O Chapter 0 Flashcards
ACC Elements
*The general commercial and economic environment
*Specifying the problem
*Developing the solution
*Monstering the experience
*Prudentialism
The general commercial and economic environment
*External environment
*Regulation
*Financial products and customer needs
*Asset classes
*Behavior of the markets
Specifying the problem
*Setting out clearly the problem from the viewpoint of each stakeholder
*Assessing and analyzing the risks for each stakeholder
*Considering the strategic courses of action available to mitigate the particular risks in question
*Analyzing the options for designing solitons to transfer risk from one ser of stakeholders to another
*Risks
*Contract design
*Capital requirements
Developing the solution
*An examination of the major actuarial models currently in use and how they may be adjusted for the particular problem
*Selection of the most appropriate model to use for the problem, or construction of a new model
*Consideration and selection of the assumptions to de used in the model
*Interpretation of the results of the modelling process
*Consideration of the implications of the model results on the overall problem
*Consideration of the implications of the results for all stakeholders
*Determining a proposed solution to the problem
*Consideration of alternative solutions and their effects on the problem
*Formalizing a proposal
*Communicating the proposed solution and the alternatives
Monitoring the experience
*Analyzing periodically the actual experience against expected
*Identifying causes of departure from expected experience and determining whether each source is one off or likely to recur
*Feeding back into the specifying the problem and developing the solution stages of the ACC
*Making sure the model is dynamic (i.e. assumptions are consistent) and reflects current experience
Monitoring should he carried out regularly. For a new contract, where there is lots of uncertainty, monitoring should take place more frequently initially.
10 Applications of the ACC
*Identifying alternative investment and risk management options
*Asset-liability management
*Determining the current level of profit or solvency and estimating future solvency
*Assessing the need for and the calculation of provisions
*Determining the contributions / premiums
*Assumption setting for contract/scheme design
*Monitoring the effect of investment mismatching
*Model validation
Key topics on deveelopin the solution
- Selevtin apptoptiate actuarial models
- Apptoptiate assumptions
- Implicatioms for all stakeholdets
- Determine a ptoposed solutions and alternatives
Investment risk
- The uncertantny assoviated with the outcome of making an investment (They might for example use varianve of return as a measure of investement risk)
Credit risk
The risk that a person or an organisation will fail to make a payment that they have promised
(An example of credit risk for corporate bonds would be the failure to repay the face value of the bond on the redemption date)
Market risk
Risks related to changes in investment market values
Mortality risk
Mortality refers to the likelihood of death. Mortality risk may be defined as there being more or less deaths than expected or priced for.
(In life insurance, for whole of life products there is a risk of higher mortality than expected (more deaths) and for annuity products there is a mortaliry risk of fewer deaths than expected (longer lifespans).)
Inflation risk
Risk of real liabilities being larget than anticipated due to inflatiom.
(e.g. of salaries, consumer prices, medical costs, court awards)
Underwriting risk
Risk of failures in underwriting leading the insurer to take on risks at an inadequate price
Insurance risk
Risk of more claims being made than expected (e.g. due to highet than expected mortality or morbidity rates)
Exposure risk
Risk of more claims arising from a particular event due to the insurer having greater exposure to a particular peril than had been appreciated. Might be due to inadequate diversification within the portfolio of business written.
Finance risk
Risk of not being able to obtain finance when required or not being ablw to obtain it at the anticipated cost.
Operatoinal risk
The risk of loss due to fraud or mismanagement within the organisation itself.
External risk
The risk arising from external events, e.g. changes in legislation.
Mitigate risks
- avoiding
- accepting and minimizing
- sharing
- transferring risk together with ongoing monitoring.
Elements affecting risk appetite
- age
- wealth
- dependents
