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3. Exam 3.1 > Chapter 1, 2 and 3 > Flashcards

Chapter 1, 2 and 3 Flashcards

1
Q

Professional role of an actuary

A 
Actuaries help stakeholders to 
- IDENTIFY
- ANALYSE
- MANAGE 
- and MITIGATE
the FINANCIAL RISKS they face.
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2
Q

What do actuaries need to be able to do?

A
  • assess,
  • quantify,
  • manage,
  • monitor,

the risks inherent in:

  • financial structures,
  • products,
  • schemes,
  • contracts,
  • transactions that provide benefits on future financial events.
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3
Q

Skills necessary to perform the actuarial role:

A
  • PROJECT and discount future cashflows using assumptions
  • Use ECONOMIC ANALYSES to form judgements about future inflation and interest rates
  • handle ASSUMPTIONS in a critical manner,
  • build appropriate MARGINS into assumptions and appreciate the impact of such margins,
  • Build, parameterise, test and implement MODELS,
  • Use data relating to future LIABILITIES to estimate payments that need to be met
  • handle DATA in a critical manner.
  • manage the ACCUMULATION of assets to meet future liabilities.
  • monitor the progress of the ACCUMULATION of a fund,
  • manage the VARIANCE in the progress of a fund to ensure that future liabilities are met
  • calculate the CONTRIBUTIONS required to build up a fund over time to meet future liabilities,
  • analyse the variation between the actual and expected EXPERIENCE,
  • advise on REINSURANCE and other risk transfer mechanisms,
  • contribute to decisions on INVESTMENT POLICIES aimed at meeting future liabilities.
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4
Q

Roles of actuaries as professionals

A
  • participate with the government in SHAPING LEGISLATION that affects financial structures, products, schemes, contract and transactions that provide benefits on future financial events;
  • work with other professionals to SOLVE PROBLEMS,
    understand where and when the expertise of other professionals is needed,

FUZZY STUFF:

  • operate within an environment that requires professionalism, scrutiny, transparency in the disclosure of information,
  • apply the highest standards of independence and due diligence to protect the public interest. There should be no conflict of interest for an actuary in working for a client and at the same time serving the public interest.
  • communicate the results of all his/her work.
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5
Q

Statutory roles of actuaries

A

Mainly relate to the certification of the adequacy of the valuation of assets and liabilities for a life insurer, general insurer or pension scheme.

Certify:

  • proper RECORD being kept for liability valuation
  • proper PROVISION for liabilities made
  • liabilities valued in accordance with any legislative rules
  • liabilities valued in the context of the assets, which are valued acc. the appropriate rules
  • PREMIUMS / contributions for future years will be sufficient, to meet commitments.
  • statement of the difference btn assets and liabilities
  • He/she has complied with professional guidance.
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6
Q

5 principles of the Actuaries’ Code

A
  • integrity
  • competence and care
  • impartiality
  • compliance`
  • communication
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7
Q

3 Generic Technical Actuarial Standards (TAS)

A
  • TAS R (reporting)
  • TAS D (data)
  • TAS M (modelling)
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8
Q

3 Practice specific Technical Actuarial Standards (TAS)

A
  • insurance (TAS I)
  • pensions (TAS P)
  • areas of activity such as business transformations (TAS T)
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9
Q

Materiality (TAS definition)

A

Matters are material if they could
… individually or collectively …
INFLUENCE the DECISIONS to be taken by users of the related actuarial information.

Assessing materiality is a matter of reasonable judgement which requires consideration of the users and the context in which the work is performed and reported.

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10
Q

3 groups of principles when considering the application of a principle in TAS

A
  • Principle is not applicable
  • Is applicable but its inclusion is not material to the decision
  • Is applicable and its inclusion is material to the decision.
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11
Q

Professionalism

A

Way in which an actuary carries out the work and presents the advice resulting from the use of the skills acquired.

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12
Q

Requirements of being a professional actuary

A
  • recognises VIEWS of others
  • detachment from own circumstances
  • acts with INTEGRITY
  • good COMMUNICATOR
  • gives sound ACTUARIAL ADVICE (due to competence and skills)
  • develops a direct, personal and trusting RELATIONSHIP with client (to suitable solutions).
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13
Q

Knowing the client

A
  • Sufficient BACKGROUND about the client to put the task into context
  • know FOR WHOM in the firm the work is being performed
  • Aware of any CONFLICTS within firm
  • Aware of COMPLAINTS procedures in place
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14
Q

Procedure for completing a task at work

A
  • agree exactly WHAT “the task” is; problems to be addressed
  • gather & assess available INFORMATION
  • decide on a METHOD
  • set ASSUMPTIONS
  • arrive at “the SOLUTION(s)”
  • check the SOLUTION
  • COMMUNICATE the answer
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15
Q

4 Questions to ask before embarkation

A
  • How will the results be reported & to whom.
  • What will the implications of results be & for whom.
  • How will implementation of the results of proposals be monitored?
  • What can be learnt from the actual outcomes
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16
Q

Issues regarding “what is the problem?”

