Class test: Acronyms 1-19 Flashcards Preview

Actuarial Risk Management: CA1 > Class test: Acronyms 1-19 > Flashcards

Flashcards in Class test: Acronyms 1-19 Deck (46):
1

External Environment:
CREATE GREAT LISTS

Competition and underwriting cycle
Regulation and legislation
Environmental issues
Accounting standards
Tax
Economic expectations
Governance
Risk management requirements
Experience overseas
Adequacy of capital
Trends- demographic
Lifestyle considerations
Institutional structures
Social trends
Technology
State benefits

2

Regulation: Functions of a regulator
SERVICE

Setting sanctions
Enforcing regulation
Reviewing legislation
Vetting and register firms and individuals
Investigating breaches
Checks to capital adequacy and management
Educating consumers and public

3

Regulation regimes:

Unregulated
Self-Regulated
Voluntary conducts
Statutory regime

4

Regulation aims:
GRIP

Give confidence in the market
Reduce financial crime
Inefficient markets corrected
Protect public/consumers

5

Regulation needs: Reducing info asymmetries
SPIDER CC

Assymetry of info

Sales techniques restrict
Pricing controls imposed
Insider trading prevention
Disclosure of understandable info
Educate consumers
Restrict public info
Cooling off
Chinese walls established

6

Regulation needs: Confidence in market

CPI’S

Capital adequacy
Practitioners- competent
Industry compensation schemes
Stock exchange requirements

7

Cost if regulation:
PUMA R

Direct:
Admin
Monitoring of companies

Indirect:
Product innovation
Undermining of responsibility’s by Intermediares and brokers
Market developed structures to protect consumers ste lost
Altered consumer behaviour
Reduced competition

8

Professionalism: Financial risk management

JAM MERC MICS

Judge future inflation
Assumptions- set and understand
Modelling
Margins
Estimate values for A and L
Reinsurance
Contribution calcs
Monitor
Investment strategy
Cashflows- project and discount
Set provisions

9

Professionalism: Statutory roles
RePVaCS/ RePVAPSC

Records of all work done are kept
Proper provisions for L are made
Valuation of liabilities consistent with assets
Compliance
Surplus/deficit

Keep Records to evaluate L
Proper Provisioning is done
Valuation - According to legislation - assumptions, method and context of A to L.
A valued according to appropriate rules
Sufficient Premiums according to assumptions
Statement of Surplus/deficit
Compliance with professional guidance

10

Professionalism: Being professional

PRICK CNIC

Personal relationship
Reliable-time quality
Integrity
Communicate well
Knowledge of client
Conflict of interet avoided
Needs
Independent
Competence

11

Influences of policyholder reasonable expectations

PEMB

Practice- competitors/general/past
Economic conditions
Marketing statements
Broker advice

12

Role of state as benefit provider

DEERP

Direct provision of benefits
Education
Encourage/compel private benefit provision
Regulate benefit providers
Provide financial instruments

13

Reasons for employer benefits
MEC FLAP

Management of employees
Economies of scale-benefits negotiation
Compulsion by state
Flexible benefits
Loyalty
Attract and retain good staff
Paternalism

14

Reason for individual benefit providers
CPS

Compulsion
Personal preference
Savings plan

15

Considerations in general insurance
PUN TRIP

Premiums
Underwriting
New business strain
Tail of business
Rating factors
Investment strategy
Provisions

16

Cash flow considerations
CANT C

Certainty
Amount
Nature (Real/nominal)
Term
Currency

17

Factors of contract design:
AMPLE DIRECT FACTORS

Administration- remain efficient, allow for changes in B's
Marketability/ marketing cost
Profitability- profit targets / Professional and ethical considerations/ Pricing and underwriting/
Level/form of benefits
Extent of cross-subsidies

Discretionary/discontinuence
Interest/ needs of customers
Risk apetite /reinsurance
Expenses
Competition/ Comission- attractive to brokers
Ts and Cs - no loop holes in contract/ Training of staff/ exclusions, waiting periods, excess payments

Financing
Accounting implications
Consistency with other products
Timing of premiums/contributions
Options and guarantees
Regulatory and statutory requirements
Simple to understand/ Sensitivity of profit

