1
Q
Contract design stakeholders
A
- A - Actuaries
- L - Lawyers
- P - Providers of benefits
- A - Accountants
- C - Customers
- A - Administrator
- S - Shareholders
2
Q
Contract design factors
A
- A - Administration systems
- M - Marketability
- P - Profitability
- L - Level and form of benefits
- E - Early leaver benefits
- D - Discretionary benefits
- I - Interests and needs of customers
- R - Risk appetite of the parties involved
- E - Expenses vs charges
- C - Competition
- T - Terms and conditions of contract
- F - Financing (capital requirements)
- A - Accounting implications
- C - Consistency with other products
- T - Timing of contributions or premiums
- O - Options and guarantees
- R - Regulatory requirements
- S - Subsidies (cross)
3
Q
Considerations when using past data to set future assumptions
A
- B - Balance of homogenous groups underlying the data may have changed
- E - Economic situation may have changed
- S - Social conditions may have changed
- T - Trends over time, eg medical, demographic
- A - Abnormal fluctuations
- R - Random fluctuations
- C - Changes in regulation
- H - Heterogeneity within the group to which the assumptions will apply
- E - Errors in data
- R - Recording differences (eg in categorisation of smoker)
4
Q
Characteristics of a prime property
A
- C - Comparable properties for rent reviews and valuation
- A - Age, condition and flexibility of use
- L - Location
- L - Lease structure
- S - Size
- T - Tenant quality
5
Q
Practical problems with overseas investments
A
- C - Custodian needed
- A - Additional admin required
- T - Time delays
- W - Expenses incurred / expertise needed
- R - poor Regulation
- P - Political instability
- I - Information harder to obtain (and less of it)
- L - Language difficulties
- L - Liquidity problems
- A - Accounting differences
- R - Restrictions on foreign ownership / repatriation problems
6
Q
Expenses incurred by a product provider
A
- C - Commission
- O - Overheads
- S - Sales / advertising
- T - Terminal, eg paying benefits
- R - Renewal administration, eg collecting premiums / contributions
- A - Asset management
- I - Initial administration, eg setting up new client records
- D - Design of the contract
7
Q
External environment factors
A
- C - Corporate structure (mutual vs. proprietaries)
- R - Regulation and legislation
- E - Environmental issues and climate change
- A - Accounting standards
- T - Tax
- E - Economic outlook (eg interest rates, inflation, growth)
- G - Governance
- R - Risk management requirements
- A - Adequacy of capital and solvency
- N - New business environment
- D - Demographic trends
- L - Lifestyle considerations
- I - International practice
- S - State benefits
- T - Technology
- S - Social and cultural trends
8
Q
Inappropriate advice
A
- C - Complicated products
- R - Rubbish (ie incompetent) advisor
- I - Integrity of advisor lacking, eg due to sales-related payments
- M - Model or parameter errors
- E - Errors in data relating to members
- S - State-encouraged but inappropriate actions
9
Q
Reasons for using ART
A
- D - Diversification
- E - Exploits risk as an opportunity
- S - Solvency improves / source of capital
- C - Cheaper cover than reinsurance
- A - Available when reinsurance may not be
- R - Results smoothed
- T - Tax advantages
- E - Efficient risk management tool
- S - Security of payments improved
10
Q
Reasons for analysis surplus
A
- D - Divergence of actual vs expected (show financial effect /significance of)
- I - Information to management and for accounts
- V - Variance of whole is equal to the sum of the variances from the individual levers
- E - Experience monitoring to feedback into ACC
- R - Reconcile values for successive years
- G - Group into one-off / recurring sources of surplus
- E - Executive remuneration schemes (data for)
- N - New business strain (show effects of)
- C - Check on valuation assumptions and calculations
- E - Extra check on valuation data and process
11
Q
Considerations in assessing different models
A
- F - Fit for purpose
- E - Expertise available in house
- N - Need flexibility
- C - Cost of each option
- E - Expected number of times used
- D - Desired accuracy
12
Q
Economic situations in which cash is attractive
A
G - General economic uncertainty
R - Recession expected
I - Interest rates expected to rise
D - Depreciation of domestic currency expected
13
Q
Factors to consider when setting assumptions
A
- L - Legislation / regulation
- U - Use of the data
- N - Needs of the client
- C - Consistency between assumptions
- H - How financially significant is/are the assumption(s)
14
Q
Main difficulties of overseas investment
A
- M - Mismatching domestic liabilities
- T - Taxation (may not be able to recover withholding taxes paid)
- V - Volatility of currency
15
Q
Aims of a regulator
A
- G - Give confidence in the system
- R - Reduce financial crime
- I - Inefficiencies in the market corrected (and efficient and orderly markets promoted)
- P - Protect consumers
16
Q
Additional criteria for an insurable risk
A
- M - Moral hazard eliminated as far as possible
- U - Ultimate limit on liability undertaken
- D - Data exists with which to price risk
- P - Pooling a large number of similar risks
- I - Independent risk events
- S - Small probability of occurrence
17
Q
Problems with industry data
A
- Q - Quantity (credibility)
- U - Up-to-date?
