Chapter 0 - What Is Subject CA1 All About? Flashcards
Define the Actuarial Control Cycle.
It is a fundamental tool for risk management
A simple model to gain a clear understanding of a situation
What is risk management?
It is the process of analyzing, quantifying, mitigating and monitoring risks.
What does the actuarial control cycle involve?
- Determine risk exposure by analysing the situation, product or project
- Quantify financial consequences of risk events
- Consider + quantify methods of mitigating, managing or transferring risks
- Monitor the situation + risk management procedures
- Modify/ change risk management approaches
What makes the Actuarial Control Cycle “Actuarial”?
- Estimation of financial impact of uncertain future events
- LT and not ST
- ST decisions, but keeping in mind likely future outcomes
- Recognition of stakeholder’s requirements + risk profiles
- Impact of legislation, regulation, tax & competition
Modeling - Use of models to predict likely future outcomes
- Assumptions based on historical experience
- Interpret results -> practical strategies
- Monitor and periodically analyse experience
- Modify models/strategies when experience changes
Name common actuarial issues
- Monitor effect of investment mismanagement
- Asset-Liability management
- Assess need for capital to protect against risk events
- Asses the need for + calculation of provisions
- Identify alternative investment + reinsurance options
- Determine premiums / contributions
- Define level of profit/solvency + future solvency
- Determine + monitor mortality, expenses and persistency assumptions
What is risk?
It is exposure to events being different from those expected.
Name and explain the types of risks.
Investment: Uncertainty associated with investment outcomes
Credit: Person/ company fails to make a payment
Market: Change in investment market values
Currency: Exchange rate changes unfavorably
Inflation: Real liabilities > expected
Underwriting: Bad underwriting leads to insurer charging the wrong premium
Insurance: More claims than expected
Finance: Can’t obtain finance / cost is too high
Operational: Risk of loss due to fraud/mismanagement
External: Legislation may change
Exposure: More claims from one event than expected
Actuarial: Stakeholder’s objectives are not met
Business: Inadequate profits (or even losses)
Other : Customer dissatisfaction, expense risk, risk of poor sales
How can one manage risk?
- Elimination
- Mitigation
- Avoiding
- Accept + minimise
- Share
- Transfer
What steps are involved in developing the solution in the Actuarial Control Cycle?
- Consider current models + adjustments
- Select or construct models
- Select assumptions + consider sensitivities
- Interpret results from modeling process
- Consider implication of model results on overall problem
- Consider implication of model results on stakeholders
- Determine solution
- Consider alternative solutions + how it effects the problem
- Formalise proposal
What does professionalism entail for the Actuarial Control Cycle?
- Follow TASs
2. Consider stakeholder views
How would you monitor the experience (in the actuarial control cycle)?
- Models must be dynamic + reflect current experience
- Update the investigation
- Identify causes of deviations, does it recur?
- Refine solution
- Feedback loops
How would you specify the problem in the actuarial control cycle?
- Analyse risks of stakeholders
- Set out problem from viewpoints of stakeholders
- Consider strategic course of action that could handle the risk
- Assess risk -> manage, mitigate or transfer
- How to transfer risks between stakeholders
What kinds of factors that fall in the general commercial and economic environment of the actuarial control cycle?
- Terminology
- Correlations
- Legislation + regulatory framework
- Tax and economic trends
- Customer behaviour + needs
- Competitors
- Performance benchmarks
- Professional guidance
- Products, risks and features
