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Flashcards in Daily Revision Deck (59):

unit 12(TCF) - what are the main headings of the TCF unit?

1. background
2. professional guidance
3. matters to be considered


unit 12 - Who is TCF compliance regulated by and what is the slogan for tcf?

Regulator is the FCA
"Firms must pay due regard to interests of customers and should TCF (Treat Customers Fairly)"


unit 12 - what are the 8 inputs to ensure effective TCF delivery?

8 things firm must do:
1. identify needs of customers
2. understand financial capability of customers
3. clear/fair/not misleading advertising/marketing/disclosure/after sales communication
4. balance between increasing sales and inappropriate risks to customers
5. measure/monitor/control/review risks on products for new/existing customers
6. stress tests for possible risks from retail business
7. Control functions to ensure delivery of strategy
8. MI is timely, informative and relevant


unit 12 - what should senior management have regard to when designing tcf strategy?

all stages of product life cycle:
1. design (before sale)
2. financial promotions (for more sale)
3. advice including remuneration of advisors (to sell it)
4. PoS info (at sale)
5. Aftersales treatment (after sale)
6. Complaints strategy (further after sale)


unit 12 - what is specific TCF legislation for WP business? (there are 6 specific ones)

1. 20.2 (payouts) - rules and guidance on T(WP)CF, includes target ranges for payouts relative to unsmoothed AS
2. 20.3 (PPFM) - rules/guidance on production of the PPFM
3. 20.4 (CFPPFM) - rules/guidance on communication to WP customers, including CFPPFM and reporting PPFM compliance
4. 20.3.2 - involve some independent judgement in assessing compliance with PPFM and addressing conflicts of rights and interests of policyholders and shareholders (if applicable) - see another question for what this results in
5. 1.2 (math res) - rules requiring firm to take into account TCF
6. SUP - duties and responsibilities of the AFH and WPA including responsibilities relating to TCF
7. Insurance TAS
8. APS L1


What does COBS stand for?
What does CFPPFM stand for?
What does INSPRU stand for?
What does APS stand for?
What does SUP stand for?
What does FRC stand for?
What does FSMA stand for?

conduct of business sourcebook
customer friendly principles and practices of financial management
prudential sourcebook for insurers
actuarial professional standards
supervision manual
financial reporting council
Financial services and markets act


What's COBS 20.3.2 related to? What does it result in?

TCF rules - independent judgement assessing compliance with PPFM

1. Form a with-profits committee including independent members
2. Ask independent person to report separately on the matters to WPC or governing body


How is the insurance TAS related to TCF?

Reports requiring projection of cashflows under different scenarios should state how the change in discretion exercises on the alternative scenarios is consitenct with TCF


How is APS L1 relevant to TCF?

AFH - must ensure firms management are aware at all times of AFH's interpretation of firms obligations to TCF

WPA - must implement WPA's interpretation of T(WP)CF, having regard in particular to PPFM


What types of product/parts of products is TCF relevant?

Those with discretionary elements

1. WP e.g. bonuses
2. Unit-linked variable charges
3. Unit-linked unit pricing
4. Non-guaranteed surrender values e.g. MVA
5. Variable rate contracts e.g. yearly renewable term assurance


What expectations would policyholders have for discretionary policies (PRE part of TCF)?

1. Firms behave fairly and responsibly exercising discretion
2. Reasonable degree of continuity in determining variable charges/benefits
3. Synonymous with equity
4. Equity in WP contracts is asset share calculations


unit 12 - What are important topics in TCF?

Inputs (what a firm should do to ensure effective delivery)
Outcomes for customers of TCF (6)
Specific professional guidance (COBS/INSPRU/SUP/APS L1/Insurance TAS)
Duty of AFH and WPA
Discretionary policy relevance
Topics list


Describe the professional standards and guidance requirements in general for an actuary or student actuary in the UK?

1, Must comply with all relevant requirements under the FSMA
2. Also with professional standards/guidance relevant to their particular work AND their professional body e.g. SOA/IFoA
3. Where IFoA standards are in
a. Actuaries code
b. TAS's (d/r/m/i/t) which are produced by FRC
c. APS


What are tas d/r/m/i/t



What are the specific tas's?

tas i and t


What are generic tas's?

they apply to any work commonly or exclusively carried out by actuaries and falling within scope of one of the specific tas's


purpose of tas r

1. information presented is clear and comprehensible
2. reporting of actuarial work includes enough information to enable users to judge its relevance and implications of reports contents


purpose of tas d

1. Ensure data used in prep of reports is subject to sufficient scrutiny and checks so users can relay on the results and
2. appropriate actions taken where data is inaccurate or incomplete


purpose of tas m

1. ensure models used in preparation of reports sufficiently repreesent issues on which decisions will be based, are fit for purpose (practically and theoretically)
2. requires models to be properly documented and significan limitations and implications are reported


state the insurance tas principles?

