C1 - Actuarial advice Flashcards
List 16 clients in private sector whom actuaries advice
- Policyholders
- Prospective policyholders
- Members of benefit schemes and their dependants
- Employers
- Insurance Company – board of directors
- Insurance Company – shareholders
- Insurance Company – creditors
- Trustees of benefit schemes
- Sponsor of benefit schemes
- Employees
- Auditors of insurance companies
- Auditors of the sponsors of benefits schemes
- Investment fund managers
- Members of investment schemes
- Sponsors of capital projects
- Bank
Describe the public sector clients actuaries might advice
In the public sector, actuaries advise government departments and related organisations, such as central bank and regulatory bodies.
In giving actuarial advice, what is important to identify in relation to the stakeholders involved, and why?
- In most circumstances different categories of stakeholders have different interests.
- One or more stakeholders will renumerate the actuary, but there will be several other stakeholders with significant interests who do not contribute directly to the actuary’s renumeration.
- Advise given by actuary will impact on other stakeholders. Actuary needs to consider the interests of all stakeholders.
-Omitting a stakeholders will distort the context,
-Also necessary to retain a sense of proportion in considering who else may be affected by advice given.
Where an actuary is advising the board of directors of an insurance company, which is planning a large expansion in business, who else might the advice have an impact on?
- Level of benefits that the company’s policyholders receive
- Level of premium charges to the company’s new and existing policyholders
- Level of dividend that the shareholders of the insurance company receive
- Volume of new business the company can write
- Level of taxes that the govt receives on the profits earned by the company
- Other insurance companies that are competing in the market
- Reinsurance companies through the level of reinsurance business that the company requires
- Employees of the insurance company through the employment benefits they receive
- Job security for the employees of the insurance company
- Work of the regulatory authorities that monitor the insurance company
- Other insurance companies who may be required by legislation to contribute to a compensation scheme that pays benefits to the policyholder of insurance companies that fail
- Employed sales staff and independent intermidiaries.
Outline the interests on which actuaries may provide advice for –
Current policyholders and prospective policyholders
-Personal protection against death and illness
-Protection of property
-Investment.
Outline the interests on which actuaries may provide advice for –
Trustees of benefit schemes
- Managing the assets of the scheme
- Paying the benefits promised under the scheme as they fall due
- Maintaining solvency
Outline the interests on which actuaries may provide advice for –
Sponsors of benefit schemes
- Providing protection benefits that meet the need of the members and their dependants
- Providing retirement benefits that meet the needs of the members.
- Managing the cost of providing benefits
- Meeting legislative requirements
Outline the interests on which actuaries may provide advice for –
Government
- Setting legislation that impacts on the provision of financial products, schemes, contracts and transactions that provide benefits on future financial events
- Monitoring the adherence to this legislation
- Funding benefit provision by the state
- Monitoring the funding of benefit provision by the state
Explain why and how certain factual information about the client should be sought in order to give advice
- Advice will often set out alternate solutions and the implications of each solution
- These solutions must always be relevant to the particular circumstances of the client.
- Public info (company accounts, website etc) can be used to gather info.
- Follow-up pre-project meeting with the client may be required to ensure their position has been fully understood.
In giving advice, what should actuary be aware of and what should he try and avoid happening?
-The actuary should be aware of conflict of interest e.g. Actuary advising both the trustees and the sponsor of a benefit scheme
Explain why subjective attitudes of client – especially towards risks - are relevant to an actuary giving an advice
- If the actuary is not aware of information regarding the client’s background, ethical position and culture, there is a risk that the advice given will be inappropriate.
- Charities have objectives that cannot be quantifies in financial terms.
- Corporate bodies have a risk appetite, driven by the risk appetite of their shareholders, particularly their owners.
- Important for an actuary to be aware of the general style and culture of the client.
Role of actuaries in the marketing of financial services is to present the results in full business context. This means that actuaries need to think through the implications for all the stakeholders involved.
Describe the 3 types of advice that can be given by an actuary
- Recommendations – research and modelled forecasts, alternatives weighted, recommendations made consistent with requirements, work normally peer-reviewed
- Indicative advice: giving an opinion without fully investigating the issues e.g. response to a direct question
- Factual advice: based on research of facts e.g. legislation
Who else may need to be involved in providing advice?
Other professionals, such as accountants and lawyers
Explain what the actuary should communicate to the client in relation to the assumptions made
- The assumptions must also be relevant to the particular circumstances of the client.
- Explain to the client the reasons for making those assumptions.
- Explain the implications of making alternate assumptions and of any alternate solutions that may have been considered but eventually not recommended on both the client and other stakeholders who may be affected.
Give an example of a situation where a life insurance company actuary will be giving an advice as opposed to making a decision
- Recommendation of bonus rates on with-profit policies to the board of directors
- The actuary may have made some implicit decisions in formulating the advice, e.g. grouping pf policyholders for the purpose of bonus allocation. These implicit decisions should be disclosed as part of the process of giving advice