- E - Errors
- R - Relevance (heterogeneity)
- I - Incomplete?
- E - Exceptionals
- D - Detail and format
18
Q
Reasons for using reinsurance
A
- S - Smooth results
- A - Avoid large losses
- D - Diversification
- L - Limit exposure to risk (single event, accumulations)
- I - Increase capacity to accept risk
- F - Financial assistance
- E - Expertise
19
Q
Reasons for underwriting
A
- S - Suitable approach (eg increase premiums) and special terms
- A - Avoid anti-selection
- F - Financial underwriting against over-insurance
- A - Actual experience in line with expected
- R - Risk classification (risks rated fairly)
- I - Identify substandard health risks
20
Q
Benefits of a good risk management system
A
- S - Stability / quality of business improved
- A - Avoid surprises
- M - Management of capital improved
- O - Opportunities exploited for profit
- S - Synergies identified
- A - Arbitrage identified
- S - Stakeholders given confidence
21
Q
Model designs: operational issues
A
- S - Simple but retains key features
- C - Clear results
- A - Adequately documented
- R - Range of implementation methods
- C - Communicable workings and outputs
- E - Easy to understand
- R - Refineable & developable
- F - Frequency of cashflows – balance accuracy vs practicality
- I - Independent verification of outputs
- L - Length of run not too long
- E - Expense not too high
- S - Sensible joint behaviour of variables
22
Q
Functions of a regulator
A
- S - Setting sanctions
- E - Enforcing regulations
- R - Reviewing and influencing government policy
- V - Vetting and registering firms and individuals
- I - Investigating breaches
- C - Checking management and conduct of providers
- E - Educating consumers and the public
23
Q
Reasons whyy disclosure is important
A
- S - Sponsor is aware of financial significance of benefits
- I - Informed decisions can be made
- M - Mis-selling is avoided
- M - Manages the expectations of members
- E - Encourages take up
- R - Regulatory requirement
- S - Security of scheme improved as sponsor / trustees are made more accountable
24
Q
Sources of data
A
- T - Tables eg actuarial mortality tables
- R - Reinsurers
- A - Abroad (data from overseas contracts)
- I - Industry data
- N - National statistics
- E - Experience investigations on the existing contract
- R - Regulatory reports and company accounts
- S - Similar contracts
25
Characteristics of investors
* T - Tax position
* R - Regulation on investor
* A - Assets already held
* I - Income / cashflow requirements
* T - Tastes (liabilities, education, fashion)
* O - Other assets and other investors
* R - Risk appetite
26
Investment and risk characteristics of assets
* S - Security (default and other risks)
* Y - Yield (real or nominal, running yield, expected return, compare with other assets)
* S - Spread (volatility of market values, diversification)
* T - Term
* E - Expenses or Exchange rate
* M - Marketability
* T - Tax
27
Regulatory influences on assets held
* T - Types of assets that a provider can invest in
* E - Extent to which mismatching is allowed
* C - Currency matching requirement
* H - Hold certain assets, eg government bonds
* S - Single counterparty maximum exposure
* C - Custodianship of assets
* A - Amount of any one asset used to demo solvency may be restricted
* M - Mismatch reserve
28
Main factors that influence a long-term investment strategy
* S – Size of the assets (in relation to liabilities and in absolute terms)
* T – Tax (both the treatment of the asset and the investor)
* R – Risk appetite for the institution
* E – Existing asset portfolio
* S – Statutory valuation and solvency
* S – Strategy followed by other funds
* E – Expected long-term return from various asset classes
* D – Need for diversification
* F – Future accrual of liabilities
* O – Objectives of the institution
* R – Restrictions (statutory, legal or voluntary) on how the fund may invest
* T – Term of the existing liabilities
* U - Level of uncertainty of the existing liabilities (both in amount and timing)
* N – Nature of existing liabilities
* E – Currency of existing liabilities
CA1
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