changed
Economic situation may have changed
Social conditions may have changed
Trends over time, eg medical, demographic
Abnormal fluctuations
Random fluctuations
Changes in regulation
Heterogeneity within the group to which the assumptions will apply
Errors in data
Recording differences (e.g. in categorization of smoker)
Characteristics of a prime property
CALL ST
Comparable properties for rent review
Age, condition and flexibility of use
Location
Lease structure
Size
Tenant quality
Common aims of accounting standards (for benefit scheme disclosures)
CARD
Consistency in accounting treatment from year to year
Avoiding distortions resulting from contribution fluctuations
Recognising the realistic costs of accruing benefits
Disclosure of appropriate information
Practical problems with overseas investment
CATERPILLAR
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
Main difficulties of overseas investment
MTV
Mismatching domestic liabilities
Taxation (may not be able to recover withholding taxes paid)
Volatility of currency
Additional reports accompanying accounts
CIRCUS
Chairperson`s / CEO`s statements Investment report Remuneration report Corporate governance report Uncertainty (risk) report Strategic report
Expenses incurred by product provider
COST RAID
Commission
Overheads
Sales / advertising
Terminal, eg paying benefits
Renewal administration, eg collecting premiums / contributions
Asset management
Initial administration, eg setting up new client records
Design of the contract
External environment factors
CREATE GRAND LISTS
Corporate structure Regulation and legislation Environmental issues and climate change Accounting standards Tax Economic outlook (eg interest rates, inflation, growth)
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
Inappropriate advice
CRIMES
Complicated products
Rubbish (ie incompetent) advisor
Integrity of advisor lacking, eg due to sales-related payments
Model or parameter errors
Errors in data relating to beneficiaries
State-encouraged but inappropriate actions
Benefit scheme info to disclose in accounts
DIM CLAIMS
Directors benefit costs
Investment return over year
Membership movements
Change in surplus / deficit over year Liabilities accruing over year Assumptions Increase in past service liabilities Method Surplus / deficit
Reasons for analyzing surplus
DIVERGENCE
Divergence of actual vs expected (show financial effect /significance of)
Information to management and for accounts
Variance of whole is equal to the sum of the variances from the individual sources
Experience monitoring to feedback into ACC
Reconcile values for successive years
Group into one-off / recurring sources of surplus
Executive remuneration schemes (data for)
New business strain (show effects of)
Check on valuation assumptions and calculations
Extra check on valuation data and progressiveness of actual vs expected (show financial effect / significance of)
Considerations in assessing different models
FENCED
Fit for purpose Expertise available in house Need flexibility Cost of each option Expected number of times used Desired accuracy
Types of actuarial advice
FIR
Factual
Indicative
Recommendation
Evaluation of risk mitigation options
FIRM
Feasibility and cost
Impact on frequency / severity / expected value
Resulting secondary risks
Mitigation required in response to secondary risks
Importance of risk reporting
FRAUD CRIME
Financing (appropriate price, reserves, capital requirements)
Rating agencies
Attractiveness to investors
Understand better (risks and their financial impact)
Determine appropriate control systems
Changes over time Regulator Interactions Monitor effectiveness of controls Emerging risk identification
Economic situations in which cash is attractive
GRID
General economic uncertainty
Recession expected
Interest rates expected to rise
Depreciation of domestic currency expected
Aims of a regulator
GRIP
Give confidence in the system
Reduce financial crime
Inefficiencies in the market corrected (and efficient and orderly markets promoted)
Protect consumers
Economic factors
IS FIERCE
Inflation
Short-term interest rates
Fiscal deficit Imports / exports Employment rate Returns on alternative investments Currency Economic growth
Factors to consider when setting assumptions
LUNCH
Legislation / regulation Use of the assumptions Needs of the client Consistency between assumptions How financially significant is/are the assumption(s)
