CH 1: Actuarial advice

Question 1

Identify stakeholders in private and public sector that actuary can advise

Answer 1

Private:

Employers and employees

Insurance company:

• policyholders (current and prospective)
• shareholders
• creditors
• auditors
• board of directors

Benefit scheme:

• sponsors
• members and dependants
• trustees

Auditors

• of insurance companies
• of sponsors of benefit schemes

Investment fund managers
Investment scheme members
Sponsors of capital projects
Banks

PUBLIC:
Governments
Related organisations (central banks, regulatory bodies)

Question 2

Give types of advice to policyholders (prospective and current)

Answer 2

Personal protection against death and illness
Protection of property
Investment ‘
Retirement planning
Protection if requiring long term/housing care
Protection against personal liability claims

Question 3

Types of advice to benefit scheme members

Answer 3

Paying promised benefits under scheme when fall due (death, retirement, illness, withdrawal)

Question 4

Types of advice to sponsors of benefit schemes

Answer 4

Provision of retirement and protection mechanisms meeting members needs
Managing cost of liabilities, able to pay them
Meeting legislative requirements

Question 5

Auditors of sponsors of benefit schemes

Answer 5

How to assess/price future liabilities of benefit schemes

Question 6

Government

Answer 6

Setting legislation that impacts provision of financial products
Monitoring adherence to the regulations
State benefit funding, monitoring this funding

Question 7

Employers

Answer 7

Protection against financial loss from employee death/illness
Asset protection
Work related benefits to attract quality staff
Meeting legislative requirements
Managing business running costs
Quantifying surplus capital in business
Investment of surplus capital

Question 8

Employees

Answer 8

Provision of protection benefits on death/sickness, pension on retirement
Investment of personal funds

Question 9

Insurance company

Answer 9

Board of directors:

• meeting legislative requirements
• asset management and investment
• liability management
• level of provisions to hold for future liabilities
• setting premiums
• meeting policyholders reasonable expectations
• good corporate governance
• reinsuarance

Shareholders
- getting good return for level of risk undertaken

Creditors
- money owed to be paid

Auditors
- assessment of provisions

Question 10

Investment fund managers

Answer 10

Investment strategy to meet liabilities and objectives

Question 11

Members of investment schemes

Answer 11

• understand how to invest to meet objectives and specific liabilities

Question 12

Sponsors of capital projects

Answer 12

• assessment of risks underlying project
• risk mitigation techniques
• evaluating future CFS

Question 13

Banks

Answer 13

• provision of investment savings products
• use of investment/surplus funds
• central bank on monetary policy
• account holders: disclosure of products

Question 14

Regulators

Answer 14

Ensuring regulaltory requirements met

Question 15

Give types of advice actuaries can provide

Answer 15

Indicative - gives opinion without fully investigating issues (eg oral)
Factual - based on research/facts
Recommendations - researched and modelled forecasts, alternatives weighted, recommendations made consistent with requirements. Work normally peer reviewed

Question 16

What responsibilities does the actuary have in giving advice/recommendations

Answer 16

• actuary gives advice but client decides on solution to adopt
• actuary must explain assumptions made when reaching advice and recomendation
• explain to client implications of alternative assumptions and solutions considered but not recommended
• implication of other solutions on client and other stakeholders affected

Question 17

What responsibilities does the actuary have in making decisions

Answer 17

• actuary makes final decision
• well documented rational behind making decision, and alternatives
• if actuary is one taking and advice and giving it ( eg executive role), must seek further advice or peer review of decision made. Must not only go on own judgement

Question 18

Discuss the professional and technical standards that might apply to actuarial advice

Answer 18

Professional conduct standards:

Principals : Integrity, competence and care, impartiality, compliance, speaking up, communication
UK: Actuaries Code
SA: Code of Professional Conduct ASSA

Technical and ethical standards:

Standards of best practise, apply to all members of a profession
Disciplinary procedure in event of not following
Most actuarial organisations have their own frameworks and codes

Actuarial quality framework:

Supports effective communication between actuaries and other stakeholders in actuarial work
Aims to promote drivers of actuarial quality:
- Methods: reliability and usefulness
- Communication of info and results
- Actuaries: technical skills, ethics, professionallisim
- Environment: working environment for actuaries and other factors outside their control

Question 19

Give potential conflicts of interest (in questions)