Key Lists

Question 1

List the areas covered in the PPFM.

Answer 1

1. Payouts - how they are determined.
2. RB policy
3. TB policy
4. Smoothing policy
5. Investment strategy
6. Business risk and how it is managed
7. Inherited Estate management
8. Charges and expenses
9. Equity between policyholders and shareholders
10. Closure to NB

Question 2

List all the factors to consider regarding the environment for writing new business in the UK.

Answer 2

1. Regulation and government influence.
   
   • FSMA 2000
   • Mis-selling
   • Depolarisation
   • RDR
   • Charge caps
2. Policyholder tax
   
   • Premium tax relief 1984
   • Pensions taxation
   • LISA April 2017
3. Economic conditions
   
   • Low interest rates and inflation
   • 2000 and 2008
   • Effect on projection rules
4. Publicity
   
   • Mis-selling
   • WP not transparent
   • Poor admin
   • Equitable Life
5. Technology
   
   • Comparison sites
   • Website functionality competitive
   • Outsourcing legacy business
6. Target markets
   
   • Longevity
   • Interest rates
   • State support
   • “Savings Gap”
   • Auto-enrolment
7. Competition
   
   • Banks
   • Building societies
   • Fund management companies
   • Non-traditional financial companies
   • NEST 0.3% AMC
8. Industry bodies e.g. ABI
   
   • Code of Conduct on Retirement Choices 2013
   • The Guidance Guarantee 2015

Question 3

List possible sources of operational risk.

Answer 3

1. Mis-selling
2. Mis-pricing
3. Inadequate experience analysis
4. Model risk
5. Admin errors
6. IT failures
7. Transaction processing errors
8. Data issues
9. Damage to physical assets
10. Business disruptions
11. Customer services standards
12. Staff retention
13. Key person risk
14. Fraud
15. Failure to comply with health and safety regulation

Question 4

What are the factors to consider regarding product design?

Answer 4

1. Profitability
   
   • Return on capital
   • Charging structure / premium rate
   • Profit reporting method
   • Contribution to overheads
   • Product development expenses
   • NB Volumes
   • Pricing assumptions
   • External pricing advice
2. Marketability
   
   • Attractiveness to customers
   • Target market
   • Competitors products
   • Tax position
   • State benefits
   • Options and guarantees
   • Surrender penalties
3. Capital Requirements
   
   • Must have enough capital
   • Additional initial capital required?
   • May be high under S2
   • Eligible for matching adjustment?
   • Onerousness of options and guarantees
   • Hedging
4. Sensitivity of Profit
   
   • Level of risk
   • Risk drivers
   • Risk mitigations (e.g Reinsurance)
   • Scenario testing
   • Cross-subsidies / business mix risk
5. Distribution
   
   • Sales channels
   • Remuneration
   • Commission loading
   • Underwriting philosophy
6. Admin Systems
   
   • Training
   • New literature
   • Outsourcing