Exam Prep Flashcards
What are the 3 steps of the ACC
- Define the problem
- Design the solution
- Monitor
What are the 3 additional steps of the ACC? (Commercial & Economic Environment)
- Regulation
- Competitive position
- Professionalism
Name the 3 methods in allowing for risk in calculations (BCD)
- BE + margin
- Contingency load
- Discounting at risk premium
Name the 3 main assumptions underlying a premium calculation (CCC)
- Cost of Benefits
- Cost of Expenses
- Contribution to Profit
Name the 5 areas of an expense loading (Pursuit)
Product development cost
Renewal cost
Sales cost
Underwriting cost
Termination cost
Name the 3 steps of expense analysis (FAC)
- Fixed vs variable
- Allocate to function/class
- Convert to expense loadings based on appropriate driver (e.g. policies in-force)
Name the 5 areas of risk management (DUMMC)
- Diversification
- Underwriting
- Management controls
- Mitigation
- Claims control systems
List the 4 types of capital management solutions
- Subordinated debt
- Contingent capital
- Liquidity facilities
- Senior unsecured finance
Name 8 types of insurance a university would require
- Public liability
- Employer liability
- Buildings Property Damage
- Contents
- Fidelity insurance
- Business interruption
- Professional indemnity
- Cyber insurance
What is the name of the insurance product which protects against employee fraud/malpractise
Fidelity
Name the 4 steps to risk identification & analysis
- High level preliminary analysis - ensure risk isn’t too high to continue
- Brainstorm with internal & external experts
- Set out all risks & mitigations
- Construct Risk-Register including all interdependencies
Name 3 merits of a deterministic model
- Easier to use/explain
- Cheaper & quicker to build
- Quicker to run
Name 3 merits of a Stochastic model
- Greater quality of results
- Can better test economic scenarios
- Good for assessing guarantees
Name the 5 functions of a Data Governance policy
- Set specific roles & responsibilities of individuals
- Detail how data is captured, analysed & processed
- Sets out privacy & security issues & how to meet these
- How the adequacy of controls will be monitored
- Detail how regulatory requirements are met
Name the 4 aspects which can be matched when asset-liability matching
- Currency
- Uncertainty
- Nature
- Term
Name the 5 types of selection
- Anti-selection
- Temporary-initial selection
- Class selection
- Spurious selection
- Time selection
Name the 7 main considerations when designing a financial product/contract
Capital requirements
Competition
Regulation
Risk appetite
Admin systems
Market for product
Premium/charges
Give an example of decrements having a selective effect
Those who withdraw from life insurance policies generally have lighter mortality
How does heterogeneity allow for pricing based on homogenous groups?
By pooling independent, homogenous risks, as a result of the Central Limit Theorem, profit per policy will be a normal distribution with known mean and SD, allowing the insurer to set premium which ensures the probability of loss on a portfolio is at an acceptable level
Why is it not appropriate to model all risks individually?
Prohibitively expensive so only appropriate where risks are large and tough to group
Why is it necessary to have different mortality tables for different classes of lives?
If a life table existed for a heterogenous group, it would depend on the mix of lives
Name the 6 principal factors in variation to mortality & morbidity
Housing
Occupation
Genetics
Geography
Education
Nutrition
Name the 6 other factors in setting premium (aside from cost of benefits & expenses + profit contribution)
Tax
Investment income
Commission
Cost of Capital
Contingency margin
Cost of options/guarantees
When might a firm not use asset-liability matching in their investment strategy?
- If it’s prohibitively expensive
- If they have free assets
What is tactical asset allocation?
Departing from the standard investment structure in search of greater returns
What is risk budgeting?
An investment style where asset allocations are based on an asset’s risk contribution to the portfolio as well as on the asset’s expected return
Name the 5 subheadings of ‘Sales & Marketing costs’ under PURSUIT
Marketing
Admin systems - setting up contracts
Commission
Investment costs
Share of overheads
Name the 4 additional points in the Premium Calculation
Cost of Benefits + Cost of Expenses + Profit reqt
Tax
Cost of capital
Cot of options/guarantees
Contingency margin
What is professional indemnity insurance?
