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A311- Acronyms > Acronyms > Flashcards

Acronyms Flashcards

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1
Q

What makes ACC, actuarial

A

BAPTISED MMM 0
* Business environment allowed for (Regulation, legislation, taxation, competition)
* Assumptions based on appropriate historical experience
* Professional judgement
* Term (long rather than short)
* Interpretation of results of modelling to enable practical strategies to be developed
* Stakeholders’ requirements and risk profile
* Estimation of uncertain financial future events
* Decisions need to be made in short term in light of future outcomes.

  • Models to represent future financial outcome
  • Monitoring and periodically analysing emerging experience
  • Modifying models/strategies based on this analysis
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2
Q

Types of Actuarial Advice:

A

FIR 1
* Factual
* Indicative
* Recommendations

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3
Q

Stakeholders:

A

DISRESPECT MAC GD 1
* Directors
* Investment managers
* Shareholders
* Regulator
* Employers
* Sponsors of benefit scheme
* Policyholders
* Employees
* Creditors
* Trustees
* Members of benefit schemes
* Auditors
* Competitors
* Government
* Distribution channels- brokers

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4
Q

Actuarial Quality Framework aims to promote:

A

MECA 1
* Methods
* Environment
* Communication
* Actuaries

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5
Q

External Environment factors:

A

CREATE GRAND LISTS 2
* Corporate structure
* Regulation and legislation
* Environmental issues and climate change
* Accounting standards
* Tax
* Economic outlook (Interest rates, inflation, growth, and exchange rates) ( competitive advantage and commercial requirements) ( underwriting cycle, bank cycle, business cycle)
* …
* Governance corporate
* Risk management requirements
* Adequacy of capital and solvency
* New business environment
* Demographic trends
* …
* Lifestyle considerations
* International practice
* State benefits
* Technology
* Social and cultural trends

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6
Q

Reasons why UW exists:

A

CREED(D)S 2
* Chasing hard rates
* Reduced insurance capacity after large losses
* Ease of new entrants
* Economies of scale maintained at all cost
* Deliberate under pricing by key players to drive out competition
* Delays between selling/writing contracts and assessing actual profitability
* Simple capital requirement regimes when rates are softening and vice versa when rates are hardening

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7
Q

Economic factors:

A

IS FIERCE 2
* Inflation
* Short-term interest rates

  • Fiscal deficit
  • Imports/exports
  • Employment rate
  • Returns on alternative investments
  • Currency
  • Economic growth
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8
Q

Aims of a regulator:

A

GRIP 3
* Give confidence in the system.
* Reduce financial crime.
* Inefficiencies in the market corrected and efficient and orderly markets promoted.
* Protect costumers.

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9
Q

Functions of a regulator:

A

SERVICE 3
* Setting sanctions.
* Enforcing regulations.
* Reviewing and influencing government policy.
* Vetting and registering firms and individuals.
* Investigating breaches.
* Checking management and conduct of providers.
* Educating customers and the public.

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10
Q

Disadvantages of regulation

A

: EPIC BLOC 3
* Economies of scale less
* Premiums are higher
* Investment returns lower
* Costs

  • Barriers of entry
  • Less insurance coverage
  • Opportunity cost
  • Complex capital requirements
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11
Q

Investment and risk characteristic of assets:

A

SYSTEEM TD+ 9
* Security
* Yield
* Spread (volatility of market values)
* Term
* Expense
* Exchange rate
* Marketability
* ..
* Tax
* Diversification
* Divisibility
* Other such as uniqueness

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12
Q

General reasons for holding cash:

A

POURS 9
* Protect monetary values.
* Opportunities to take advantage of.
* Uncertain liabilities.
* Recently received cashflow.
* Short-term liabilities.

