Chapter 1 - Actuarial Advice Flashcards
(16 cards)
List all public stakeholders that actuaries could advice (14)
Policyholders and prospective policyholders
Employers
Employees
Insurance company- Shareholders, BoD, Creditors, Auditors
Benefit Scheme - Sponsors, Trustees, Members and Dependents, Auditors
Investment fund managers
Banks
Sponsors of capital projects
List all public sector stakeholders that actuaries can provide advice to
Central bank
Government
Regulatory bodies
Consideration of other stakeholders
- It is important that when the actuary is providing advice it also consider other stakeholders who might be affected by the advice.
- The actuary must not only consider the client (usually the stakeholder making the payment) but must also consider vulnerable stakeholders.
- These stakeholders may not have access to the advice or means of mitigating harm.
- Advice should balance the impact on the vulnerable with that of cost-effectiveness.
- The actuary must retain a sense of proportion to decipher which stakeholders are affected the most.
Information about clients
Gathering information
* Before engaging in a task actuary must get a feel of the company they are dealing with.
* Publicly available information such as the accounts and website should give a good idea of the company’s culture.
* Before starting on the specific task, the actuary should research and assimilate such information
* After collecting this information, a pre-project meeting can be arranged to ensure that the position of the client has been fully understood.
Conflict of interest
* Actuary should be aware of conflicts of interest before engaging in giving advice.
* Sometime the conflict cannot be avoided, and, in this case, the clients must be made aware of this.
* Independence between the teams is encouraged through “Chinese Walls” which are used to reduce communication of any kind between the groups.
ATTITUDE OF CLIENTS AND OTHER STAKEHOLDERS: Subjective information
- Subjective information about the client must be assimilated with the information collected.
- Subjective information allows the actuary to gain an understanding of the risk appetite, culture and ethical position of the client.
- If culture is not understood the advice given might be inappropriate.
- Risk appetite of a company is determined by the shareholders/owners and usually reflected in the annual published accounts
The end customer
- Provider should seek out information about the circumstances and objectives of the client so they can fulfil their obligation to client to the best of their ability.
- Equally, providers must be willing to give customers an account of how they have fulfilled their responsibilities.
Outline the types of advice
- Factual advice: Based on research of facts
- Indicative advice: Opinion without fully investigating the issues
- Recommendation: Research and modelled forecasts, alternatives weighted, recommendations made consistent with requirements, work normally peer-reviewed
Giving advice
- Assumptions (connected to chapter 20) made by actuary must be relevant to circumstance of client.
- These assumptions will need to be explained to the client and the reasoning behind them.
- Alternative assumption and alternative solutions must be disclosed as well.
- The client decides which solution to adopt.
- E.g., the actuary may advice on the with-profit bonus however it is the board who will decide what the actual bonuses are.
Making decisions
- Actuary may be responsible for making a business decision.
- E.g., actuary may decide on what the surrender value of a particular benefit is
- Actuaries in executive position who make decision on matters of provision, reinsurance and asset allocation need to go through a rigorous peer review before their decision are made official.
- This is because in such situation there is a danger that the actuary will take decisions based on their own conclusions
- The process needs to be robust to demonstrate to regulators, auditors and customers that sound practice is being adhered to.
- It is vital that the thinking behind any decisions taken is properly documented, including documentation of alternatives that have been considered
Interest of policyholder that actuary can advise on
- Protection against financial effect of illness and death
- Protection of property
- Retirement planning
- Investments
- Protection against personal liability claims
- Protection against requiring long-term home or nursing care
Interest of employer that actuary may advice on
- Incentive through benefits to attract quality staff.
- Protection against financial loss arising from death/illness of staff.
- Protection of assets
- Meeting legislative requirements
- Business interruption
- Fraud
- Investment
- Protection of Key employees
- Minimising the cost of running scheme
Interest of Insurance - BoD that actuary may advise on
- Meeting legislative requirements
- Setting premiums
- Meeting policyholders’ expectations
- Reinsurance protection
- Managing assets and liabilities
- Reserve requirements
- Corporate governance
Interest of a truste that actuary may advise on
Managing assets of scheme
Maintaining solvency
Providing benefits as promised
Interest of a sponsor of a scheme that an actuary may advice on
Meeting legislative requirement
Managing cost of providing benefit
Providing protection benefits that meet the members needs
Providing retirement benefits that meet the needs of the members
Interest of government for which actuaries may provide advice
- Setting legislation that impacts provision for companies that provide benefits on contingent events.
- Monitoring adherence to legislation
- Funding benefits provision by the state
- Monitoring the funding of benefits provision by the state
Interest of regulator that actuaries may provide advice for
- Enforcing regulation
- Providing information to consumers and the public
- Market conduct
- Investigation breaches and imposing sanction
