Chp 0

Question 1

2. Actuarial control cycle
   The ACC is a fundamental tool for risk management.
   The model involves the following processes:

Answer 1

• Analyse situations, products and projects to determine the risks they are exposed to.
• Quantify the financial consequences of the risk events occurring
• Consider and quantify methods of managing, mitigating or transferring risk
• Monitor the situation and the risk management procedures implemented as time develops
• In light of experience, modify or change the risk management approaches

Question 2

2.1. What makes the actuarial control cycle a control cycle

Answer 2

Feedback and monitoring, this does not happen automatically and must be checked.

Question 3

2.2. What makes the actuarial control cycle actuarial

Common elements to all actuarial work:

Answer 3

• Estimation of financial impact of uncertain events
• 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
• Use of models to represent future financial outcomes
• Use of assumptions based on appropriate historical experience
• Need to allow for the impact of legislation, regulation, tax, competition
• Interpretation of results of modeling to enable practical strategies to be developed
• Monitoring and periodically analyzing the emerging experience
• Modifying models / strategies in the light of this analysis of the emerging experience.

Question 4

2.3. The steps in the actuarial control cycle

Specifying the problem

Answer 4

Analyse the risks of the various stakeholders in detail and set out the problem clearly from the point of view from each stakeholder.
This stage in the control cycle considers the strategic courses of action that could be used to handle the particular risks in question.

Question 5

Developing the solution

Answer 5

This stage involves:
• Examination of the major actuarial models currently in use and how they may be adjusted for the problem
• Selection of the most appropriate model to use or construction of a new model
• Consideration and selections of assumptions
• Interpretation of the results of the modeling process
• Consideration of the implications of the model results on the overall problem
• Consideration of the implications of the results for all stakeholders
• Determining a proposed solution to the problem
• Consideration of alternative solutions and their effects on the problem
• Formalizing a proposal

Question 6

Monitoring experience

Answer 6

Models must be dynamic and reflect current experience.
This stage deals with monitoring and feedback into the problem specification.
Important part of monitoring is to identify the causes for deviation.

Question 7

2.3. The steps in the actuarial control cycle
Feedback loops
Monitoring could indicate that:

Answer 7

• The problem was not correctly specified
• The solution does not solve the problem as specified
• Solution did not take into account some vital feature
• The solution should be refined – update, use current experience

Question 8

3. Practical applications of the actuarial control cycle
   3.1. The overall picture
   Examples of problems:

Answer 8

• Identifying the alternative investment and reinsurance options
• Asset liability management
• Defining the level of profit or solvency and future solvency
• Assessment of the need for capital to protect against the consequences of risk events
• Assessment of the need for and calculation of provisions
• Determination of the contributions / premiums required to ensure that benefit promises payable on future financial events can be met
• Determination and monitoring of mortality, expense and persistency assumptions for use within the design of and reserving for contracts or schemes
• Monitoring the effect of investment mismatching