CPI Acronyms Part 9-10

Question 1

Factors affecting the strength of basis

LINR

Ch.31 Provisions

Answer 1

o Legislative / regulatory requirement
 In some cases, the method may be prescribed
o It may be appropriate to provide a range of values
o Needs of client
o Reasons for valuation

Question 2

Reasons for valuing liabilities

BAD MEDICS

Answer 2

o Benefit improvements for a benefit scheme
o Accounts and reports – published / internal
o Discontinuance / surrender benefits
o Merger and acquisitions
o Excess of assets over liabilities so whether discretionary benefits can be awarded
o Disclosure information for beneficiaries
o Investment strategy
o Contribution / premium setting
o Supervisory solvency report

Question 3

Issues for consideration in offering guarantees and options

CRSMP

Ch.32 Valuation of Liabs

Answer 3

o Cost
o Risks and controlling risk
o Selection/flat rate annuity terms
o Modelling
o Practical and external issues

Question 4

Information for beneficiaries

SCRIBE

Ch.33 Reporting results

Answer 4

 Strategy for investment
 Contribution obligations
 Risks involved
 Insolvency entitlement
 Benefit entitlement
 Expense charges

Question 5

o Timing of disclosure

PRICE

Ch.33 Reporting results

Answer 5

 Payment commencement
 Request
 Intervals (regular)
 Combination
 Entry

Question 6

o Common aims of accounting standards

RACE

Ch.33 Reporting results

Answer 6

 Recognising the realistic costs of the benefits
 Avoiding distortions from fluctuating contribution levels
 Consistency in accounts preparation
 Ensuring appropriate information is disclosed

Question 7

Information for owners of capital (e.g. sharehol. of the scheme spons.)

DIM CLAIMS

Answer 7

 Directors’ benefit costs
 Investment
* Value of assets
* Asset allocation
* Investment return over the year
 Membership movements
 Change in surplus/deficit over the year
* Extreme events
* Risks that could impact on the surplus in the future
 Liabilities accruing over the year
 Assumptions
* Expenses incurred in running the scheme in the past year
 Increase in past service liabilities
 Method
 Surplus/deficit

Question 8

The benefit provider, e.g. employer

SIMMERS

Answer 8

 Sponsor is aware of financial significance of benefits
 Informed decisions can be made
 Misleading information avoided, e.g. over expense charges
 Manages the expectations of members
 Encourages take up
 Regulatory requirement
 Security of scheme improved as sponsor/trustees are made more accountable

Question 9

 Regulation in place includes

RPCI

Answer 9

• Required level of solvency capital
• Prudent assessment
• Continual monitoring
• Intervention when breach limit (Acronym: PRBIC)

Question 10

* Intervention when breach limit

PRBIC

Answer 10

o Put in place a recovery plan
o Reduce the level of business written
o Better matched investment strategy
o Increase reinsurance
o Close to new business

Question 11

o Financial services providers

REG CUSHION

Answer 11

 Regulatory requirement to demonstrate solvency
 Expenses of launching a new product/starting a new operation (saving for the future)
 Guarantees can be offered
 Cashflow management (e.g. timing mismatch between receiving premiums and paying claims and expenses)
 Unexpected events (e.g. adverse claims experience or fines from regulator)
 Smoothed profit
 Help demonstrate financial strength / attract new business / obtain a good credit rating
 Investment freedom to mismatch its liabilities
 Opportunities (strategic gains such as mergers or acquisitions)
 New business strain financing (start-up capital)

Question 12

- Reasons for analysing surplus

DIVERGENCE

Answer 12

o Divergence of actual vs expected (show financial effects / significance of)
o Information to management and for accounts
o Variance of whole = sum of variance from individual sources (showing completeness)
o Experience monitoring to feedback to actuarial control cycle
o Reconcile values for successive years
o Group into one-off / recurring sources of surplus
o Executive remuneration scheme (data for)
o New business strain (show effects of)
o Check on valuation assumptions and calculations
o Extra check on valuation data and process

Question 13

- Why past data is not representative of future experience

BEST ARCHER

Answer 13

o Balance of homogenous groups underlying the data may have changed
o Economic situation may have changed
o Social conditions may have changed
o Trends over time, e.g. medical and demographic
o Abnormal fluctuation
o Random fluctuation
o Changes in regulation
o Heterogeneity within the group to which the assumptions will apply
o Errors in data
o Recording differences (e.g. in categorisation of smoker)