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ARM mnemonics > Risks in life and general insurance > Flashcards

Risks in life and general insurance Flashcards

1
Q

Risks in life and general insurance

A 
R einsurance
I nvestment
S hort Termism of Senior Management
K ompetition
L egal and regulatory risks
I nflation
F raud
E xpenses
D ata
R ates (mortality, claims)
O ptions
W ithdrawals
N ew Business (Vol,Mix)
C ontrols (failure)
A ggregation (Group - non-independent risk)
T ax
S election
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2
Q

Contract design factors

A 
Profitability
Risk characteristics
Extent of cross subsidies
Marketability
Wording in policy documents
Competition
Customer needs
Financing (capital req)
Admin and accounting
Consistency with other products
Types of benefits (level, form, early, discontinuance, gtd, discretionary)
Onerousness of options and gtees
Regulation
Sensitivity of profit
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3
Q

Characteristics of a professional

A 
Awareness
Competence
Integrity
Diplomacy
Good communication
Relevance
Objectivity
Confidences – ability to maintain
Environment – sensitivity to changes in
Reliability
Sensitivity
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4
Q

Insurability

A 
Independent risks
Data sufficient
Ultimate limit on claims
Moral hazard minimised
Pooling of risk
Small probability of occurrence
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5
Q

External environment chapter

A 
Competition and the underwriting cycle
Regulation
Environmental and ethical considerations
Accounting stds
Tax
Economics (i, infl, growth, exch rate)
Benefits provided by state
Institutional structure (mutual or proprietary?)
Governance (corporate)
Lifestyle
Internationalism
Social trends
Technological advances
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6
Q

Reinsurance - reasons for reinsurance

A

Diversification - spreads risk and reciprocal deals
Expertise
Financial assistance
Limits exposure to risk
Avoids single large losses and concentration of risk
Tax advantages (possible)
Opportunity to write larger risks/write more NB/fine tune experience/build up experience
Rates seem attractive
Smooths profits

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7
Q

Capital - reasons for needing

A

Regulatory requirement to demonstrate solvency
Expenses of developing new business
Guarantees (enables products with them to be written)
Credit rating
Uncertain/adverse events eg fines, catastrophes
Smooth dividends or bonuses
Helps show financial strength and attract new business
Investment freedom
Opportunities eg Merger/growth
New business strain and cashflow mismatching

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8
Q

Uses of data

A 
Statutory returns
Investment monitoring
Risk management
Management information
Accounts
Pricing
Experience investigations
Marketing
Administration
Provisioning
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9
Q

Sources of data

A 
Tables (eg mortality)
Reinsurers
Accounts
Internal and industrial
National statistics
Existing products
Regulatory returns
Similar products
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10
Q

Problems with industry data

A 
Detail insufficient
Recording differences
Differences in target market, underwriting, product terms, geographical area, sales channel
Out of date
Not everyone contributes
Errors
Quality depends on that of contributors
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11
Q

Disclosure of information in a pension scheme - what is disclosed?

A 
Directors' pension costs
Investment strategy and performance
Surplus/deficit arising in last year and surplus/deficit accrued
Calculation methods and assumptions
Liabilities arising in last year and liabilities accrued
Options and guarantees
Sponsor's contributions
Uncertainties = risks
Rights on wind up
Expenses
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12
Q

Disclosure of information in a pension scheme - when is information disclosed?

A 
Payment commencement
Request
Intervals
Combination
Entry
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13
Q

Why is disclosure important?

A

Sponsor becomes aware of financial significance of benefits
Informed decisions can be made
Mis-selling avoided
Manages the expectations of members
Encourages take up
Regulatory requirement
Security of scheme improved as sponsor/trustees made more accountable

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14
Q

Reasons for underwriting

A

Substandard lives (identify and set special terms)
Avoid anti-selection
Financial underwriting against fraud
Experience in line with expected
Risk classification to set fair premium
Also consider reinsurers, regulators
Also there is claims underwriting at the claim stage to assess eligibility of claim

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15
Q

Overseas investment problems (practical type problems)

A 
Custodian needed
Additional Admin required
Time delays
Expenses incurred
Repatriation of funds
Political problems and poor regulation
Information poorer
Language difficulties
Liquidity poorer
Accounting differences
Restrictions on ownership of assets
The more fundamental problems are mismatching domestic liabilities, tax, volatility of
exchange rate (MTV)
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16
Q

Money market instruments - reasons for holding

A 
Protect MV
Opportunities
Uncertain cashflow
Recent inflow awaiting investment
Short-term liability match
General economic uncertainty
Recession start
Interest rate rises
Depreciation of domestic currency
17
Q