1. determination and use of appropriate and relevant assumptions
2. explanation of the approach taken to determine discount rates
3. allowance and explanation of future assumption trends
4. explanation of analysis of changes between methods and assumptions used in related exercises
5. explanation of relationship between prudent and neutral estimates
6. in relation to discretion (including wp management, ul charges and unit pricing)
a. ensure any management actions modelled are consistent with tcf
b. providing indication in reports of effects of proposed action on policyholders and any estate.


When does the insurance tas apply, other than mentioning its principles?

1. applies to all reserved work concerning insurance business. Where reserved work means there's a reg/legal obligation that it's performed by a qualified actuary
2. and to any work on insurance business that's used in reports
3. Examples include work on...
a. financial statements
b. Regulatory returns
c. ev reports
d. pricing
e. business reorganisations
f. discretion relating to premiums or benefits
4. its purpose is to ensure management and governing bodies of insurers can understand and rely on information supplied by their actuaries and appreciate the limitations
5. requires information provided to policyholders is relevant/comprehensible/sufficient for their needs


Other than the TAS's, what other professional guidance and standards are relevant in SA2?

1. APS L1 - relevant to IFoA members appointed to statutory roles e.g. AFH/WPA - "duties and responsibilities of life assurance actuaries"
2. APS L2 - relevant to statutory obligation to whistleblow - FSMA 2000 (communications by actuaries) Regulations 2003
Non-mandatory resources like:
3. "a guide to whistleblowing"
4. "a guide to conflicts of interest"


What is FSMA 2000?

1. UK insurers have been subject to its regulatory requirements
2. Enabling legislation, most rules made by regulator


What is part 7 of FSMA?
What is the new act from 1 april 2013?

1. part 7 covers transfer of long term insurance business between insurance companies
2. Financial services act 2012 (which included the PRA/FCA)


What is the PRA
What is the FCA

1. Prudential regulation authority
a. subsidiary of bank of england
b. responsbile for prudential regulation of deposit-taking institutions, insurers and large investment firms
2. Financial conduct authority
a. responsbily for regulation of conduct in financial markets (and infrastructure that supports them)
b. also reposnbile for prudential regulation of financial services companies not falling under scope of PRA e.g. insurance brokers, small investment firms


So how does the dual regulation work for insurers?

PRA is responsible for insurers prudential regulation
FCA for their conduct regulation


What are the PRA's objectives?

1. Safe and sound - promote safety and soundness of companies it supervises
2. Protection - contribute to secure appropriate degree of protection for those who become policyholders


What type of supervision does PRA do?

1. risk based supervision
2. assesses risk of particular firm/activity/issue poses to PRA's objectives and concentrates efforts on those high risk areas
3. No responsibility to ensure no insurer fails


Whose role is it to ensure no insurer fails?



What did ARROW stand for, what do the PRA and FCA do now?

Advanced risk responsive operating framework.
now 2 risk mitigation programmes operate, both pra and fca do supervisory reviews


What contains all the rules and guidance from the FCA/PRA explain them in further detail

the handbooks
split into blocks and then into modules
Each module is either
a) sourcebook = contain mandatory regulatory obligations
b) manual = provision relevant to relationship with regulator e.g. fines, fees, enforcement


What does IPRU-INS contain?

2 volumes for the reporting requirements for insurers e.g. fsa returns

Volume 1
1. Accounts/statements/rules required to produce annual accounts and returns to PRA in prescribed format
2. And those rules to produce an annual actuarial valuation of the long term business
3. Group capital adequacy reporting
4. Rules relating to periodic actuarial investigations
5. rules on changes in proportion of profits distributed to policyholders

Volume 2
1. Format of the annual PRA returns
2. Forms to be submitted under the appendices e.g form 19 in appendix 9.1


What type of things to INSPRU and GENPRU contain?

1. capital adequacy
2. math res
3. capital resource requirement
5. ICA
6. management of risks


What is appendix 9.1, what forms are relevant?

Balance sheet and profit/loss account
Forms 2-3
Forms 10, 13, 14
Forms 16-19


What is appendix 9.3, what forms are relelvant?

Long term insurance business revenue accounts and additional information

Forms 40-56


What do forms 16-19 contain?

18 = WPICC
19 = RBS
16 = p/l account (non-technical0
17 = analysis of derivative contracts


what do forms 10, 13, 14 contain?

10 = net asset statement
13 = analysis of admissible assets
14 = long term business liabilities and margins


what do forms 40, 41, 42, 43, 44, 47 contain?

40 = revenue account
41+ = analysis of premiums/claims/expenses/new business


what do forms 46, 50-54 contain?

