Lists Flashcards
Advantages of the DCF method for pricing (FAST CAR WOER)
-allows for financing requirement of the product and the insurer
-allow for need to set up reserve and meet solvency requirements
-sensitivity testing to determine margins
-tax
-complex charge and benefit structures
-assumptions may vary over time
-reinsurance and funding requirements can be allowed for
-withdrawals and coversion to PU can be allowed for
-Options and guarantees are modelled
-expected returns that providers of capital will receive can be measured
-risk discount rate can allow for the term structure of interest rates
Actuarial function needs to express an opinion to BoD on (TRP MACADAMS)
-Calculations underlying the TPs
-Appropriateness and impact of risk mitigation strategies
-Appropriateness of policies
-calculations underlying the MCR
-appropriateness of assumptions, methods and models
-accuracy of calculations
-appropriateness of approx and judgement
-data sufficiency and quality
-actual vs expected when evaluating TPs
-appropriateness or impact of assumed management actions
-calculations underlying the SCR
Actuarial function needs to evaluate and provide advice on (BII FOIST)
-awarding of bonuses
-internal controls
-investment policy
-financial soundness position (impact of dividends and bonuses)
-actuarial matters related to ORSA
-development and use of internal models for financial and solvency projections
-standard formula (why accurate reflection of risk profile)
-actuarial soundness of terms and conditions
Aims of EEV (GOES)
-ensure guidance is credible and robust to address key concerns relating to consistent application
-explicitly include valuation of time value of options and guarantees
-ensure method reflects economic value of long term business
-prescribe minimum levels of disclosure and sensitivity analysis to help comparability concerns
Reasons for analysing change in surplus (DNR DCT RADAR)
-financial effect of divergences between actual experience and that assumed in val basis
-financial effect of writing NB
-reasonability check on items of surplus
-identify recurring items for dbn
-consistency check between val data and result
-trend in surplus
-required for regulatory returns
-assist in setting future assumptions
-assist decisions relating to derisking the balance sheet to improve solvency
-analyse the effect of alterations
-new items identified may be used to inform risk identification process
Key principles of framework of financial soundness (TRAC ROC)
-have a trigger point of EOF vs RC at which point regulatory intervention will occur
-risk tolerance should be defined in terms of insurer being able to maintain solvency in adverse scenarios
-value assets and liabilities on market based methodologies when calc EOF
-Account for correlations between risks and benefits of diversification
-risk based, forward looking approach used to determine EOF and RC for fin soundness
-hold OF of sufficient quantity and quality to absorb losses from risks underlying business
-level of capital should address the risks the insurer is exposured to and should be proportionate to NSC of business
Standard formula advantages and disadvantages (SS GC NOMAD)
-it is simple to apply
-suitable to companies with typical risk exposure, stable book and standard risk management techniques
-inappropriate for fast growing book or closed books
-no allowance for complex risk management techniques
-no allowance for non-linearity of risks
-operational risk modelled at high level with no link to risk management framework
-if there are multiple corr matrices, diversification will be invalidated
-allowance for risk sharing in cell captive on an approximate basis which may result in over statement of SCR
-only allows for double counting LACTP in market risk module
Full/partial internal model has to meet the following requirements (GTR DA)
-must have an effective governance system of internal model including development and maintenance
-use test to demonstrate that the model is widely used in risk management and decision making
-meet statistical and data quality, model calibration and verification requirements
-need to document the design and operational details
-partial model may be approved if sufficiently justified and integrated into the standard model
Practical considerations before declaring a bonus (IS RAU FIRS)
-Avoid changing a company’s investment strategy
-bonus is sustainable and no threat to solvency
-consider regulations and industry requirements
-consistent with actuarial basis
-easy to understand
-takes into account company financial resources
-capable of accurate implementation
-consider restrictions in company’s memorandum and articles of association
-homour safeguards in policy docs of transferred policies
Factors to consider in a bonus declaration (BASICS PBF)
-BSR
-returns on assets underlying the fund
-shareholders vs policyholders
-investment strategy
-competition
-sources of surplus
-policyholder benefit expectations
-balance sheet
-free assets
Factors to consider in smoothing (PRAM BCM)
-PPFM
-RBE
-Asset mix underlying the portfolio
-marketing and policy documents
-BSR
-Communication with ph
-method of distributing surplus
Documentation surrounding AS (A BAND)
-how underlying assets are invested
-factors that contribute to bonus declaration
-definition, calculation and uses of asset share
-when non-vested bonuses can be removed
-nature and extent of discretion
