CH 0: ACC

Question 1

Steps in the ACC (4)

Answer 1

• General commercial and economic environment
• Specifying the problem
• Developing the solution
• Monitoring the experience
• Professionalism

Question 2

The general commercial and economic environment key topics (8)

Answer 2

• Providers of benefits
• Regulation
• The external environment
• Insurance products and banking overview
• Asset classes
• Economic influences
• Consumer needs
• Competitors

Question 3

Specifying the problem key topics (3)

Answer 3

• Risk and risk management
• Contract design
• Capital requirements

Question 4

Developing the solution key topics (9)

Answer 4

• Modelling
• Data
• Setting assumptions
• Pricing and financing
• Provisioning
• Asset management
• Capital management
• Surplus management
• Accounting and reporting

Question 5

Monitoring the experience key topics (2)

Answer 5

• Monitoring
• Analysis of surplus

Question 6

Professionalism key topic

Answer 6

• Actuarial advice

Question 7

What makes the ACC actuarial (11)

Answer 7

• Estimation of financial impact of future uncertain events
• Long-term rather than short-term thinking
• Recognition of stakeholders’ requirements and risk profiles
• Decisions made in the short-term in the light of likely future outcomes
• Use of models to represent future financial outcomes
• Use of assumptions based on appropriate historical experience
• Need to allow for the general business environment (legislation, regulation, tax, competition)
• Interpreting results of modelling to enable practical strategies to be developed
• Monitoring and periodically analysing emerging experience
• Modifying models/strategies in light of emerging experience
• Application of professional judgement

Question 8

Stages involved in the general economic and commercial environment

Answer 8

Sets the scene to ensure the actuary is fully aware of the environment in which the problem is being solved and the impact of the environment on the decisions made

Question 9

Stages involved in specifying the problem (4)

Answer 9

• Identify and analyse the risks of the various stakeholders
• Set out the problem from the point of view of each stakeholder
• Consider courses of action to handle particular risks
• Assess the risks faced and how they can be managed, mitigated or transferred
• Analyse solutions for the transfer of risk between various stakeholders

Question 10

Stages involved in developing the solution (11)

Answer 10

• Examine actuarial models in use and how they may be adjusted for the particular problem to be solved
• Selecting the most appropriate model for the problem or constructing a new model
• Considering and selecting the assumptions for the model
• Assessing the appropriateness of the chosen assumptions and testing the sensitivity of the result to changes in the assumptions
• Interpreting the results of the modelling process
• Consider the implications of the model results on the overall problem
• Consider the implications of the results for all stakeholders
• Determining a proposed solution to the problem
• Consideration of alternative solutions and their effects on the problem
• Formalising a proposal
• Communicating the proposed solution, and alternatives, to the stakeholders responsible for decision making

Question 11

Stages involved in monitoring the experience (5)

Answer 11

• Models need to be dynamic and reflect current experience
• Necessary to feedback emerging experience into the specification and development stages of the control cycle
• Identification of any causes of departure from targeted outcome from the model
• consideration of whether divergences are likely to recur
• Results of the monitoring process should be used to strengthen the understanding of the problem and identify vital features of the problem that may not have been taken into account

Question 12

Stages involved in professionalism

Answer 12

• Professionalism must be demonstrated throughout the entire process and in communication of the results

Question 13

Practical applications of the ACC (9)

Answer 13

• Identify alternative investment and risk management options
• Asset-liability management
• Determining the current level of profit or solvency and estimating future solvency
• Assessing the need for capital to protect against the consequences of risk events
• Assessing the need for and the calculation of provisions
• Determining the contributions/premiums required to ensure that benefit promises payable in future financial events can be met
• Determining and monitoring mortality, expense and persistency assumptions for use in the design of and reserving for contracts or schemes
• Monitoring the effect of investment mismatching
• Model validation