Ch0: Actuarial control cycle

Question 1

Processes involved in ACC

Answer 1

• Analyse situations, products and projects to determine the risks to which they are exposed
• Quantify the financial consequences of the risk events occuring
• Consider and quantify appropriate methods of managing, mitigating or transferring the risks
• Monitor the situation and the risk management procedures implemented as time develops
• In light of experience, modify or change the risk management approaches adopted

Question 2

What makes the actuarial control cycle actuarial? (9)

Answer 2

• Estimation of financial impact of future uncertain events
• Long-term rather than short-term horizon
• Recognition of stakeholders’ requirements and risk profiles
• Use of models to present future financial outcomes
• Use of assumptions based on historical experience
• Application of professional judgement
• Need to allow for business environment
• Interpretation of the results of modelling to enable practical strategies to be developed
• Monitoring and periodically analysing the emerging experience

Question 3

Steps in ACC

Answer 3

General economic and commercial environment
* Analyse the market:
* Customer needs
* Competition
* Trends in market sector
* Economic outlook
* Rules and regulations
* Terminology
* Underwriting cycle
* Opportunities to cross sell
* Key stakeholders identified and interests understood

Specifying the problem
* Company primary goal (could be: set premium rates to achieve certain profit or market share)
* Risks to company: Identified; Analysed and Mitigations
* Examples of key risks
* Quick mitigation options
* Examples

Developing the solution:
* Examination of all actuarial models currently in use and how it may be adjusted for particular problem
* Selection of most appropriate model or construction of new model
* Selection of assumtions
* Examples of assumptions
* Profitability model
* Considerations of implication of results on all stakeholders
* Consideration of alternative options
* Formalise proposal and communicating solution and alternatives to relevant stakeholders for decision making

Monitoring the experience
* Monitor actual vs expected experience for all assumptions
* Investigate the cause of any departure from expected
* Should be carried out frequently especially early in life
* Results fed back into earlier stages of cycle
* Monitor competition

Professionalism
* Relevant proffesional guidance should be taken into account throughout the process and views of all stakeholders taken into account