Chapter 0: What is A311 all about Flashcards
5 nodes of the Actuarial control cycle
- General Commercial and Economic Environment
- Specifying the problem
- Developing the Solution
- Monitoring the Experience
- Professionalism
Key Topics Under the General Commercial and Economic Environment
ESPERIA, a magical environment far away
- External environment
- Stakeholders
- Providers of benefits
- Economic Influences
- Regulation
- Insurance products
- Asset Classes
Key topics when specifying the problem
- Assessment of NEEDS
- Assessment of RISKS
- Core Business Requirements
- Strategic Courses of Action
Key topics in developing the solution
- Selecting Appropriate Actuarial Models
- Appropriate Assumptions
- Implications for all Stakeholders
- Determine a Proposed Solution and Alternatives
Basic elements incorporated in the actuarial control cycle (that makes it “actuarial”)
- Estimation of the FINANCIAL IMPACT of uncertain future events
- A LONG-TERM rather than short-term horizon
- Recognition of STAKEHOLDERS’ requirements and risk profiles
- Decisions need to be made in the short term in the light of likely future outcomes.
- The use of MODELS to represent future financial outcomes
- The use of ASSUMPTIONS based on appropriate historical experience.
- The need to allow for the impact of legislation, REGULATION, taxation, competition
- Interpretation of the results of modelling to enable practical strategies to be developed
- MONITORING and periodically analyzing the emerging experience
- Modifying models/strategies in light of this analysis of the emerging experience.
- The application of professional judgement.
Specifying the problem
- Analyse the risks of the various stakeholders in detail
and set out clearly the problem from the point of view
of each stakeholder. - Gives an assessment of the risks faced and how they
can be managed mitigated or transferred. - Provide an analysis of the options for the design of plans to transfer risk from one set of stakeholders to the next.
Developing the solution
MODEL CONSTRUCTION
- An examination of the major actuarial models currently in use and how they may be adjusted for the
particular problem to be solved
- Selection of the most appropriate model to use for the problem, or construction of a new model
- Consideration and selection of the assumptions to be used in the model.
MODEL RESULTS
- Interpretation of the results of the modelling process
- Consideration of the implications of the model results
on the overall problem.
- Consideration of the implications of the results for all
stakeholders
SOLUTION
- determining a proposed solution to the problem
- consideration of alternative solutions and their effects on the problem
- formalising a proposal
- communicating the proposed solution and the alternatives
Monitoring the experience
- Critical that the models used are dynamic and reflect
current experience where it is relevant. - This stage deals with the monitoring of experience
and its feedback into the previous stages - Identifying causes of departures and considering the
recurrence of departures. - Feedback loops
Investment risk
The uncertainty associated with the outcome of making an investment
Credit risk
The risk that a person or an organisation will fail to make a payment that they have promised
Potential stakeholders
- Members of benefit schemes
- Reinsurers
- Insurers
- Trustees
- Beneficiaries of insurance policies
- Investors
- Lenders/creditors
Risks occur when
- The value of assets/proceeds are not as expected
- The value of liabilities/outgoes are not as expected
- The relative value of assets and liabilities or net cash flows are not as expected
Market risk
Risks related to changes in investment market values
Risks associated with liability outgoes
- Inflation risk
- Underwriting risk
- Insurance risk
- Exposure risk
- Finance risk
- Operational risk
- External risk
Inflation risk
Risk of real liabilities being larger than anticipated due to inflation.
