CHP1 Flashcards
1.1. What do actuaries do
Actuaries help stakeholders to identify and analyse the financial risks they face and to manage and mitigate those risks.
Actuarial skills are important for managing risks that are:
- Financial – risks have financial consequences
* Future – either the risk event of the consequence extends over a period of time.
Actuaries need to be able to:
- Use economic analyses to form judgments about future inflation and interest rates
- Use data relating to future liabilities to estimate payments that need to be met
- Build, parameterize, test and implement models
- Handle assumptions in a critical manner
- Build appropriate margins into assumptions and appreciate the impact of such margins
- Project and discount future cashflows using assumptions
- Calculate the contributions required to build up a fund over time to meet future liabilities
- Monitor the progress of the accumulation of a fund
- Analyse the variation between the actual and expected experience
- Manage the variation in the progress of a fund to ensure that future liabilities are met
- Handle data in a critical manner
- Manage the build-up of assets to meet future liabilities
- Contribute to decisions on investment policies aimed at meeting future liabilities
As professionals actuaries have other roles less closely related to risk management and analysis. And actuary should also be able to:
- 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
- Operate within an environment that requires professionalism, scrutiny and 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 cleitn and at the same time serving the public interest
- Communicate the results of work
2.1. Statutory roles that required of actuaries
An actuary is usually required to certify some or all of the following:
- In his opinion proper records have been kept for the purpose of the valuation of the liabilities
- Proper provision for the liabilities has been made
- Liabilities have been valued in accordance with any legislative rules setting out the method and assumptions for their valuations
- Liabilities have been valued in the context of the assets, which in turn have been valued in accordance with appropriate rules.
- In his opinion the premiums / contributions for future years will be sufficient, on reasonable actuarial assumptions, and taking into account the free assets of the provider to enable it to meet its commitments in respect of the contracts written, or pensions promised
- A statement of the difference between the value of the provider’s assets and its liabilities.
- He or she has complied with professional guidance notes.
4.1. Being a professional
Act with integrity and detach oneself from personal circumstances.
Achieve and demonstrate competence
Be reliable
4.2. Know your client
Knowing your client involves:
- The need to have sufficient background to put the task into context
- The need to know for whom in the client firm the work is being done
- The need to know if there are any conflicts of interest within the client firm
- What complaints procedures will be in place.
4.3. Conflict of interest
Advising different clients
In many instances, you may be advising different clients on the same transaction. Decline the work or declare COI if declining is not possible.
Chinese walls
4.3. Conflict of interest
Client and the client’s customers
Where the actuary advises the client and the client’s customers. In some countries there are legislation that ensures the clients interests are considered.
For statutory responsibilities, the actuary will need to notify the regulatory body of inconsistencies.
5.1. General questions to ask before embarking on task
- How will the results be reported in the business context and to whom?
- What will the implications of the results be and for whom?
- How will the implementation of results or proposals be monitored?
- What can be learnt from the actual outcomes and how they compare with those expected?
- How will the additional insights gained during the task be conveyed to the client?
- What resources are required?
- Is the timescale for completions of the task reasonable?
5.2. What is the problem, what task is the actuary solving
Discussions will need to be held with the client to establish issues such as:
- Who owns the problem that needs to be addressed?
- A clear statement of the problem to be addressed
- Can the problem be broken down into smaller work items
- What are the questions to be answered
- Will the answers be relevant in finding an optimal solution to the problem
5.2. What is the problem, what task is the actuary solving
What needs to be considered:
- Is the problem understood
- Is the actuary competent to answer the questions
- Have the questions been agreed with the problem-owner
- How does the problem-owner want the answers to be presented
5.3. Answering the questions, 3 generic steps
Assumptions
Methodology
Checking the answers
5.4. Communication of the answers
At all times, be aware who the client is.
Communicate the answer clearly and in a way that it can be understood.
Present the background to the solution, assumptions and areas of risk clearly.
Put forward any difficulties, e.g. shortage of data
Professional implications