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13
Q

Economic situations in which cash is attractive

A

GRID 9
* General economic uncertainty
* Recession expected
* Interest rates expected to rise
* Depreciation of domestic currency expected

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14
Q

Characteristic of a prime property:

A

CALL ST 10
* Comparable properties for rent reviews/valuations.
* Age, condition and flexibility of use
* Location
* Lease structure
* ..
* Size
* Tenant quality

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15
Q

Uses of derivatives:

A

HAAS 11
* Hedge
* Assist in asset allocation
* Arbitrage
* Speculate

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16
Q

Theories of yield curve:

A

LIME 12
* Liquidity preference
* Inflation risk premium
* Market segmentation
* Expectations

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17
Q

Main difficulties of overseas investment:

A

MTV 11
* Mismatching domestic liabilities
* Taxation (may not be able to recover withholding taxes/double taxation)
* Volatility of currency

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18
Q

Other practical problems with overseas investing:

A

CATERPILLAR 11
* Custodian needed
* Additional admin required
* Time delays
* Expenses incurred / Expertise
* Regulation poor
* Political instability
* Information harder to obtain/less of it
* Language difficulties
* Liquidity problems
* Accounting differences
* Restrictions on foreign ownership /repatriation problems (confiscation problems)

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19
Q

Ways of valuing assets:

A

SHAM FADS
* Smoothed market value
* Historic book value
* Adjusted book value
* Market value
* ..
* Fair value
* Arbitrage value
* Discounted cashflow
* Stochastic modelling

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20
Q

Regulatory influences on assets held:

A

TECH SCAM Ch16
* Types of assets that provider can invest in
* Extent to which mismatching allowed
* Currency matching requirements
* Hold certain proportion of total assets in specific class, eg government bonds.
* …
* Single counterparty maximum exposure
* Custodianship of assets
* Amount of any one asset used to demonstrate solvency restricted
* Mismatching reserve

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21
Q

Factors affecting investment strategy:

A

A SAD CUTER INVESTOR
* Accounting regulations
* …
* Size of the assets relative/abs
* Accrual of future liabilities in the future
* Diversification
* …
* Currency of the liabilities
* Uncertainty of the liabilities
* Term of the liabilities
* Environmental/social/governance issues
* Risk appetite
* …
* Investment objective
* Nature of the liabilities
* Voluntary and legal restrictions
* Existing portfolio
* Solvency requirements + Statutory valuations + Rating agency solvency level required
* Tax treatment of the assets/investor
* Other fund’s strategies (competition)
* Return (expected long-term)

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22
Q

Considerations in-house or external model:

A

FENCED
* Fit for purpose
* Expertise available in-house
* Need for flexibility
* Cost of each option
* Expected number of times used
* Desired level of accuracy

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23
Q

Model design: operational issues

A

SCARCER FILES-S
* Simple but retains key features
* Clear results
* Adequately documented
* Range of implementation methods
* Communicable working and outputs
* Easy to understand
* Refinable & developable
* …
* Frequency of cashflows- balance accuracy vs practicality
* Independent verification of outputs
* Lengths of runs not too long
* Expense not too high
* Sensible joint behaviour of variables
* Sensitivity and Scenario testing

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24
Q

Sources of data:

A

TRAINERS
* Tables eg. Actuarial mort tables
* Reinsurers
* Abroad (data from overseas contracts)
* Industry data
* National statistics
* Experience investigations on existing contracts
* Regulatory reports and company published reports
* Similar contracts

