Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

SA2 > Pillar 1 Revision > Flashcards

Pillar 1 Revision Flashcards

1
Q

What makes up Peak 1 assets and liabilities?

A 
Admissible Assets
Reg Liabs (math res)
LTICR
RCR
WPICC
Free surplus
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

How do you value, under peak 1:

a) quoted investments
b) loans if all recoverable
c) property
d) tangible fixed assets
e) cash and bank deposits

A 
a = bid value
b = face value
c = valuer
d = straight line depreciation
e = face value
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What assets have no limits under peak 1, what assets are restricted in terms of maximum exposure and how?

A
  1. Govt/local authority assets = no limit

2. Others = max exposure limit, percentage of math res + cap req

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Where are the peak 1 asset valuation rules?

A

Prudential sourcebooks

Genpru 1.3

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the peak 2 liabilities and assets made of?

A

Realistic assets
Realistic liabilities
RCM
Free surplus

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How are the peak 2 realistic assets different from peak 1?

A
  1. Admissible assets back WP business not NP in WP
  2. PVFP form NP biz in wp fund
  3. Assets above peak 1 exposure limits
  4. MV of inadmissible derivatives
  5. support assets held outside wp fund mainly for wp support
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is important about the assets held to back the capital requirements?

A

There are different tiers of assets with limits that should be held for capital requirement

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How are the SII assets and liabilities split?

A

Assets:
Tier 1, 2, 3 (backing the SCR/MCR and free capital)
Ineligible capital

Liabs:
BEL
Risk margin
MCR
SCR
Free capital
Other liabs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are the SII technical provisions made of?

A

BEL + Risk margin

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

How are assets valued under SII?

A

MV
if no MV then marked to model as long as market consistent
Recoveries from insurer adjusted for reinsurer default are on assets too

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Why is the MV asset valuation under SII quite an impact?

A

Much of europe used BV

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

How does BV differ from MV?

A 
BV = price paid when bought
MV = price that could be sold for now
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What are the requirements for mathematical reserves under peak 1?

A
  1. Prudent assumptions with MAD’s
  2. Prospective valuation
  3. Reserve>Gteed SV (if has one)
  4. Reserve can be t exceed 97.5% of risk adjusted yield on backing assets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the peak 1 exemptions for a realistic firm in terms of valuations of liabs?

A
  1. Take account of gross premiums received
  2. Only guaranteed benefits valued (no future bonus)
  3. No RCR
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What are the peak 2 reserve requirements?

A
  1. MC valuation (stochastic techniques)
  2. Economic assumps = MC
  3. Non-economic assumps = BE
  4. Made of WPBR+FPRL+Current liabs
  5. Management actions allowable if PPFM consistent
  6. P/h actions allowed
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What dynamic management/policyholder actions are there?

A
  1. Dynamic EBR and asset mix
  2. Dynamic RB’s/TB’s
  3. Withdrawals when guarantees go ITM/OTM
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the Pillar 1 Peak 1 MCR/ECR/CRR

A 
MCR = LTICR+RCR (or BCRR < 3.7m euro)
ECR = LTICR+WPICC
CRR = max(MCR, ECR)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the Pillar 2 Peak 2 capital requirement?

A

RCM

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How would you summarise a capital requirement in one sentence?

A

Amount of money needed above the mathematical reserve to cover unknown future risks and maintain solvency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is the ICA capital requirement? What is it after it is reviewed by PRA?

A
  1. 99.5% 1 year survival probability, where 1 year NB allowed for and closure to NB
  2. ICG is cap req after PRA check it if don’t accept it
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What event is a 99.5th percentile scenario equal to?

A

1 in 200 year event

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How is LTICR defined?

A
  1. Fixed percentage factors x measures of capital at risk
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

How is the RCR defined?

A
  1. Only for reg. basis firms

2. Prescribed shocks to equity/property/fixed interest yields to give market risk capital requirement

24
Q

What are the RCM stresses?

