Chapter 0: CA1 Flashcards

1
Q

5 Nodes of the Actuarial Control Cycle

A
  • General Commercial and Economic Environment
  • Specifying the problem
  • Monitoring the Experience
  • Developing the Solution
  • Professionalism
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2
Q

Key Topics Under the General Commercial and Economic Environment

A
  • External environment
  • Stakeholders
  • Providers of benefits
  • Economic Influences
  • Regulation
  • Insurance products
  • Asset Classes
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3
Q

Key topics when specifying the problem

A
  • Assessment of NEEDS
  • Assessment of RISKS
  • Core Business Requirements
  • Strategic Courses of Action
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4
Q

Key topics in developing the solution

A
  • Selecting Appropriate Actuarial Models
  • Appropriate Assumptions
  • Implications for all Stakeholders
  • Determine a Proposed Solution and Alternatives
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5
Q

Basic elements incorporated in the actuarial control cycle (that makes it “actuarial”)

A
  • Estimation of the FINANCIAL IMPACT of uncertain future events
  • A LONG-TERM rather than short-term horizon
  • Recognition of STAKEHOLDERS’ requirements and risk profiles
  • Decisions need to be made in the short term in the light of likely future outcomes.
  • The use of MODELS to represent future financial outcomes
  • The use of ASSUMPTIONS based on appropriate historical experience.
  • The need to allow for the impact of legislation, REGULATION, taxation, competition
  • Interpretation of the results of modelling to enable practical strategies to be developed
  • MONITORING and periodically analysing the emerging experience
  • Modifying models/strategies in the light of this analysis of the emerging experience.
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6
Q

Specifying the problem

A
  • Analyse the risks of the various stakeholders in detail
    and set out clearly the problem from the point of view
    of each stakeholder.
  • Gives an assessment of the risks faced and how they
    can be managed mitigated or transferred.
  • Provide an analysis of the options for the design of plans to transfer risk from one set of stakeholders to the next.
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7
Q

Developing the solution

A

MODEL CONSTRUCTION
- An examination of the major actuarial models currently
in use and how they may be adjusted for the
particular problem to be solved
- Selection of the most appropriate model to use for the
problem, or construction of a new model
- Consideration and selection of the assumptions to be
used in the model.

MODEL RESULTS
- Interpretation of the results of the modelling process
- Consideration of the implications of the model results
on the overall problem.
- Consideration of the implications of the results for all
stakeholders

SOLUTION
- determining a proposed solution to the problem
- consideration of alternative solutions and their effects
on the problem
- formalising a proposal

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8
Q

Monitoring the experience

A
  • Critical that the models used are dynamic and reflect
    current experience where it is relevant.
  • This stage deals with the monitoring of experience
    and its feedback into the previous stages
  • Identifying causes of departures and considering the
    recurrence of departures.
  • Feedback loops
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9
Q

Investment risk

A

The uncertainty associated with the outcome of making an investment.

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10
Q

Credit risk

A

The risk that a person or an organisation will fail to make a payment that they have promised.

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11
Q

Potential stakeholders

A
  • Members of benefit schemes
  • Reinsurers
  • Financial intermediaries
  • Insurers
  • Trustees
  • Beneficiaries of insurance policies
  • Investors
  • Lenders/creditors
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12
Q

Risks occur when

A
  • The value of assets/proceeds are not as expected
  • The value of liabilities/outgoes are not as expected
  • Relative value of assets and liabilities or net cashflows
    are not as expected
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13
Q

Market risks

A

Risks related to changes in investment market values.

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14
Q

Credit risk

A

Risk of failure of third parties to repay debts.

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15
Q

Risks associated with liability outgoes

A
  • Inflation risk
  • Underwriting risk
  • Insurance risk
  • Exposure risk
  • Finance risk
  • Operational risk
  • External risk
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16
Q

Inflation risk

A

Risk of real liabilities being larger than anticipated due to inflation.

17
Q

Underwriting risk

A

Risk of failures in underwriting leading the insurer to take on risks at an inadequate price.

18
Q

Insurance risk

A

Risk of more claims being made than expected.

19
Q

Exposure risk

A

Risk of more claims arising from a particular event due to the insurer having greater exposure to a particular peril than had been appreciated.
Might be due to inadequate diversification within the portfolio of business written.

20
Q

Finance risk

A

Risk of not being able to obtain finance when required or not being able to obtain it at the anticipated cost.

21
Q

Operational risk

A

Risk of loss due to fraud or mismanagement within the organisation.

22
Q

External risk

A

Risk from external events.

23
Q

Possible solutions to mitigating risks

A
  • avoiding
  • accepting and minimising
  • sharing
  • transferring risk together with ongoing monitoring.
24
Q

Key topics in monitoring experience

A
  • Monitor actual vs expected results
  • Analysis of Surplus/Deficit
  • Possible reasons for departures and adjust accordingly
25
Q

Deviations in Cash flows are due to

A

Changes in:

  • Amount
  • Timing
26
Q

Formula for risk and what affects it

A

Risk = Probability x Impact

Affected by risk appetite and objectives