Extras 7

Question 1

What is solvency capital? Why use it? What combination needs to be looked at?

Answer 1

Solvency requirement required by supervisory authority
Add additional safety for policyholders
Reserves and Solvency requirements should be looked at together in their calculation.
(realistic reserves+ large solv req) or prudent reserves but solv req less based on risks)

Question 2

What 3 ways are there to allow for risk in cashflow model?

Answer 2

risk discount rate
stochastic model
margins for adverse deviation

Question 3

What is EV

Answer 3

Sum of shareholder share of net assets and present value of future shareholder profits on EB

Question 4

Why monitor experience?

Answer 4

Find EAS
Update assumptions
Monitor experience trends and take action
MI

Question 5

What do we need in data?

Answer 5

Volume
Consistent
Credible homogeneous groups
No errors
Complete

Question 6

What’s the minimum desire for homogeneous groups

Answer 6

Separate by contract type

Question 7

What effects withdrawal rates?

Answer 7

Economy
Competitiveness of product
Better products reach market
Perceived value of product to consumer

Question 8

How can withdrawal rate be calculated

Answer 8

1-(#pols at end of year)/#pols at start (exclude deaths and maturities)

Question 9

Why do an AOS for monitoring experience?

Answer 9

MI on experience
Regs
Show financial effect of NB
Show financial effect of divergence between actual and expected assumptions
Check valuation data and process
Identify one-off surplus items, enable decisions on WP bonuses

Question 10

Why do an AOEV

Answer 10

MI
Account information
Validate calcs/data/assumps used
Reconcile values for successive years
Exec Remuneration

Question 11

What will you do once a experience investigation, AOS, AOEV is complete?

Answer 11

Update views regarding future experience
Change assumps/models in pricing/valuation

Actuaries aren’t fortune tellers, so if we do it a million times we still won’t exactly be right

Question 12

Split expenses into 2 groups

Answer 12

Direct (related directly to Volume of NB or level of in force)
Overheads (balance, relate to general management and service)

Question 13

Split non-commission expenses into 4

Answer 13

Initital/renewal/terminal/invesment

Question 14

What are the expense amounts proportional to?

Answer 14

contracts written/in force

SA written/in force
Prem written/in force

Question 15

How do we proportion out marketing/underwriting/investment expenses

Answer 15

Related to init commission paid
related to size of benefit
percentage of funds under management

Question 16

4 Main types of expense and examples

Answer 16

Salary/salary related
Property (rent/heat/light/cleaning)
Computer
Investment (commission/stamp duty/investments department)

Question 17

Give the formula to reconcile data

Answer 17

Data(t-1)+NB-Run off Biz=Data(t)

Question 18

What type of benefits can you have

Answer 18

Guaranteed (monetary/price index or similar)
Discretionary
Investment linked

Question 19

What’s the formula for liability outgo?

Answer 19

Benefit payments + Expense outgo - Premium income

Question 20

In decided what goes into the NAV, what things are the same for both expropriation and appropriation?
What is different, how?

Answer 20

Same:
Current (Assets-Liabs)
+Accrued income
-Allowance for accrued tax

Different:
Market price of assets on offer basis+expenses incurred purchasing them (buying assets at high price)
MP of assets on bid basis-expenses incurred selling them (selling assets at low price)