A
  1. Fall/rise of:
    a) Equity
    b) Property
    c) Fixed interest yields
    d) Lapses
  2. Credit spread widening on FI securities
  3. Allowance for impact of credit risk on reinsurance exposures
25
What are the capital tiers under Pillar 1, why do we have them?
1. Core/Other Tier 1, Upper Tier 2, Lower Tier 2 (in order of quality) 2. Reduces risk of firms not being able to maintain solvency in adverse scenarios
26
List 4 exclusions to admissible assets
1. Assets that can't easily be valued 2. Assets whose realisability is not sufficient 3. Assets that give unacceptable custody risk 4. Assets that could give rise to large liabilities
27
Give 5 examples of admissible assets
1. Loans 2. Tangible fixed assets 3. Cash at bank and deposits 4. Property (land and buildings) 5. Shares
28
Give the 4 risks that are covered in Pillar 1?
Market interest rate credit (including reinsurance exposure) persistency
29
On top of the 4 pillar 1 risks, what 7 risks are covered in ICA?
``` ops mort morb expense pens scheme liquidity group ```
30
Explain the valuation of assets and liabs in ICA
``` Mostly peak 2 A = economic value (mark to market) with no admissibility L = credit for PVFP of all business MC techniques Stochastic likely ```
31
Explain ICA methodolody in 10 points?
1. 99.5th percentile 1 year survival probability 2. might have different prob for longer timeframe 3. individual 1 in 200 year stresses 4. allow for NB or closure to NB 5. use correlation matrix for diversification benefit 6. allow for non-lin/separability 7 which is where 1 x 1 in 200 year event using all risks gives higher than the diversified requirement of multiple 1 in 200 year event 8. model must produce accurate behaviour in tail 9. Real world asset model, arb free 10. ICG may change the ICA cap req
32
what business decisions should ICA be used in
``` pricing products investment strategy m and a financial reporting ```
33
what do the 3 core pillar 2 rules from inspru cover?
methodology documentation 99.5th % 1 year survival prob or longer term equiv
34
what assumptions etc. need to be derived?
``` mortality morbidity withdrawals disc rate unit growth rate inflation expenses tax variations in experience global reserves ability to vary amc's and other charges in ul waiver of premiums ```
35
how do you find peak 1 discount rate?
``` expected return on backing assets adjust for bonus payents reduce for tax make sure below pra max lower = prudent ```
36
how do you find peak 2 discount rate
``` market consistent risk-free based on market yield curve independent of backing assets no prudence ```
37
what is max difference in inflation and discount/unit growth?
2%
38
if expenses are in gpv/npv what assumptions should you make?
``` gpb = explicit for maintenance/termination including inflation npv = margin between office and net premium to be sufficient for ongoing expenses including inflation ```
39
what will tax assumption depend on?
blagab - adjust discountunit growth and expenses | oltb - (no assumption for individual)
40
how to allow for adverse experience in mort/int rate/expenses/until linked investment and inflation
mort and int rate = margins expenses = margins in expliscity assumps and inflation ul inflation and investment = high infl high int rate or low inflation low int rate
41
6 types of global reserve
``` AIDS reinsurer credit defaul 3. tax on unrealised gains 4. cashflow mismatch 5. data errors 6. future nb expenses ```
42
what can company do with free surplus in long term fund?
1. transfer out to shareholders for dividends 2. must show in form 58 3. if with profits limit on amount can distribut vs. the previous year 4. if more than 0.5% change then PRA informed and make public
43
when would prospective wpbr be allowed?
1. if bonus not directly determined by asset share e.g. wol 2. if as only for specimin pols, not total as 3. must account for all guaranteed ben 4. must account for meeting TCF 5. all material cashflows must be included till time T
44
What are main iterms in FPRL?
``` cost of gtees/fin options/smoothing/planned future enhancements to AS misselling compensation future tax on unrealised gains provisions for sht realistic current liabs ```
45
3 ways of calculating reserves
1. mc stochastic 2. market cost of hedging 3. deterministic projection with appropriate probs
46
if closed to NB, what would be special about WC, RCM and future enhancements?
WC=RCM=0 | future enhancements to contain the wc as all estate wil be distributed
47
what is peak 2 wc
realistic (assets-liabs) not including rcm
48
explain peak 2 stochastic asset model
1 mc 2. based on market price of over the counter options 3. series of yield curves produced
49
what non-contracted commitments would you include in reserves for peak 2 at least
1. include non-contracted commitments from tcf like mortgage endowment promises and non-operation of mvr
50
if firm has <500m wp liabs, what is allowed in peak 1 valuation?
1. discontinuarnce if gpv, even if reduces reserve | 2. if no gteed sv may have negatvie reserve
51
4 reserves for group life
unexpired prem ibnr deficiency experience refund
52
for minor classes of business how do u reserve
approx methodology e.g. multiple of premium
53
how to treat a) optional retirement date and b) gao in terms of reserves
a. highest reserve date b. allow for higher reserve of cash or annuity but can allow for take up rates being not the worst to company e.g. tax free cash
54
how would an option be priced?
value of market option closest to it and adjust for differences
55
explain how to value a unit linked contract?
1. unit and non-unit res valued separately 2. unit res must be matched as close as poss 3. allow for actuarial funding 4. non-unit res has discontinuities e.g. amc related to investment return 5. use discounted cashflows for non-unit 6. no grouping 7. negative non-unit reserve allowed individually but not in total 8. discontinuities allowed even if lower reserves

SA2 (23 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions