Chaoter 27 - Financial Product And Benefit Scheme Risks Flashcards
Risks and uncertainties
Risk to beneficiary
Benefits less valuable than required/expected
Will jot be received at required time
Risks and uncertainties
Risks to provider
Benefit payments greater than expected
Payments will be required at inopportune times
Benefit risks
Benefits known in advance
Inadequate funds set aside Insolvency of sponsor/provider Asset/liability mismatching Illiquid assets Change in benefit promise Beneficiaries needs not being met
Benefit risks
Benefits not known in advance
Investment returns lower than expected
Expense charges higher than expected
Annuity purchase terms poorer than expected
Beneficiaries needs not being met
Benefit risks
Further risks
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
Contribution/premium risks
Known in advance
Risks
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
Contribution/premium risks
Not known in advance
Contribution/premium will depend on
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
Contribution/premium risks
Defined benefit scheme
Associated risks
Lack of liquid funds
Excessive contributions, unaffordable
Contribution/premium risks
Risks
Takeover of sponsor/provider by third party not willing to continue to provide benefits
Extra costs through provision of guarantees
Contribution/premium risks
Risks Contribution/premium uncertianty
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
Overall security
Investment risk
Model, parameter and data risks
Strength and security of sponsor/provider
Business risks for financial product providers
Claims: mortality, morbidity, general insurance claims Expenses Withdrawals/renewals New business volume and mix Options and guarantees Use of Reinsurance or insurance