A
  • WHO owns the problem
  • WHAT are the questions that need answering?
  • CAN it be broken down into smaller problems?
  • WILL answers be relevant in finding an optimal solution to the problem?
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17
Q

Considerations when “checking the answers”

A
  • Do the answers look reasonable?
  • Do the sensitivity tests applied to the answers look reasonable?
  • What range of answers is consistent with the level of confidence associated with the assumptions made?
  • Has a peer reviewed the answers?
18
Q

4 Drivers promoted by the Actuarial Quality Framework

A
  • Methods (reliability and usefulness of actuarial methods)
  • Actuaries (technical skills of actuaries and ethics and professionalism of actuaries)
  • Communication (communication of actuarial information and advice)
  • Environment (working environment for actuaries and other factors outside the control of actuaries)
19
Q

Possible clients whom actuaries can advise (private sector)

A

INSURANCE COMPANY:

  • prospective policyholders
  • policyholders
  • board of directors
  • shareholders
  • creditors
  • auditors

BENEFIT SCHEMES:

  • members and their dependants
  • employers
  • trustees
  • sponsors
  • auditors of the sponsors

OTHER:

  • employees
  • investment fund managers
  • members of investment schemes
  • sponsors of capital projects
  • banks
20
Q

Issues on which actuaries can advise policyholders

A
  • personal protection against death and illness
  • protection of property
  • investment
21
Q

Issues on which actuaries can advise members of benefit schemes and their dependants

A
  • provision of benefits on future events such as death, retirement, illness and withdrawal
22
Q

Issues on which actuaries can advise employers

A

PROTECTION

  • against financial loss arising from the death or ill-health of employees
  • of tangible assets
  • of intangible assets

PROVISION
- provision of work-related benefits that will attract and retain good quality staff

BUSINESS

  • meeting legislative requirements
  • managing the costs of running their business
  • quantification of the amount of surplus capital in the business
  • investment of surplus capital.
23
Q

Issues on which actuaries can advise insurance companies - board of directors

A
  • meeting LEGISLATIVE REQUIREMENTS for the management of the business
  • investing and managing the ASSETS of the company
  • managing the LIABILITIES of the company
  • determining the levels of PROVISIONS to hold to meet future liabilities
  • setting PREMIUM RATES
  • ensuring that policy proceeds are paid
  • meeting policyholders’ reasonable expectations
  • meeting the demands of shareholders
  • good corporate GOVERNANCE
  • obtaining appropriate and adequate REINSURANCE to protect the business
24
Q

Issues on which actuaries can advise insurance company shareholders

A
  • obtaining a good return on their investment commensurate with risk.
25
Q

Issues on which actuaries can advise insurance company creditors

A
  • Certainty that the monies owed to them will be paid
26
Q

Issues on which actuaries can advise trustees of benefit schemes

A
  • managing the assets of the scheme
  • paying the benefits promised under the scheme as they fall due
  • maintaining solvency
27
Q

Issues on which actuaries can advise sponsors of benefits schemes

A
  • providing protection benefits that meet the needs of the members and their dependants
  • providing retirement benefits that meet the needs of the members
  • managing the cost of providing the benefits
  • meeting legislative requirements
28
Q

Issues on which actuaries can advise employees

A
  • provision of protection benefits on death
  • provision of pension benefits on retirement
  • investment of surplus personal funds
29
Q

Issues on which actuaries can advise auditors of insurance companies

A
  • assessment of long-term liabilities for life insurance companies
  • assessment of long-tail claims reserves for general insurers.
30
Q

Issues on which actuaries can advise auditors of the sponsors of benefit schemes

A
  • assessment of the future liability to pay benefits.
31
Q

Issues on which actuaries can advise government

A

LEGISLATION

  • setting legislation that impacts on the provision of financial products, schemes, contracts and transactions that provide benefits on future financial events
  • Monitoring the adherence to this legislation

BENEFIT PROVISION

  • Funding benefit provision by the State
  • Monitoring the funding of benefit provision by the State.
32
Q

Issues on which actuaries can advise the regulator

A
  • ensuring that regulatory requirements are met.
33
Q

3 types of advise that can be given

A
  • indicative advice
  • factual advice
  • recommendations
34
Q

indicative advice

A

giving an opinion without fully investigating the issues (ex. responding to a direct oral question)

35
Q

factual advice

A

based on research of facts, e.g. legislation

36
Q

recommendations

A

researched and modelled forecasts, alternatives weighted, recommendations made consistent with requirements.

37
Q

In giving advice, actuaries should:

A
  • set out alternative solutions and the implications of each solution on both the client and on other affected stakeholders
  • outline the assumptions made than the reasons for making them
38
Q

3 Basel II risk categories

A
  • market risk
  • credit risk
  • operational risk
39
Q

Corporate structure of mutuals

A
  • no shareholders
  • better benefits for the same cost
  • can’t readily raise finance by usual methods
  • certain products may be restricted or more highly priced (especially those that are capital intensive)
  • product pricing is either “at cost” or takes allowance for surplus distribution to with-profit policyholders
40
Q

Proprietary / Public Companies

A
  • Easier access to capital markets for finance
  • Economies of scale
  • More dynamic management
41
Q

The underwriting cycle relates to

A
  • profitable business leading to new entrants, greater competition, “soft” premium rates and reduced profits,
    leading to:
  • insurers leaving the market or reducing their involvement, increased premium rates or loss of business or reduced solvency and the need for capital.

3. Exam 3.1 (56 decks)

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