Additional criteria for an insurable risk
MUD PIS
Moral hazard eliminated as far as possible
Ultimate limit on liability undertaken
Data exists with which to price risk
Pooling a large number of similar risks
Independent risk events
Small probability of occurrence
Risk responses
PIRATE
Partially transfer Ignore Reduce Accept (retain all) Transfer Evade (avoid)
Identification of causes of risk in projects
PNEFCPB
Preston North End Football Club Plays Brilliantly
Political risks Natural risks Economic risks Financial risks Crime Project risks Business risks
General reasons for holding cash
POURS
Protect monetary values Opportunities (to take advantage of) Uncertain liabilities Recently received cashflow Short-term liabilities
WHEN information from a benefit scheme should be disclosed
PRICE
Payment commencement Request Intervals Combination Entry
Problems with industry data
QUERIED
Quantity (credibility) Up-to-date? Errors Relevance (heterogeneity) Incomplete? Exceptionals Detail and format
Why financial providers need capital
REG CUSHION
Regulatory requirement to demonstrate solvency
Expenses of launching a new product / starting a new operation
Guarantees can be offered
Cashflow timing management
Unexpected events cushion, eg adverse experience
Smooth profit
Help demonstrate financial strength
Investment freedom to mismatch in pursuit of higher returns
Opportunities. eg mergers and acquisitions
New business strain financing
Reasons for using reinsurance
SAD LIFE
Smooth results
Avoid large losses
Diversification (investment mismatchment)
Limit exposure to risk (single event, accumulations)
Increase capacity to accept risk
Financial assistance
Expertise
Reasons for underwriting
SAFARI
Suitable approach (eg increase premiums / reduce SA) and special terms
Avoid anti-selection
Financial underwriting against over-insurance
Actual experience in line with expected
Risk classification (risks rated fairly)
Identify substandard health risks
Benefits of a good risk management system
SAMOSAS
Stability / quality of business improved Avoid surprises Management of capital improved Opportunities exploited for profit Synergies identified Arbitrage identified Stakeholders given confidence
Model design: Operational issues
SCARCER FILES
Simple but retains key features Clear results Adequately documented Range of implementation methods Communicable workings and outputs Easy to understand Refineable & developable
Frequency of cashflows (balance accuracy vs practicality) Independent verification of outputs Length of run not too long Expense not too high Sensible joint behaviour of variables
Info to disclose to benefit scheme members
SCRIBE
Strategy for investment Contribution obligations Risks involved Insolvency entitlement Benefit entitlements Expense charges
Functions of a regulator
SERVICE
Setting sanctions
Enforcing regulations
Reviewing and influencing government policy
Vetting and registering firms and individuals
Investigating breaches
Checking management and conduct of providers
Educating consumers and the public
Ways of valuing assets
SHAM FADS
Smoothed market value
Historic book value
Adjusted book value
Market value
Fair value
Arbitrage value
Discounted cashflow
Stochastic modelling
Reasons why disclosure is important
SIMMERS
Sponsor is aware of financial significance of benefits
Informed decisions can be made
Mis-selling is avoided
Manages the expectations of members
Encourages take up
Regulatory requirement
Security of scheme improved as sponsor / trustees are made more accountable
Factors affecting investment strategy
SOUNDER TRACTORS
Size of the assets (absolute / relative) Objectives Uncertainty of the liabilities Nature of the liabilities Diversification Existing portfolio Return (expected long-term)
Tax treatment of the assets / investor Restrictions - statutory / legal / voluntary Accrual of liabilities in the future Currency of the existing liabilities Term of the existing liabilities Other funds’ strategies (competition) Risk appetite Solvency and accounting requirements
Types of selection
STATiC
Spurious Time Adverse Temporary initial Class
Investment and risk characteristics of assets
SYSTEM T
Security (default and other risks)
Yield (real or nominal, running yield, expected return, compare with other assets)
Spread (volatility of market values, diversification)
Term
Expenses or Exchange rate
Marketability
Tax
Regulatory influences on assets held
