Revision Booklet Mnemonics Flashcards
Investment and risk characteristics of assets
SYSTEM T Security (risk) Yield (real/nom, running yield, expected return, compare to other assets) Spread (diversification, volatility) Term Exchange rate/expenses/economic conditions/expertise required Marketability Tax
Reasons to hold cash
POURS Protect monetary values Opportunities to take advantage of Uncertain outgo Recent cashflow Short term commitments
Economic situations where cash is attractive
GRID General economic uncertainty Recession Interest rates rising Depreciation of domestic currency
Theories of the yield curve
LIME Liquidity preference Inflation risk premium Market segmentation Expectations
Characteristics of prime property
Take a walk along CALL ST Comparables Age/condition/use/flexibility Location Lease Size Tenant
Difficulties in overseas investment/emerging markets
MTV
Mismatches domestic liabilities
Tax
Volatility of currency
Other problems with overseas investment/emerging markets
CATERPILLAR Custodian needed Addation admin Time delays Expenses/expertise Regulation poorer Political problems Information poorer Language difficulties Accounting differences Restrictions on ownership of assets/repatriation problems
External environmnet factors
CREATE GREAT LISTS Commerical issues e.g. underwriting Regulatation/legislation Environmental issues Accounting standards Tax Economic issues Governence Risk managment Experience from overseas Adequacy of capital Trends (demographic) Lifestyle considerations Institutional structure (mutual or proprietary) Social trends Tech State benefits
Functions of a regulator?
SERVICE Setting sanctions Enforce regulations Reviewing and influencing govt policy Vetting and registering firms and individuals Investigating breaches Checking management and conduct of providers Educating customers and public
Contract design factors?
Ample Direct Factors Admin systems Marketability Profitability Level and form of benefits Early leaver benefits Discretionary benefits Interests and needs of customers Risk appetite Expenses vs charges Competition Terms and conditions of contract Financing (capital requirements) Accounting implications Consistency with other products Timing of contribution to premiums Options and Gtees Regulatory requirements Subsidies (cross)
Expenses incurred by a product provider?
RAPID COST Renewal admin Asset management Profits Initial admin e.g. put on computer system Design of contract costs Commission Overheads Sales/advertising Terminal (benefits payouts)
Characteristics of well run projects
PROJECT CRAMPS Planning (full) Risk analysis is thorough Objectives are clear and meet customer needs Judge (monitor) development Excellent communications Conflict management Thorough testing
Critical path analysis
Relationships with suppliers challenging and stable
Appropriate pace so right things are done on time
Milestone review schedule
Performance and quality standards are set and measured
Supportive environment
Criteria assessed in intial appraisal
SPURS Synergies with other projects Political constraints Upside potential Results (financial) Scare resources
Contents of written strategy document
PROSE
Policies (financial, legal, tech, risk management, communications, IT)
Roles and responsobilities of sponsore and 3rd parties
Objectives identification, how to measure, quality standards and financial
Schedule of milestones and key points
Expected cost including insurance
Risk identification tools
DR RUB Desktop analysis Risk analysis Risk register Upside aswell as downside risks identified Brainstorming
Identification of sources of risks?
