CH 1: Actuarial Advice

Question 1

Clients (consumers/beneficiaries) (6)

Answer 1

• Policyholders
• Prospective policyholders
• Members of benefit schemes and their dependants
• Employers
• Members of investment schemes

Question 2

Clients (providers) (2)

Answer 2

• Employers
• Insurance companies
• Trustees of benefit schemes

Question 3

Clients (owners/managers of providers) (3)

Answer 3

• Board of directors
• Shareholders
• Investment fund managers

Question 4

Clients (providers of capital) (4)

Answer 4

• Creditors
• Sponsors of capital projects
• Sponsors of benefit schemes
• Banks

Question 5

Clients (Regulatory position) (2)

Answer 5

• Auditors
• Government

Question 6

Important things to consider when giving advice (4)

Answer 6

• Identify all stakeholders involved
• Retain a sense of proportion of the interests of certain stakeholders
• Omitting certain stakeholders may distort the context of the advice
• Not all stakeholders directly involved in remunerating the actuary for advice

Question 7

Interest of current/prospective policyholders (3)

Answer 7

• Personal protection against death and illness
• Protection of property
• Investment

Question 8

Interests of current/prospective policyholders (3)

Answer 8

• Personal protection against death or illness
• Protection of property
• Investment

Question 9

Interests of members of benefit schemes and their dependants (1)

Answer 9

• Provision of benefits on future events such as death, retirement, illness and withdrawal

Question 10

Interests of employers (7)

Answer 10

• Protection against financial loss arising from the death or ill health of employees
• Protection of assets
• Provision of work related benefits that will attract and retain good quality employees
• Meeting legislative requirements
• Managing the costs of running the business
• Quantification of the amount of surplus capital in the business
• Investment of surplus capital

Question 11

Interests of insurance company board of directors (8)

Answer 11

• Meeting legislative requirements for the management of the business
• Investing and managing the assets of the company
• Managing the liabilities of the company
• Determining the level of provisions to hold to meet future liabilities
• Setting premium rates
• Meeting policyholders’ reasonable expectations
• Good corporate governance
• Obtaining appropriate and adequate reinsurance to protect the business

Question 12

Interests of insurance company shareholders (1)

Answer 12

• Obtaining a good return on their investment and the return reflects the risk taken

Question 13

Interests of creditors (1)

Answer 13

• Certainty that monies owed to them will be paid

Question 14

Interests of trustees of benefit schemes (3)

Answer 14

• Managing the assets of the scheme
• Paying benefits promised under the scheme as they fall due
• Maintaining solvency

Question 15

Interest of sponsors of benefit schemes (4)

Answer 15

• Providing protection benefits that meet the needs of their members and their dependants
• Providing retirement benefits that meet the needs of their members
• Managing the cost of providing the benefits
• Meeting legislative requirements

Question 16

Interests of employees (3)

Answer 16

• Provision of protection benefits on death or sickness
• Provision of pension benefits on retirement
• Investment of surplus personal funds

Question 17

Interests of auditors (1)

Answer 17

• May require advice on assessment of provisions

Question 18

Interests of sponsors of benefit schemes (1)

Answer 18

• May require advice on the assessment of future liability to pay benefits

Question 19

Interests of investment fund managers (1)

Answer 19

• May require advice on investment strategy taking into consideration the need to meet future liabilities

Question 20

Interests of members of investment schemes (1)

Answer 20

• How to invest in order to meet specific liabilities or objectives

Question 21

Interests of Sponsors of capital projects (3)

Answer 21

• Assessment of the risks underlying the project
• Consideration of potential risk mitigation techniques
• Evaluation of future cashflows

Question 22

Interests of banks (3)

Answer 22

• Provision of investment and savings products and investment of surplus funds
• Advice to central banks on monetary strategy
• Providing account holders with disclosure info on products

Question 23

Interests of government (4)

Answer 23

• 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

Question 24

Interests of regulators (1)

Answer 24

• Ensuring regulatory requirements are met

Question 25

Types of advice (3)

Answer 25

• Factual
• Giving an opinion without fully investigating the issues
• Indicative
• Based on research of facts
• Recommendations
• Researched and modelled forecasts, alternatives weighted, recommendation consistent with requirements, work normally peer-reviewed