TECH SCAM
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 demo solvency may be restricted
Mismatch reserve
Sources of data
TRAINERS
Tables eg actuarial mortality tables Reinsurers Abroad (data from overseas contracts) Industry data National statistics Experience investigations on the existing contract Regulatory reports and company accounts Similar contracts
Characteristics of investors
TRAITOR
Tax position Regulation on investor Assets already held Income / cashflow requirements Tastes (liabilities, education, fashion) Other assets and other investors Risk appetite
Factors to consider for discontinuance terms
A POLICY CEASES
Auction values
Profit (including recovery of costs incurred)
O
Lapse and re-entry risk
Increase in benefits will require underwriting
Consistency (with other payouts, premiums paid, and maturity values)
Y
Competition Expectations Asset share Selection Equity Simplicity and stability
Features of good system for monitoring business
ACCREDIT DOT
Allow for key drivers Calculations not overly complex Clear results Results validated Easy to collect data Documented Inputs consistent Tailored
Data validated
Output consistent (over time and with other analyses)
Timely production of results
Investment uncertainty
AGE ROT
Actions by central bank
Globalisation
Economic cycle
Return
Overseas influences
Type of investment
Reserving uncertainty
BALANCED FLACCID DAFT CRUMB
Behaviour of third parties Amounts of claims Latent claims Assumption on distribution New classes Catastrophes Economic conditions Development patterns
Frequency of claims Legislation Area (globalisation) Climate change Claim handling procedures Inflation Demand surge
Distribution channels
Arrangements for profit shares
Format of data
Third party handlers
Competitive pressure Reserving philosophy Unusual / large risks Mix of business Bodily injury claims
Sponsor covenant
CAB RIDES
Credit rating
Accounts / Financial metrics
Business outlook
Risk-based measures Independent Business Review Default risk implied by market Employer factors Scheme characteristics
Analysis of policy experience
CALMNESS Q
Cancellations Alterations in premium rates Lapses Mix of business New business volumes Endorsements Strike rate Source (persistency / profitability)
Quotation volumes
Key risk types
CLOG RUM
Credit
Liquidity
Operational
Group
Reserve
Underwriting
Market
Claims characteristics
CRAFT CRAMPS VENDS DRILLS
Catastrophes Reporting delays Accumulations Frequency Trends
Currency Reinsurance Amount (severity) Moral hazard Partial payments Settlement delays
Volatility Event delays Nil claims Definition Seasonality
Distribution Reopened claims Inflation Large claims Latent claims Salvage and subrogation
Stakeholders of a general insurance company
CRAMPERS
Credit rating agencies Reinsurers and brokers Auditors Management Policyholders Employees Regulators Shareholders
Surrender value principles
PALACE DICE
PRE Asset shares Later durations ( maturity values ) Avoid discontinuities Continuing policyholders Early durations (premiums )
Document clearly
Infrequent changes
Competition
Ease of calculation
Assumptions needed for a capital model
REDUCE DOG CRITIC
RI share of ultimate claims and RI bad debt Exhaustion of reinsurance and reinsurer Downgrade assumptions Ultimate gross claims (including CHE) Ceded premiums Expenses
Dividends
Operational losses
Gross written premium
Catastrophe claims Reserve movements (gross), by COB Inflation Tax Investment returns, split by asset class Claims payment profiles
Principles underlying the legislation and regulation of institutional investment practices
REPEAT CAFE
Regular reporting Expert advice Performance measurement Explicit mandates Activism Transparency
Clear objectives
Appropriate benchmarks
Focus on asset allocation
Effective decision making and operations
Factors affecting data
SEMI COMA
Size of company
Existence of legacy systems
Management and staff
Integrity of data systems
Class of business
Organisation (nature of)
Method of sale
Age of company
Adjustments to data
TRIM RILLS CRUNCH
Trends
Risk
Inflation
Mix
Reinsurance IBNR Large claims Light experience Sales channel
Cover Regulations Underwriting Nil claims Claims handling Heavy experience
Investment and capital analyses
RICE AD
Risk assessment
Investment policy
Capital requirements
Evaluate existing portfolio
Allocate capital between classes
Determine return on capital
