CH0: Introduction Flashcards
1
Q
What makes the actuarial control cycle ‘actuarial’?
A
The actuarial control cycle incorporates the following basic elements, which are common to all actuarial and risk management work:
- the estimation of the financial impact of uncertain future events
- a long-term rather than short-term time horizon, but decisions to be made in the short term in the light of likely future outcomes
- consideration of stakeholders (requirements and risk appetite), legislation, regulation, tax and competition
- the use of assumptions based on appropriate historical experience
- the use of models and interpretation of the results to develop strategies
- monitoring the emerging experience in order to update models and strategies
- the application of professional judgement
2
Q
What does the ‘specifying the problem’ stage of the actuarial control cycle involve?
A
- Setting out clearly the problem from the viewpoint of each stakeholder
- Assessing and analysing the risks for each stakeholder
- Considering the strategic courses of action available to mitigate the particular risks in question
- In particular, analysing the options for designing solutions to the problem that transfer risk from one set of stakeholders to another
3
Q
What does the ‘developing the solution’ stage of the actuarial control cycle involve?
A
- Examining the major actuarial models currently in use
- Selecting the most appropriate model to use, or constructing a new model
- Considering and selecting the assumptions to be used in the model - Understanding the sensitivity of the results to the assumptions
- Interpreting the results of the modelling process
- Considering the implications of the results on the overall problem and for each stakeholder
- Determining a proposed solution to the problem
- Considering alternative solutions and their effects on the problem
- Formalising a proposal
- Communicating the proposed solution (and alternatives) to the stakeholders responsible for decision taking
4
Q
What does the ‘monitoring the experience’ stage of the actuarial control cycle involve?
A
- Analysing periodically actual experience against expected
- Identifying causes of departure from expected experience and determining whether each source is one-off or likely to recur
- Feeding back into the specifying the problem and developing the solution stages of the actuarial control cycle
- Making sure the model is ‘dynamic’ and reflects current experience
- The monitoring of new contracts or new elements of a contract should occur more frequently.
5
Q
List applications of the actuarial control cycle in actuarial work.
A
- Asset-liability management (eg setting investment strategy)
- Considering insurance and reinsurance options
- Considering other risk management options
- Determining the profitability of a contract
- Considering the need for and calculation of provisions
- Determining the (current and future) solvency levels
- Assessing capital requirements
- Determining premiums / contributions
- Assumptions setting for contract / scheme design
