Chaoter 27 - Financial Product And Benefit Scheme Risks Flashcards

1
Q

Risks and uncertainties

Risk to beneficiary

A

Benefits less valuable than required/expected

Will jot be received at required time

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2
Q

Risks and uncertainties

Risks to provider

A

Benefit payments greater than expected

Payments will be required at inopportune times

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3
Q

Benefit risks

Benefits known in advance

A
Inadequate funds set aside
Insolvency of sponsor/provider
Asset/liability mismatching
Illiquid assets
Change in benefit promise
Beneficiaries needs not being met
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4
Q

Benefit risks

Benefits not known in advance

A

Investment returns lower than expected
Expense charges higher than expected
Annuity purchase terms poorer than expected
Beneficiaries needs not being met

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5
Q

Benefit risks

Further risks

A

Default by sponsor/provider
Failure by sponsor/provider to pay contributions in timely manner
Takeover of sponsor/provider
Decision by sponsor/provider that benefits will be reduced
Inadequate communication by sponsor/provider with Beneficiaries
General economic mismanagement of assets and liabilities by sponsor/provider

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6
Q

Contribution/premium risks

Known in advance

Risks

A

The Contribution/premium unaffordable
Insufficient liquidity to make payments in timely manner
Contribution/premium linked to inflationary factor has risk of increasing rapidly
Contribution/premium not linked to inflation, eroded by inflation

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7
Q

Contribution/premium risks

Not known in advance

Contribution/premium will depend on

A

Amount of promised benefits
Probability of individuals eligible to accrue benefits
Probability of individuals eligible receive benefits
Effect of inflation on real level of benefits
Investment return on Contribution/premium

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8
Q

Contribution/premium risks

Defined benefit scheme

Associated risks

A

Lack of liquid funds

Excessive contributions, unaffordable

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9
Q

Contribution/premium risks

Risks

A

Takeover of sponsor/provider by third party not willing to continue to provide benefits
Extra costs through provision of guarantees

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10
Q

Contribution/premium risks

Risks Contribution/premium uncertianty

A

Loss of funds due to fraud or misappropriation
Incorrect benefit payments
Inappropriate advice
Admin costs
Decision by parties to whom power has been delegated
Fined or removal of tax status due to non compliance
Changes to tax rates or status

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11
Q

Overall security

A

Investment risk
Model, parameter and data risks
Strength and security of sponsor/provider

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12
Q

Business risks for financial product providers

A
Claims: mortality, morbidity, general insurance claims
Expenses
Withdrawals/renewals
New business volume and mix
Options and guarantees 
Use of Reinsurance or insurance
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