SYSTEM T - asset characteristics

A 
This is in the notes but doing a full blown SYSTEM T will get you more ideas
Security - think of risks in general
Yield (running, total return, real vs nominal, compare other investments)
Spread (diversification and volatility)
Term
Expenses and exch rate
Marketability
Tax
18
Q

liability characteristics

A

NTCC

Nature
Term
Currency
Certainty

19
Q

investor characteristics

A

TRAITOR

Tax status
Regulation/solvency requirements
Assets already held (diversification)
Income vs capital gains (consider cashflow situation)
Tastes = preferences = liabilities, education, expertise, tax, fashion
Other investors (competitors) and Other investments (alternatives) and Objective
Risk appetite

20
Q

Ways of valuing assets

A 
Book value
Expected utility
Discounted cashflow
Fair value
Ritten up/down book value
Arbitrage
Market value and smoothed market value
Economic value
Stochastic modelling
21
Q

Prime property

A 
Comparables
Age/condition/use/flexibility
Location
Lease structure
Size
Tenant quality
22
Q

What actuaries do?

A 
Government advice
Assumption setting
Modelling
Monitoring
Assess assets vs. liabilities
Public interest
Analyse actual vs. expected
Communication
Economic analyses
23
Q

External environment factors

A 
State
Accounting regulation
Taxation
Environment and ethical issues
Legislation and regulation
Lifestyle changes
International practice
Technological and medical changes
Economic issues
Social trends
Underwriting cycle
Corporate governance
24
Q

Reasons for reinsurance

A 
Capacity to write risk increases
Exposure to risk limited
Avoid single large losses
Smooth results
Expertise and data
F(inancial) Financial assistance
D(amage) Diversification
25
Q

Contract design factors

A 
Administration
Marketability of benefits
Profitable to providers
Level and form of benefits
Early leaver benefits
Discretionary benefits
Interests and needs of clients
Risk characteristics, ability and willingness
Expenses vs. charges, cross-subsidies
Competitive price
Terms and conditions, transparency and simplicity
Financing requirements
Accounting
Consistency with other contracts
Timing of contributions
Options and guarantees
Regulation/legislation
Stakeholders
26
Q

Basic economic and other influences

A 
Interest rates
Inflation
Institutional cashflow
Economic growth
Exchange rate
Regulation
Restrictions
27
Q

Investment strategy factors

A 
Circumstances of investor
Liabilities
Expected returns
Restrictions
Benchmarks
28
Q

Uses of policy/claims data

A 
Pricing (rating) /contribution setting
Administration and accounting
Provisioning (reserving)
Experience statistics and analysis
Risk management control setting
Assumptions setting
Information for management and financial controls
Monitoring
Statutory returns
29
Q

A good asset-liability model

A 
Complexity low and parsimonious
Outcomes verifiable and communicable
Valid, appropriate and rigorous
Economic principles are satisfied
Refined and redeveloped
T(he) Time constaints
F(aulty) Features relevant are coverered
R(isk) Risk appetite taken into account
P(arameter) Parameters are chosen appropriately
30
Q

Valuing liabilities Reasons for a valuation

A 
Liability valuation (accounting, statutory solvency, internal management)
Options and guarantee costs valued
Acquisition and mergers
Discontinuance rates determined
Discretionary benefits set
Investment strategy
Surplus analysis/calculation
Contribution setting
31
Q

Risk management tools available

A 
Alternative risk transfer (ART)
Diversification
Reinsurance
Underwriting
Management control systems
32
Q

Risk Management Tools (2) Types of ART available

A 
Securitisation
Integrated risk covers
Post loss funding
Swaps
D(rink) Derivatives for insurance
D(aringly) Discounted cover
33
Q

Financial services needs for capital

A 
Regulatory requirement
Expenses
Guarantees
(ulatory)
Credit rating depends on capital
Unexpected events
Smoothing of profits
Help improve financial strength
Investment freedom
Opportunities and objectives
New business strain financing
34
Q

How to manage investment risks

A 
Matching asset and liability cashflows 
Asset-liability modelling 
Immunisation 
Diversification 
Risk budgeting 
Hedging
Monitoring of investment performance
35
Q

Sources of surplus

A 
Mortality 
Morbidity 
Claim frequency 
Claim amounts 
Withdrawal/lapses
Investment income and gains 
Expenses 
Commision 
Salary growth
Inflation
Taxation
Premiums/contributions paid
New business levels
36
Q

Reasons for monitoring the experience

A

Update methods and assumptions
Monitor any trends
Provide information to management and other stakeholders

ARM mnemonics (1 decks)

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