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25
Factors affecting data quality and quantity:
SEMI COMA *Size of company *Existence of legacy systems *management and staff *Integrity of data systems *Class of business *Organisation (nature of) *Method of sale *Age of company
26
Potential issues when using data:
QUERIED BEST ARCHER * Quantity (credibility) * Up-to-data? * estimation * Relevance (heterogeneity) * Incomplete? * Exceptional-actuary * Detail & format * … * Balance of homogenous groups underlying data may have changed * Economic situation may have changed * Social conditions may have changed * Trends over time * … * Abnormal fluctuations * Random fluctuations * Changes in regulation * Heterogeneity within the group which the assumptions may apply * Errors in data * Recording differences ( categorisation of smoker as example)
27
Advantages of industry wide data:
PECS * Pricing if no internal data available * Experience can be compared with own * Credibility is high o Lots of volume * Strategies (business) o Enhance market share  Information on prospective business  Know what business characteristics you seek when expanding and attracting new business o Monitoring trends
28
Disadvantages of industry wide data
HOOD C * Heterogeneity 6 o Companies operate in different geographical/social-economic sections of market o Policies sold may differ (different product features) o Sales method may differ o Differing practices  Underwriting  Claims settlement o Different nature of data stored o Coding used for risk factors may vary * Out of date data o Takes long time to collect data from various companies * Opt not to contribute o Some industry players may opt not to contribute * Detail and flexibility inferior than internal data * Contributors determine data quality o One company mistakes can distort larger set of data
29
Quality proposal form:
CURVED AAI * Comprehensive * Unambiguous, well designed questions * Relevant and Reliable information produced * Verify key policyholder information * Easy Coding * Data checks before inputted into a model * Additional information dependent on claim size * All information on proposal, endorsement, claim form must be held * Interpretation must be limited
30
Features of good quality data:
COACH LUCID * Completeness * Objective and quantifiable as far as possible * Accurate * Consistent with previous data * Homogonous grouping into model points * Lowest level o Such as date of birth rather than age at entry * Up to date * Checks should be able to be performed * Integrated into one system * Detail level and documentation appropriate o Audit trail
31
Checks on data (before valuation)
PRADA S * Previous data to verify current data * Reasonability checks * Asset data * Detailed audits * Accounting data * Spot checks
32
Factors to consider when setting assumptions
LUNCH 20 * Legislation/regulation * Use of the assumptions * Needs of the client * Consistency between assumptions * How to financially significant is/are the assumption(s)
33
Types of selection
SSSTA(TI)C 21 * Self * Spurious (fake) * Selective W * Time * Adverse * Temporary initial * Class
34
Contract design factors
AMPLE DIRECT FACTORS 23 * Administration systems * Marketability * Profitability * Level and form of benefits * Early leaver benefits * … * Discretionary benefits * Interests and needs of customers * Risk appetite of the parties involved * Expenses vs charges * Competition * Terms and conditions of contract * … * Financing (capital requirements) * Accounting implications * Consistency with other products * Timing of contributions or premiums * Options and guarantees * Regulatory requirements * Subsidies (-cross)
35
Parties involved in contract design
ALPACASS 23 * Actuaries * Lawyers * Providers of benefits * Accountants * Customers * Administrators * Shareholders/financial backers * Sales/marketing
36
Expenses incurred by a product provider
COST RAID 23 * Commission * Overheads * Sales/advertising * Terminal, eg. Paying benefits * … * Renewal administration eg collecting prems/contri * Asset management * Initial administration eg setting up new client records * Design of contract
37
Marketable contracts:
TICS 23 * Transparency * Innovation * Costs low * Simple -easy to understand
38
TCF throughout product life cycle:
CHAD PP 23 * Claims processing * Handling complains * Advice and servicing * Design * Pricing * Promotion
39
Benefits of a good risk management process:
SAVIOURS 25 * Strategic decision making improved * Avoid surprises * Volatility of profits reduced * Improved profits via capital efficiency * Opportunities exploited for profit * Understand interdependencies/aggregation * React quickly to emerging risks * Stakeholders given confidence
40
Operational risk examples
ASPECT FG 26 * Administration risk * Strategic risk * Pension scheme risk * Event risk (external) * Compliance risk * Technology risk * Fraud risk * Governance risk
41
Inappropriate advice
(CRIMES) 27 * Complicated products * Rubbish (incompetent) adviser * Integrity of adviser lacking (due to sales-related payments) * Model or parameters unsuitable * Errors in data relating to beneficiaries * State-encouraged but inappropriate actions
42
insurable interest:
FIA MUD PIS 28 * Financial/quantifiable * Interest in risk being insured * Amount payable relates to size of loss * Moral hazard avoided * Ultimate limit on liability * Data available to assess the risk * Probability of occurrence low * Independent risks * Similar risks pooled
43
Importance of risk reporting:
FRAUD CRIME 29 * Financing (appropriate price, reserves, capital requirements) * Rating agencies * Attractiveness to investors * Understand better (risks and financial impact) * Determine appropriate control systems * Changes over time * Regulation * Interactions * Monitoring effectiveness of controls * Emerging risk identification
