T_Solvency Management and Monitoring Financial Performance

Question 1

Existing Business Solvency

Answer 1

Assets need to meet all liabilities and regulatory capital requirement
Ongoing measurement
Long-term nature of liabilities – assess future solvency

Question 2

Measuring Solvency

Answer 2

Supervisory (e.g. assets at MV or similar and liabilities on prescribed basis)
Expected
Market consistent

Question 3

Static vs Dynamic Solvency Testing

Answer 3

Static – general supervisory approach
Dynamic –projection of solvency position (add NB), including adverse risks
Deterministic or stochastic

Question 4

Uses of Capital:

Answer 4

Meet solvency requirements
Fund new business
Fund acquisitions and business reorganisations
Investment policy consideration 
Additional buffer 
Many more

ALM can assist in optimisation

Question 5

Embedded Value and Appraisal Value

Answer 5

S/H net assets + PVIF - cost of capital = EV

EV + goodwill = appraisal value

EV is for Existing Business only
PVIF calculation depends on type of product
Consistency (reserving/EV, previous basis, A vs L, pricing basis)
Consider tax
Appraisal is mostly used when valuing a business for a transactions

Question 6

Reasons for monitoring experience

Answer 6

Reasons
	Develop EAS
	Update Assumptions
	Monitor Trends 
	Provide Management Information

Question 7

Data quality re monitoring experience

Answer 7

Data
	Reasonable volume, stable consistent
	Sufficiently homogeneous groups
	Agree Period
	Level of detail

Question 8

Experience Analysis, which categories would be useful for analysing
Mortality:

Answer 8

Policy type			
Smoker Status
Age			
Medical Status		
Sex				
Source of Business
Duration in force

Question 9

Experience Analysis, which categories would be useful for analysing
Withdrawal

Answer 9

Policy type				
Target Market
Sales method			
Premium paying method
Premium size and frequency	
Original Term		
Duration in force			
Sex
Age				
Paid Up Status

Question 10

Experience Analysis, which categories would be useful for analysing
Expenses:

Answer 10

Commission excluded
Initial
Renewal
Termination
Investment
Proportional to which element	

Process
Determine expenses, subdivide, allocate proportionally, once-off considerations, exceptional expenses, reconcile