Additional factors:
- New business

18

Characteristics of a well-run project

PROJECT CRAMPS

Planning- who, what, when, how
Risk analysis- identify, quantify, manage
Objectives- stakeholders needs, budget
Judge/monitor development- time scale
Excellent communication
Conflict management
Testing at all stages

Critical parh analysis- order, prioritise
Relationships with suppliers- challenging
Appropriate pacing- time for proper testing
Milestone reviews-regularly
Performance and quality- measure regularly
Supportive environment- communication, clear roles

19

Written stratgy of project:
AIRS PROSE

Aims of project
Implementation issues
Risks affecting viability
Strategies to hadle risks

Policies(risk, operational, legal...)
Roles and responsibilities (manager, team)
Objectives
Schedule
Expected costs

20

Initial appraisal and Detailed appraisal CPA:
SPURS and RED

Synergy with other products
Political/ ethical constraints
Upside potential
Risk vs reward( NPV, IRR, DPP, PP...)
Scarce resources- oppertunity cost

Risk- identify, quantify, manage
Evaluate cashflows
Define scope

21

Assessing risk mitigation CPA:
OFFER

Overall impact on NPV distribution
Feasibility/ cost
Further mitigation of secondary risk?
Effect on frequency/ consequences/ correlation
Resulting secondary risk

22

Investment submission content CPA:
FIRM PEN ASAP

Financial information and assumptions ( distribution of NPVs)
Identification/ analysis of residual risk
Recommendation
Mitigation strategies
Proposed method of finance
Effect on investors
Non-monetary (e.g synergy)

Appraisal results / Assumptions
Scope of project
Alternative projects
Projected financial results

23

Money market: Reasons for liquid assets
POURS

Protection of monetary value/ Stable capital values to stabilise the solvency postion
Opportunities
Uncertain outgo
Recent cashflow
Short term commitments

24

Money Market: Economic reasons for holding cash

GRID

General economic uncertainty
Recession expected
Interest rates expected to rise
Depreciation of local currency
- hold cash abroad
- Raised interest rates to protect currency

25

Risks affecting bonds specifically:
CLAIM R

Credit
Liquidity
Actuarial
Inflation
Market
Reinvestment

26

Problems with overseas investment:

MTV CATERPILLAR

Mismatching domestic liabilities
Tax
Volatility due to exchange rate
Custodianship/ currency risk
Administration
Time delays
Expense/ expertise
Regulation poor
Political problems
Information lacking
Language
Liquidity
Accounting differences
Restrictions on share ownership

27

Emerging market considerations:

CAMPER C

Current market valuation
Added diversification
Marketability/ market regulation
Possibility of high future economic growth/ political stability
Economic growth - lower base, demographic advantage
Regulation and restriction on foreign investment
Currency stability

28

Prime/Specific property characteristics
CALL STUD

Comparables
Age/condition
Location
Lease structure
Size
Tenant quality
Usage of building
Development Potential

29

The risk discount rate SyNC WACS:

Systematic risk considered
Nature of cash flows (real vs. nominal)
Current cost of raising capital
WACC (Explain fully)
Alternative investments considered
Compare riskiness – similar projects, other companies
Sensitivity testing

30

Capital project risks:
PEBP NFC

Political
Economical
Business
Project
Natural
Financial
Crime

31

Factors an insurer should consider when taking on new business SLARPHACAN:

Factors to keep in mind when discussing new insurance products
CARCEEN

Similar risks insured – data, expertise, admin systems
Level of cover offered – exclusion, excess
Appetite of insurer (risk)
Reinsurance available
Profitability of business
History of claims in similar business
Ability to write new business – Financial Position
Competitiveness in business
Aim of company – does this business fit in?
New Business Strain

Cost to target market
Availability of market data
Risk such as anti selection and moral hazard
Competition products that are similar
Economic condition correlation
Exclusions
Needs of customers

32

Merits of indirect investments DELTA SEED CLEMT

Diversification
Economies of scale
Less costs of direct investments
Tax and marketability advantages
Access - wider range of investments
Share Price (ITC only) -> Discounted NAV (bought cheap)
Expected return higher than normal shares (extra volatility)
Expertise of investment managers
Divisibility of assets

Control lost
Lack diversification away from equities (Property equity)
Extra volatility
Management costs
Tax disadvantages

33

Reasons for foreign investment DIMI:

