CHP 2

Question 1

1. The clients actuaries advise

1. 1. Possible clients

Answer 1

• Policyholders
• Prospective policyholders
• Members of benefit schemes and their dependents
• Employers
• Insurance company – board of directors
• Insurance company – shareholders
• Insurance company creditors
• Trustees of benefit schemes
• Sponsors of benefit schemes
• Employees
• Auditors of insurance companies
• Auditors of the sponsors of benefit schemes
• Investment fund managers
• Members of investment schemes
• Sponsors of capital projects
• Banks

Question 2

2. Other stakeholders affected by actuarial advice given to clients

Answer 2

In most cases different stakeholders have different interests, thus it is important to identify all stakeholders. The advice given will impact other stakeholders also and these need to be considered.
Omitting one stakeholder will distort the context, e.g. one stakeholder’s risk can be source of gain for another.

Question 3

3. The interest and functions of the clients

3. 1. Policyholders

Answer 3

• Personal protection against death and illness
• Protection of property
• Investment

Question 4

3.2. Members of benefit schemes and their dependants interests

Answer 4

• Provision of benefits on future events such as death, retirement, illness, withdrawal

Question 5

3.3. Employers interests

Answer 5

• Protection against financial loss arising from death or ill-health of employees
• Protection of tangible assets
• Protection of intangible assets
• Provision of work-related benefits that will attract and retain quality staff
• Meeting legislative requirements
• Managing the costs of running their business
• Quantification of the amount of surplus capital in the business
• Investment of surplus capital
• Raising additional capital

Question 6

3.4. Insurance companies – board of directors interests

Answer 6

• Meeting legislative requirements for management of the business
• Investing and managing the assets of the company
• Managing the liabilities of the company
• Determining the levels of provisions to hold to meet future liabilities
• Setting premium rates
• Ensuring that policy proceeds are paid
• Meeting policyholders’ reasonable expectations
• Meeting the demands of shareholders
• Good corporate governance
• Obtaining appropriate and adequate reinsurance to protect the business

Question 7

3.5. Insurance company – shareholders interests

Answer 7

• Obtaining a good return on investment for the level of risk

Question 8

3.6. Insurance company – creditors interests

Answer 8

• Certainty about being paid

Question 9

3.7. Trustees of a benefit scheme interests

Answer 9

• Managing the assets of the scheme
• Paying the benefit promised under the scheme as they fall due
• Maintaining solvency

Question 10

3.8. Sponsors of benefit schemes interests

Answer 10

• Providing protection benefits that meet the needs of the members and their dependants
• Providing retirement benefits that meet the needs of the members
• Managing the cost of providing the benefits
• Meeting legislative requirements

Question 11

3.9. Employees interests

Answer 11

• Provision of protection benefits on death
• Provision of pension benefits on retirement
• Investment of surplus personal funds

Question 12

3.10. Auditors of insurance companies interests

Answer 12

• Assessment of long-term liabilities for life insurance companies
• Assessment of long-tail claims reserves for general insurers

Question 13

3.11. Auditors of the sponsors of benefit schemes interests

Answer 13

• Assessment of the future liability to pay benefits

Question 14

3.12. Government interests

Answer 14

• Setting legislation
• Monitoring the adherence to this legislation
• Funding benefit provision by the State
• Monitoring the funding of benefit provision by the State

Question 15

3.13. Regulator interests

Answer 15

• Ensuring that regulatory requirements are met

Question 16

6.1. Types of advice

Answer 16

• Indicative advice – giving an opinion without fully investigating the issues
• Factual advice – based on research and facts, e.g. legislation
• Recommendations – researched and modeled forecasts, alternatives weighed up, recommendations made consistent with requirements.