PNE FC PB
Political (government change, 3rd parties)
Natural (storm, earthquake)
Economic (interest rate, currency movement)
Financial (financing problems, costs too high)
Crime (fraud)
Project (poor design, runs behind time)
Business (competition, loss of key personnel, insolvency of contractor)
Risk mititation techniques
FAT SIR Further research Avoid Transfer Share Insure Reduce
Evaluation of risk mitigation onptions
OFFER Overall impact on distribution of NPV's Feasibility/cost Further mitigation required if secondary risks Effect on frequency/severity/correlation Resulting secondary risks
Contents of an investment submission
FIRM PEN Financial results Identification and analysis of key residual risks Reccomendation Mitigation strategy Proposed method of financing Effect on investors Non-monetary issues like politics, environment
Considerations beyond investment submission
LAND HO Last minute considerations Allowance for approximations and bias Nowledge not in possession of those who prepared submission Doubts over feasibility Hunch Overall credibility
Factors effecting investment strategy
SOUNDER TRACTORS Size of assets (abs/rel) Objectives Uncertainty of liabilites Nature of liablities Diversification Existing portfolio Returns expected in the long term Tax treatment of assets, investor Restrictions (stat/legal/voluntary) Acrrual of liabilities in future Currency of existing liabs Term of liabs Other funds strategies (competitors) Risk appetite Solvency requirements
Regulatory influences on assets held
TECH SCAM Types of assets restricted Extent of mismatching Currency mismatching allowed? Holder certain assets eg bonds Single counterparty exposure Custodianshup of assets Amount of any one asset restricted for solvency demonstration Mismatch reserve
Ways to values assets
SHAM FADS Smoothed market val Historic book val Adjusted book val MV Fair val Arb val Disc cf Stoch models
Inforamtion to be disclosed from benefit scheme
DISCLOSURE Directors pensions costs Inv strategy and perf Surplus/defecit in last year Calculation methods and assumptions Liabilities accruing Options and gtees Sponsors and members contribution obligations Uncertainties (risks) Rights on wind up Expense charges and entitlement to benefits
When does information from beenfit scheme need to be disclosed?
PRICE Payment commencment Request Intervals Combination Entry
Reasons why disclosure is important
SIMMERS Sposnsor becomes aware of financial significance of benefits Informed decisions can be made Misselling avoided Manages expectations of memebers Encourages individuals to make own provision Regualtory requiremen Security of scheme improved
Reasons to analyse surplus
DIVERGENCE
Divergence of A vs Expected, find the effect of
Infomration to management and accounts
Variance looking
Experience momitoring into ACC
Reconcile values for successive years
Group intone off and recurring sources of surplus
Executive remunerations schemes gives data for it
NB strain effects
Check our assumptions are ok
Extra check on valuation data and process
Principles of lending
CASPAR Character and ability of lender aMT sECURITY pURPOSE aBILTIY TO REPAY rISK VS REWARD
Reasons to use ART
DESCARTES
Diversification Exploit risk as opportunity Solvency improves Cheaper than reins Availability more than reins Results smoothing Tax advantages Efficienct risk management Security improved
Reasons to underwrite
SAFER
Substandard lives are identified and terms changed
Avoid anti-selection
Financial underwriting against overinsurance
Experience in line with expected
Risk classification to set a correct premium for the risk
Reinsurance easier to obtain
Why do financial providers need capital?
REG CUSHION
Regulatory requirement for solvency Expenses of NB/new ops Guarantees and options Cashflow timing Unexpected events e.g. fines, actual experience Smooth profit and balance sheet Help demonstrate financial strength to attract NB and to SandP Investment freedom for some mismatching Objectives and opportunity exploitation NB strain financing
Requirements of a good model
VARIABLEE CRISPS CARD
Valid Adequate documentation Rigorous Input parameter values are appropriate Arb free Behavious is consistent Length of run not too long Expenses not too high Easy to understand
Communicable code and output
Reflects risk profile of contracts modelled
Independant verification of output
Sensible joint behaviious of variables
Paramters allow for all significant features
Siple but retain key features
Clear results
A range of implementation methods
Refineable
Developable
Uses of data
SIR MAPEMAP
Stat returns Investment Risk management Mnagement info Accounts Pricinfg Experience stats and analysis Marketing Admin Porivsions
Sources of data
TRAINERS-A?
Tables like mortality tables Reinsurers Abroad Insurstry data National stats ONS Experience investigation of existing ph's Regulator reports and company accounts Similar contracts Account
Problems with industry data
DR DONEQ
Detail rubbish Reporting format rubbish Differences in market, sales, rating factors, contract wordings, claims Out of data Not everyone contributes Errors Quality only as good as contributors