44
Responses to risk:
PIRATE 30 * Partially transfer * Ignore (reject need for financial coverage- trivial or already diversified) * Reduce * Accept (retain all) * Transfer * Evade (avoid)
45
Evaluation of risk mitigation options:
FIRM 30 * Feasibility and cost * Impact on frequency/severity/expected value * Resulting secondary risks * Mitigation required in response to secondary risks
46
Reasons for using reinsurance
DASS LIFE 30 * Diversification * Avoid single large losses * Smooth results * Solvency improvement * Limit exposure to single events or accumulations * Increase capacity to accept risk * Financial assistance * Expertise
47
Reasons for using ART:
DESCARTES 30 * Diversification * Exploits risk as an opportunity * Solvency improvements/ source of capital * Cheaper cover than RI * Availability of RI not adequate * Results smoothed * Tax advantages * Efficient risk management tool * Security of payments improved
48
Reasons for calculating reserves:
BAD MEDICS 32 * Benefits improvements for a benefit scheme * Accounts and reports -> published and internal * Discontinuance/surrender benefits * Mergers and acquisitions * Excess of A over L to determine discretionary benefits * Disclosure information for beneficiaries * Investment strategy * Contribution/premium setting * Supervisory solvency reports
49
Accounting concepts:
GRAPED CC MMM 34 * Going concern * Realisation * Accruals * Prudence * Entity business * Dual aspects * Cost * Consistency * Matching * Materiality * Money measurement
50
Common aims of accounting standards (relation to benefit schemes)
CARD 34 * Consistency in accounting treatment from year to year * Avoiding distortions resulting from contribution fluctuations * Recognising the realistic costs of accruing benefits * Disclosure of appropriate information
51
Additional reports accompanying accounts
BRISK 34 * Board independence & governance * Risk appetite , exposure & management * Investment strategy and performance * Strategic objectives (progress towards) * Key obligations (performance against)
52
Things to consider when looking at accounts
CUBES * Changes in accounting practices *UW effect- compare insurers transacting similar types of business *Basis for valuations *Exceptional events-> M&A,Internal Restrucutres,Unusual experience,Exceptional expenditure *Statutory and accounting regulations (country)
53
Reasons why disclosure is important in benefit scheme
SIMMERS 34 * Sponsor is aware of financial significance of benefits * Informed decisions can be made * Mis-selling is avoided * Manages the expectations of members * Encourages take up * Regulatory requirements * Security of scheme improved as sponsor/trustees are made more accountable
54
Benefit scheme information to be disclosed in accounts
DIM CLAIMS 34 * Directors’ benefit costs * Investment return over year * Membership movements * Change in surplus/deficit * Liabilities accruing over year * Assumptions * Increase in past service liabilities * Method (actuarial) * Surplus/deficit
55
Information to be disclosed to benefit scheme members
SCRIBE 34 * Strategy for investment * Contribution obligations * Risks involved * Insolvency entitlement * Benefit entitlement * Expenses charges
56
When benefit scheme information should be disclosed to members
PRICE 34 * Payment commencement * Request * Intervals * Combination * Entry
57
Issues to include in model of future solvency position:
OASESS 35 * Outstanding financial obligations, including minority interests and tax * Amount and timing of loan/debt redemption * Surplus asset’s current value * Estimation of future post-tax profits available to equity shareholders * Staff relationship problems -> industrial relations such as with trade unions * Staff benefit schemes especially if in deficit
58
Key principles to consider when determining discontinuance terms
PRANCE FC 35 * Policyholder reasonable expectations PRE * Regulation may prescribe benefits such as max surrender penalties * Administration expenses and Asset share * New business disclosure and communication * Competitive considerations * Ease of calculation (fair vs simple) * Frequency of change of discontinuance terms (not too frequent) * Cost of determining and implementing discontinuance terms
59
Why financial providers need capital
REG CUSHION 36 * Regulatory requirement to demonstrate solvency * Expenses of launching a new product/starting a new operation * Guarantees can be offered * Cashflow timing management * Unexpected events cushion eg. Adverse events * Smooth profit * Help demonstrate financial strength * Investment freedom to mismatch in pursuit of higher returns * Opportunities, eg. Mergers and acquisitions * New business strain financing
60
Reasons for analysing surplus
DIVERGENCE 38 Assting the management decision making: * Divergence of actual vs expected (show financial effect/significance of) * Information to management and for accounts * Variance of whole is equal to the sum of the variances from the individual sources Providing information for other purposes * Experience monitoring to feedback into ACC * Reconcile values for successive years * Group into one-off/ recurring sources of surplus * Executive remuneration schemes (data for) Data checks and calculation checks * New business strain (show effects of) * Check on valuation assumptions and calculations * Extra check on valuation data and process
61
Levers on surplus
RETAIL R 38 * Reduce lapses/Withdrawals and increase renewals (persistency) * Expenses (control) * Tax management policy (effective) * Amounts of claim/benefits costs reduction * Increase investment return with investment policy at acceptable risk appetite * Likelihood of claims reduction * Recovery plan

A311- Acronyms (1 decks)

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