M_F102_General Business Environment and Risk 2

Question 1

Withdrawals risks

Answer 1

again assumption needed, note possible selective withdrawals.

Question 2

Volume of new business:

Answer 2

affects capital, admin, fixed expenses. Parameters based on an assumed mix and volume.

Question 3

Guarantees and options:

Answer 3

offer terms in advance, risk that projected experience is different to actual future experience.

Question 4

Competition:

Answer 4

may involve taking on more risk to be competitive

Question 5

Actions of distributors:

Answer 5

misalignment of interests- e.g. brokers sell in the interests of the policyholder.

Question 6

Actions of board of directors:

Answer 6

misalignment of interests e.g. board want to maximise shareholder earnings now; failure of controls.

Question 7

Counterparties-

Answer 7

reinsurance arrangements: risk of reinsurers not meeting its contractual obligations

Question 8

Legal, regulatory and fiscal developments:

Answer 8

change in rules and regulations adversely affecting policyholder and insurer

Question 9

Fraud:

Answer 9

type of control failure, may be committed by staff/directors, policyholders or other external parties.

Question 10

Aggregation and concentration of risk:

Answer 10

important to consider how risks emerge and relate to each other; use of projections, stochastic/scenario testing; measure risk against company aims to consider risk/return trade off.