Ch34: Reporting results

Question 1

Reports accompanying accounts might disclose additional information such as commentary on: (5) PI ORG

Answer 1

• Performance of the company against key objectives
• Company’s investment strategy and investment performance
• Progress of company against its long-term and short-term strategic objectives
• The company’s attitude to risk, the key risks it faces and how it manages and mitigates these risks
• Company’s governance arrangements and how the board assures itself of independence

Question 2

Two main purposes of the actuarial valuation of a benefit scheme are to:

Answer 2

• Demonstrate solvency (i.e. funding level) of the scheme
• Determine the future contribution rate required

Question 3

Describe how disclosure could help improvement of security of non-state provision

Answer 3

• Making operation of the scheme more transparent and so subject to scrutiny
• Alerting members and trustees to potential problems, possibly enabling them to put pressure
  on the scheme sponsor to address these potential problems
• Providing members with the opportunity to leave the scheme if they are not happy with the
  level of security offered. If members did this in sufficient numbers, sponsor may respond by
  addressing the security issue.

Question 4

Disclosure to beneficiaries could include details of the: (6)

Answer 4

• Benefit entitlements
• Contribution obligations
• Expense charges
• Investment strategy
• Risks involved
• Treatment of the entitlements in the event of insolvency

Question 5

Accounting standards aim to achieve (4)

Answer 5

• Recognizing the realistic costs of accruing benefits
• Avoiding distortions resulting from fluctuations in the flow of contributions from the employer to the pension scheme
• Consistency in the accounting treatment from year to year
• Disclosure of appropriate information

Question 6

Possible disclosure requirements that may be needed include the: (9)

Answer 6

• Assumptions used
• Actuarial method used
• Value of liabilities accruing over the year
• Increase in the past service liabilities over the year
• Investment return achieved on the assets over the year
• Surplus/deficit
• Change in the surplus/deficit over the year
• Benefit cost over the year in respect of any directors
• Membership movements

Question 7

Important ratios to consider (4)

Answer 7

• Incurred expenses to premium income
• Commission to premium income
• Operating ratio - Total incurred claims and expenses to premium income (Important for short-term classes of business)
• Outward reinsurance premium income to gross premium income

Question 8

Why is operating ratio important fro short-term business

Answer 8

• Most cashflows occur in a single year and major items of interest are the, expenses, premiums and claims
• Thus operating ratio can give measure of profitability
• For long-term cashflows are spread over a longer time period and included maintenance of appropriate provisions over this time period. Analysis of single year not very enlightening