Chp 0-4 Flashcards
1) A description of the stages in the ACC
a) 1 - Specify the problem
i) Statement of problem / identification or risks, assessment of risks, risk management techniques (managed, mitigated, transferred)
b) 2 -Develop the solution
i) Identify model to use – existing modified / new, assumptions, model results, implications (to overall problem, to all stakeholders), determine proposed solution, consider alternatives, formalizing a proposal
c) 3- Monitor the experience
i) Feedback loops, problem not fully specified, new problems, excluding vital features, solution refinement
d) General economic and commercial environment
e) Professionalism
2) Applications of the ACC
a) Setting contributions/premiums,
determining mortality/morbidity/persistency/expenses/etc assumptions,
ALM,
determining solvency requirements, provisioning,
retention level for reinsurance,
monitoring effect of investment mismatching
3) The jobs that actuaries do
a) Judgments about future interest rate / inflation,
estimating liability payments,
build/parameterize/test/implement models,
handle assumptions,
build appropriate margins,
project/discount future cashflows,
calculate contributions required,
monitor accumulation of fund (e.g. analysis of surplus),
experience analysis,
handle data in critical manner, investment decisions,
ALM
5) The statutory roles of actuaries
a) Check if proper records have been kept for valuation of L,
check provisions for L,
check if L has been valued in accordance with regulation,
check if L has been valued in context of A,
sufficiency of premiums/contributions,
statement of difference between A and L,
compliance with Professional Guidance Notes
7) The questions to ask when doing an actuarial task
a) Who is the client? What is the problem? Timescale for the task? What resources are required? Actual vs. expected? How to monitor results? What is the optimal solution? How will the results be communicated?
10) How and why information about a client should be sought in order to give advice
a) How: information about company on public domain, company website, meeting with management
b) Why: solutions must be relevant to particular circumstances of the client
12) The aims of regulation
Correct perceived market inefficiencies and promote efficient and orderly markets
Protect consumers of financial products
Maintain confidence in the financial system
Reduce financial crime
13) The costs of regulation
a) Direct costs – administration, policing/compliance
b) Indirect costs – alteration in behavior of consumers (false sense of security),
undermining sense of professional responsibility among intermediaries and advisers,
reduction in consumer protection mechanism developed by market itself,
reduced product innovation,
reduced competition
14) The extra need for regulation in the financial services industry
a) Importance of confidence in financial system – possibility of systemic financial collapse
b) Information asymmetry
17) the different forms that regulation can take (not type)
a) prescriptive with detailed rules setting out what may or may not be done
b) freedom of action but with rules on publicity so that third parties are fully informed
c) freedom of action but prescribed outcomes that will be tolerated
18) what information asymmetries there are and the steps regulators can take to address them
a) information asymmetries
i) anti-selection by policyholder
ii) avoid divulging information to provider
iii) difference in negotiating strength and expertise between providers and policyholders – with significant impact on future economic welfare of individuals
18) what information asymmetries there are and the steps regulators can take to address them
b) how to address them
i) regulation regarding disclosure of information by service provider
ii) “Chinese walls” to restrict insider-trading
iii) Price controls or regulation of selling practices
iv) Consumer protection in legal contractual documents
v) Treating consumers fairly / meet policyholder expectations – from statements made by provider, past practices of provider, general practice of other providers in the market
vi) Establish centralized compensation schemes
19) the types of regulatory regime
a) unregulated markets – e.g. markets where only professionals operate
b) voluntary codes of conduct – operates effectively but few “rogue” operators can break them
c) self-regulation
d) statutory regulation
e) mixed
c) self-regulation advantages
i) definition: regulatory system organized and operated by the market participants without government intervention
ii) advantages:
(1) implemented by people with greatest knowledge of the market
(2) have greatest incentive to achieve optimal cost benefit ratio
(3) able to respond rapidly to changes in market needs
(4) may be easier to persuade firms and individuals to co-operate
c) self-regulation disadvantages
iii) disadvantages:
(1) danger that regulator accepts industry’s point of view since regulator is too close to industry
(2) low public confidence in the system
(3) barrier to entry for new entrants
