Regulations, Provisions Flashcards
1
Q
What are the ways regulation can address information asymmetry?
A
SIF DIP
- Statutory actuaries need to inform regulators if they suspect unfair treatment
- Insider trading needs to be prohibited
- Fair treatment of customers should be legislated
- Disclosure of information to customers about products
- Interest of the customer should be kept in mind
- Price controls should prevent customers from being duped
2
Q
Ways regulation protects consumers
A
Capital adequacy - hold SCR
Competence and integirty
- competence related to the ability to make the right decisions - integrity relates to actually making those decisions
Compensation schemes
- levies paid by industry players
- provide customers with benefits when provider cannot
- due to: bad advice, provider insolvent or fraud involved
Stock market is regulated
- strict regulations surrounding bid offer for those at informational disadvantage
- disclosure of the stability of the company
- price offered for company must be in line with business done
3
Q
Regulations regarding investment
A
- must hold bonds
- only certain asset classes can be held
- only certain amounts of asset classes can be held
- must match by currency
- must hold mismatch reserve
- limit to amount can mismatch
- exposure to single party not allowed
- custodianship of assets
4
Q
How can we allow for solvency in insurance company?
A
- You can either allow high SCR and not be cautious with individual contract valuation or do the opposite
5
Q
What do you need to consider when preparing the reports for the solvency supervisors?
A
- method of valuation
- assumptions used to value A and L
- types of assets held
- global provisions held
6
Q
How can you estimate the cashflows coming from liabilities?
A
- Statistical approach
- Case by case basis ( rare event where claim amount varies)
- Proportionate basis (risk event not occured yet)
- Equalisation reserve (low probability but volatile lossess and want to stablise profits)
