FSI 1

Question 1

Definition of prescribed SCR:

Answer 1

Level of eligible own funds required to ensure the value of the A will not exceed technical provisions and other liabilities at a 99.5% level of certainty over a 1 year time horizon

Question 2

MCR requirements: (6)

Answer 2

1. Relative simple measure of required regulatory capital
2. Based on taking a linear sum of basic volume measures (such as written premiums)
3. Subject to a gloor of 25% of an insurer’s SCR
4. Subject to a cap of 45% of insurer’s SCR
5. Must be no less than R15M for life and non life insurers
6. Must be no less than R30M for reinsurers

Question 3

What is the SCR cover ratio?

Answer 3

Ratio of eligible own funds to SCR

Measures the financial soundness of the insurer

Question 4

A contract boundary is the date at which the insurer has the unilateral right to: (3)

Answer 4

1. Terminate the insurance contract
2. Reject the premiums payable under an insurance contract
3. Amend the premiums or benefits payable under an insurance contract in such a way that the premiums fully reflect the risks

Question 5

Future management action includes: (7)

Answer 5

1. Changes in asset allocation to manage fund returns
2. Changes in bonus rates or product changes, such as changes to policies with profit participation to mitigate market risks
3. Changes in fees charged to PHs, such as administration or investment management charges on linked business
4. Changes in assumed future market value adjustment factors
5. Renewal of outwards reinsurance arrangements
6. Renewal of hedging strategies
7. Revision of premium rates

Question 6

Best estimate of contractual options and guarantees may be valued using a: (3)

Answer 6

1. Stochastic approach, including closed-form or stochastic simulation approach
2. Series of deterministic projections
3. Deterministic valuation based on expected cashflows