Diversification
Increase expected returns:
- higher risk markets
- inefficient markets
Match Liabilities in foreign currency
Investing in a number of different countries or economies with a low degree of correlation helps reduce portfolio risk

34

Indirect overseas investment MHEDiCs:

Multinationals based in domestic markets
Holding companies with foreign holdings
Domestic companies with substantial Exports
Derivatives based on foreign underlying assets
CIS's

35

Merits of Indirect vs direct, Foreign markets SNoPSA NED CorT

Specialist knowledge of foreign markets acquired
No need for research of foreign markets
Still local
Practically easy: Admin and accounting made easier
Access to markets you usually wont have

No control over the market exposed to
Extent of currency risk is uncertain- hedges, derivatives, swaps
Dilution of foreign exposure
Correlation with local market- market segment, political, etc.
Taxation problems - possible double tax

36

Differences between UT and ITC - BAG WiC MaTO:

Bid/offer spread higher for ITC
Assets bought cheaper: ITC (Discounted NAV)
Gearing ITC – higher Return and Volatility
Wider asset range for ITC
Change in NAV of ITC
Marketability higher – UT
Tax
Open ended- UT, Closed ended - ITC

37

Merits of Statutory regulation PENI MUCI:

Public confidence
Economies of scale
No abuse
Independent from rest of the industry

Moral hazard of industry
Unnecessary rules
Costly
Inflexible

38

Merits of Self-regulation REK PEL:

Rapid response to change
Easy cooperation
Knowledge of industry
Public confidence low
Entry barriers
Lack of experience to manage

39

Merits of Direct Property investment vs indirect property investment
CorECD MED

Merits of property equity over direct property investment:
DiSEL NoNo ProC

Correlation with equity market
Expected return and volatility
Control
Diversification
Marketability
expertise
Divisibility

Diversification added over a large ray of properties
Smaller entry costs
Liquidity
No need to invest time in finding tenants and letting to them
No unique risks such as obsolescence and void periods
Expertise from investment managers gained

Property equity is correlated with equity market
Control lost

40

Merits of UT vs Direct investment
DEMSIN CATaLL

Merits of ITC vs Direct investment
DEMSIN AssGear CATE

Diversification
Expertise by investment managers
Marketability - sale guaranteed
Specialist sector
No need to carry out own INvestment
Track specific INdexes

Cheaper ASSets - Discount to NAV
GEARing - higher expected returns

Control lost
Additional charges - management fees
Tax differences
Limited gearing
Limited amount of assets that can be invested in

Control lost
Additional charges - management fees
Tax differences
Extra volatility

41

Advantages of grouping equities into industries PFIEP
CMaRS

Practicality
Factors affecting the company are similar
Information from a common source
Expertise only on one area
Portfolio valuation is easy

Correlation due to similar:
Markets
Resources
Structure

42

profit/loss equation. Useful for determining why a specific type of product is not being profitable

Profit/Loss = Premium + Investment income - Claims - Expenses

43

Reasons for poor sales of insurance products:
DisCEM GAP

Distributors
Competitors
Expensive/inexpensive
Marketing
Guarantees/Options
Attractiveness of benefits
Product popularity

44

Managing conflicts of interest CARD R/ CAR DR.

Chinese walls
Avoiding conflict, such as declining a job
Records kept in detail of the work done
Disclose the conflict to all parties involved
Regulators notified if TCF not complied with

45

Regulation regulations that the state could impose to regulate the providers

PAM SAM BAM VR

Payments should be made on a timely basis
Authorisation required to sell insurance
Minimum solvency requirements should be regulated

Sales volume restriction to eliminate monopolies
Audited financial returns need to be submitted on a regular basis
Minimum benefits should be required

Brokers should be trained appropriately
Advertisement should be regulated
Maximum/minimum premium rates should be set to avoid overcharging/undercharging

Valuation of assets and liabilities should be regulated
Rating factors used should be regulated

46

Principles a code of Ethics should cover:
AC3

Act with Honesty and integrity - Fulfill responsibilities to clients and public, consider best interest of clients, avoid COI
Competence and care - acquire technical skills, maintain and update skills, non experts supervised
Compliance- rules of society, whistle blowing, accept society's punishment
Communication - with stakeholders(clearly, low level. jargon), allow for informed decisions to be made