Idea Generation

Question 1

General Business Risks

Answer 1

• market risk
• credit risk
• operational risk
• liquidity risk
• underwriting risk

Question 2

Risks - Life Insurer

Answer 2

• mortality & longevity risk
• morbidity risk
• expense risk
• lapse & withdrawal risk
• business mix risk
• new business volume risk
• investment risks
• model risk
• regulatory risk
• option take-up
• reinsurance risk
• anti-selection and moral hazard
• lack of data
• poor policy wording

PLUS:
- market risk
- credit risk
- operational risk
- liquidity risk
- underwriting risk

Question 3

Risks - General Insurer

Answer 3

• underwriting risk
  – claim severity risk
  – claim frequency risk
• concentration risk
• catastrophe risk
• expense risk
• renewals & lapse risk
• business mix risk
• new business volume risk
• investment risks
• model risk
• climate change risk
• regulatory risk
• reinsurance risk
• anti-selection and moral hazard
• lack of data
• poor policy wording

PLUS:
- market risk
- credit risk
- operational risk
- liquidity risk
- underwriting risk

Question 4

Professionalism: 10 Items to consider as an actuary

Answer 4

1. Good documentation
2. Up-to-date CPD
3. Comply with laws - reg28 and POPIA
4. PRE
5. TCF and market conduct
6. Communication
7. Prove that you are competent (via expertise and experience)
8. Declare conflicts of interest
9. Whistleblowing
10. Act with integrity
11. Consider all stakeholders
12. Know own limits

Question 5

Risks - Investment strategy of financial products

Answer 5

Uncertainty over the level and timing of investment returns (both income and capital)
Mismatching of assets and liabilities
Reinvestment risk
Default risk
Investment returns being lower than expected, increasing provider cost
Lack of appreciation of benefits by recipients due to poor returns
Higher than expected investment expenses
Liquidity risk
Lack of diversification
Changes in taxation of investment income and gains

Question 6

Applying the ACC to the specific scenario

Answer 6

Specifying the problem
- set an objective
- identify the risks and potential mitigation options in the question
- consider all the potential stakeholders and the risks they face in the question

Developing the solution
- often involves using a model - suggest a type of model and how to acquire it (build/adjust/use as is)
- identify assumptions for the model - give specific examples
- suggest ways of dealing with any uncertainty in the assumptions
- talk about sensitivity testing - i.e. rerunning the model on different assumptions
- considering alternative solutions
- communicating the proposed solution and alternatives to stakeholders for decision-making

Monitoring the experience
- compare actual vs expected experience using dynamic model
- analyse the difference in actual versus expected and suggest on how you might deal with them
- discuss how frequently the monitoring should occur
- emphasize iterative nature of the ACC

Professionalism
- talk about the characteristics of the professional in the question
- mention Technical Actuarial Standards

The general economic and commercial environment
- what external issues should be considered?
- what would you like to know about the competition?
- what is the state of the economy and what issues can it cause?