Insurance against claims arising from negligent advice or services, covering legal costs and potential compensation for financial losses suffered by clients
Name the 3 additional Capital Management tools
- Diversification
- Derivatives
- Internal restructuring
Name 5 potential issues with overseas investments
Currency stability
Communication
Restrictions
Availability/quality of data
Political stability
Name 5 operational rules with respect to a model
Documented
Ease of communication of results
Sensible joint behaviour of variables
Not overly complex
Range of methods should be available
Name the 3 risks faced in a defined contribution scheme and who faces them
(risk during accrual & at retirement)
Investment risk - member
Longevity risk at retirement - member
Reputational risk - sponsor (if employees are left with a small fund)
Name the 2 risks faced in a defined benefits scheme and who faces them
Investment risk - sponsor
Default risk of sponsor - member
When presenting model results to a client, what should be made clear?
Made clear that there is uncertainty in underlying assumptions
Name the 3 characterisations of ‘Big Data’
Very large datasets
Compiling multiple sources
Which can be analysed very quickly
How can data be transformed to be held to less strict data protection laws
Anonymisation
What’s the main criticism of big data?
That it’s excessive, parts are irrelevant and goes against the data protection guidance of data minimisation
The … will not be an acceptable excuse for failing to obtain consent where it is required
complexity of big data
Name 5 reasons historical data may not be a good reflection of future experience?
- Different recording methods
- Significant random fluctuation
- Events distorting
- Changes in homogenous groups
- Medical advancements
When placing a value on liabilities, for healthcare, life and general insurers, the prime information source will be … so it needs to produce relevant and reliable information
the proposal form
Underwriting questions should be
unambiguous & well-designed
What’s the main data concern wrt a benefit scheme?
That the data is not in the provider’s control - it is collected by the sponsor
Name 4 potential drivers of heterogeneity in a working-party data source
Operate in different geographical or socio-economic sections of the market
Unidentical sales methods
Different practices, eg underwriting
Nature of the data stored will not always be the same
Name the 5 main things to consider when setting an assumption
Consistency with other assumptions
Client needs
Use
Materiality
Regulatory restraints
Why may census tables not be as useful for an insurer?
Includes all lives an is not restricted to those that would buy insurance
What is a profit criterion?
A single figure designed to measure which contracts make the most efficient use of a company’s capital.
Name the 7 methods of asset valuation (HMS FEDS)
Historic book value
Market value
Smoothed market value
Fair value
Equivalent portfolio
Discounted cashflow model
Stochastic model
Name the 3 methods for financing future benefits
- Pay as you go
- Holding full provisions in advance
- Just-in-time
Define diversifiable risk
Risk that arises from an individual component of a financial market or system
Name the 3 benefits of enterprise risk management
- Full appreciation of concentration risk
- Allowance for diversification
- Better understanding of risk drives more efficient capital allocation
Why may a firm not perfectly asset-liability match?
- Can be prohibitively expensive
- Limited assets available
- Liabilities may be uncertain
- Liabilities may include options
Name the 3 types of risk within climate change risk
- Physical risk
- Transition risk
- Liability risk
Why may beneficiary needs not be met by their pension, even when the benefit is defined?
- Failure to recognise this when benefit promise was made
- Inflation eroding value
- Circumstances changing
Although published statements of risk appetite may be unquantified, …
providers should have a quantifiable risk appetite which can be included in management information packs
What can an insurer do in the underwriting process where a particular rating factor is not practical to obtain?
Use a proxy which is correlated with the ideal rating factor e.g. driver speed can be proxied by considering type of car/engine size
Name the 3 criteria for a risk to be insurable
- Policyholder having an interest in risk being insured
- Risk must be financial & quantifiable
- Amount payable must have relationship with financial loss incurred
What is the principle of pooling risk?
Risks can be pooled, meaning there’s greater certainty in future payments made on occurrence of insured events
Name the 5 criteria for risks to be pooled
Independent risk events
Probability of event being small
Ultimate limit on liability
Moral hazard should be eliminated
Should be sufficient data to estimate likelihood of occurrence
Scenario analysis can only be used on…
Deterministic models
