Chapter 0: CA1 Flashcards
5 Nodes of the Actuarial Control Cycle
- General Commercial and Economic Environment
- Specifying the problem
- Monitoring the Experience
- Developing the Solution
- Professionalism
Key Topics Under the General Commercial and Economic Environment
- External environment
- Stakeholders
- Providers of benefits
- Economic Influences
- Regulation
- Insurance products
- Asset Classes
Key topics when specifying the problem
- Assessment of NEEDS
- Assessment of RISKS
- Core Business Requirements
- Strategic Courses of Action
Key topics in developing the solution
- Selecting Appropriate Actuarial Models
- Appropriate Assumptions
- Implications for all Stakeholders
- Determine a Proposed Solution and Alternatives
Basic elements incorporated in the actuarial control cycle (that makes it “actuarial”)
- 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.
Specifying the problem
- 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.
Developing the solution
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
Monitoring the experience
- 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
Investment risk
The uncertainty associated with the outcome of making an investment.
Credit risk
The risk that a person or an organisation will fail to make a payment that they have promised.
Potential stakeholders
- Members of benefit schemes
- Reinsurers
- Financial intermediaries
- Insurers
- Trustees
- Beneficiaries of insurance policies
- Investors
- Lenders/creditors
Risks occur when
- 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
Market risks
Risks related to changes in investment market values.
Credit risk
Risk of failure of third parties to repay debts.
Risks associated with liability outgoes
- Inflation risk
- Underwriting risk
- Insurance risk
- Exposure risk
- Finance risk
- Operational risk
- External risk