46 = summary of new business
50 = summary of math res
51+ = valn summary of...
51 = non-linked contracts
52 = accumulating wp contracts
53 = property linked contracts
54 = index linked contracts


what do forms 44, 45, 48, 55, 56 contain?

44 = linked fund balance sheet
45 = revenue account for internal linked funds
48 = non-linked assets
55 = unit prices for internal linked funds
56 = index linked business


What does form 49 contain?

fixed and variable interest assets


What are the 6 outcomes of TCF.?

1 customers confident dealing with firms where TCF central to corporate culture

2 products and services marketed and sold in retail market designed to meet identified customer groups needs and targeted accordingly

3 consumers provided with clear info and kept appropriately informed before, during, after point of sale

4 if consumer advice given, advice is suitable to their circumstances

5 consumers provided with products thst perform how led to expect, and service is acceptable given expectations

6 consumers don't face unreasonable barriers to change product, switch provider, make claim or complaint


When doing long TCF question, what issues can you talk about?

1 communication contents (sales, ads, promotions, illustrations, quotes, projections, bonus notices, ppfm, cfppfm, policy docs)
2 payouts vs past and industry
3 MVA vs past and industry
4 maturity value vs past and industry
5 changes to reviewable contracts reasonable vs past and industry
6 demutualising, appropriate value placed on future profits being sold?
7 sufficient importance to expectations e.g. Sv, eret, option to extend or convert
8 policy guarantees
9 PRE creation e.g, repay mortgage
10 if proposed courses of action are sound by industry normal standards and fair to different policyholders and shareholder


What are form 57, 58, 59a, 59b, 60

57 = analysis of valn interest rate
58 = distn of surplus
59a = wp payouts on maturity (normal ret)
59b = wp payouts on surrender
60 = LTICR


What is appendix 9.4?

Abstract of valuation report

Description of Pillar 1 peak 1 valuation of long term liabs


What is appendix 9.4a

Description of Pillar 1 peak 2 valuation of long term liabs


What are appendix 9.6 and 9.7?

Certificate by directors and report of auditors

0.7 = insurance statistics - other EEA states


What are forms 93 and 94?

Summaries of life business written in EEA state other than UK


How many COBS sections are are there?



What is COBS2

Conduct of business obligations

Requires firm to act honestly/fairly/professionally in best interest of clients



Communicating with clients including financial promotions

Communications be clear/fair/not misleading

Separate rules for cold calls, way which past performance can be used in promotions and distance marketing like internet and email



Info on firm, services, remuneration

Disclosure rules on first contact with customer
Must send initial disclosure document detailing info on nature of firm and services and how it's remunerated
Also information on commission equivalent calculations
This rule is important for RDR



Preparing product information

Key features document to be given at or before point of sale
Table needs to show total premiums, total charges, effect of deductions to date all at a central investment return
Another table needs to show projections at this central rate, a lower and higher rate.
Ie. the document must show effect of expenses and charges



With profits

1) Treating wp policyholders fairly
3) Communications with WP policyholders


What rules does COBS20 cover?

1. Detail on when MVR's can be applied
2) When bonus distributions can be made or surplus transferred
3) Terms on which new WP business should be accepted
4) Process of reattribution of inherited estate
5) Details required in run-off plans if firm closes to NB
6) Use of target ranges. Target range is range in which 90% of maturities apply around 100% unsmoothed asset share. ie. if range is 80% to 120%, then 90% of maturity payouts must lie in the range of 80 to 120% of unsmoothed asset share (shows how much smoothing can be done). These ranges also appky to SV's


In the PPFM (cobs20 rules) - what rules on business conduct should it discuss? Where is the PPFM limited to?

Determining payouts to ph
Annual bonus policy
TB policy
Smoothing policy
Inv strat
Business risk
Charge and expenses
Management of inherited estate
Close to NB
Equity between ph and sh

Limited to UK wp biz


What are the important requirements the PPFM contains?

Bland statements not acceptable
Drafting cautiously or broadly could result in breach of rules
CFPPFM must be produced, spelling out key points of PPFM in plane english
Company may or may not produce multiple PPFM's if more than 1 fund
PPFM only need to be made available on request
Company must draw policyholders' attention to the existents of the report
WPA must produce written report, to accompany company annual report
3 months notice to be given to make changes to PPFM
PPFM only needs to cover reasonable forseeable issues which may impact the WP business
Annual report from independent assessor must be produced for wp ph's
Governence of WP fund must include independend assessmet of whether fund run in compliance with PPFM
Assessor can be WP committee, independent person with appropriate skills, report from non-exec director (if v.small biz)


What does a company need to do to carry out regulated activity or hire person in a 'controlled function' role?

Obtain permission from relevant regulator


How are long term insurance contracts split according to FSMA 2000

1. Life and annuity
2. Marriage and birth
3. Linked long-term
4. Permanent health
5. tontines
6. Capital redemptions
7. Pension fund management