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final Flashcards

1
Q

materiality definition

A

an omission overstatement or understatement is material if the actuary expects it to materially affect the user’s decision making or reasonable expectation

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2
Q

policies excluded by PACICC

A

aircraft
credit
crop
mortgage
surety

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3
Q

Relationship Manager responsibility

A

responsible for maintaining an up to date risk assessment for FRFI, main point of contact for FRFI

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4
Q

how might insurance revenue for reinsurance contracts issued differ from earned premium?

A

o For entities applying PAA, revenue recognition requirements
o Treatment of reinsurance cf that are contingent on claims of the underlying contracts
o Treatment of amounts paid to the purchaser of reinsurance contracts, not contingent on claims of underlying contracts.

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5
Q

reasons for having an internal capital target

A
  • gives management time to address issues
  • captures insurer specific risks not addressed by industry wide capital guildelines
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6
Q

management action if capital available falls below internal capital target

A

if this happens or expected within 2 years, notify osfi and submit plan to restore capital internal target level reasonably quickly

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7
Q

Board responsibility on risk management

A

oversee risk management on an enterprise wide basis

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8
Q

CRO responsibility on risk management

A

oversight of all risks across the firm
provide regular reports to the Board, risk committee and SM

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9
Q

OSFI supervision of FRFI

A

AMCIN assess/monitor/communication/input notified
assess their financial condition and monitor compliance with applicable federal legislation
OSFI reports and findings can provide useful input to the Board’s own oversight of FRFI
Open communication between Board and regulators help promote mutual trust and confidence essential to the efficiency of OSFI’s principles based approach to supervision
OFSI expects to be promptly notified of substantive issues affecting FRFI

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10
Q

integrated scenario

A

a scenario created by combining two or more risk factors to produce a new plausible adverse scenario

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11
Q

scenario testing

A

significant changes to risk factors
observe future state over longer time horizon
more complex

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12
Q

sensitivity testing

A

incremental changes
shock is more immediate and shorter time horizon
fewer resources needed

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13
Q

BoD v management responsibilities in stress testing

A

BoD:
ultimate responsibility for integrity of stress testing
ensure implementation of program by management
be aware of key findings
Management:
implement and manage stress testing program
identify plausible adverse scenario
develop and implement risk mitigation strategies

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14
Q

describe how stress testing is a key risk management tool for coverage of overland flooding

A

company won’t have historical data
- identify flood risks using stress testing models
- estimate capital required to support flood risk in different scenarios
- stress testing could complement publicly available flood data

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15
Q

reverse stress testing

A

determine how far risk factors need to change in order to drive the insurer below scenario thresholds and evaluate if the degree of change is plausible.
it helps insurers to better understand the impact of business vulnerabilities

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16
Q

how can you apply reverse stress testing for climate change?

A

start with insurer failure
identify sequence of events that could lead to this
work through possible responses that could help us avoid that state

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17
Q

benefits of reverse stress testing

A
  • provide management with a different lens through risk assessments and to enhance to robustness
  • reveal hidden vulnerabilities
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18
Q

considerations when setting a materiality level

A

specify use of work
intended users

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19
Q

characteristics that may impact materiality

A

fstars
financial strength
size of entity
type of business
access to capital
net retention
stage of organization cycle

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20
Q

materiality disclosure considerations

A

sophistication of user
important concept of user
complexity of report

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21
Q

possible ripple effects

A

loss of reinsurance
higher LR
post event inflation
mix shift

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22
Q

possible management actions

A

tighten UW
review mix
review reinsurance
sell assets
raise rates

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23
Q

enquiring professional

A

a professional who relies n the work of another in the course of their own work
notify responder work is being used/notify regarding needs/ confirm resp’s appointment, professional standing and observance to standards

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24
Q

responding professional

A

a professional whose work is being used by another
confirm work will be done
confirm appointment and professional standing
notify any issues in meeting enquiring’s needs

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25
insurance reference case implication
- licensing provisions are ultra vires - regulation of commerce doesnot cover licensing of a particular trade
26
insurance reference case provincial and federal insurer rights and capacity
provincial insurer has the capacity but not the right to operate in another province federal insurer has the capacity and right to operate in another province federal government can require a federal license for a foreign insurer
27
areas under provincial insurance regulation
contract matters: policy contents/terms/premium payment/reinstatement transaction matters: agent licensing/unfair practices/claims handling
28
federal insurance regulation
carprice calculation and assets and reserves protection of PHs reporting investments restriction conditions for entering business
29
Canadian regulation to promote insurance solvency
CIRCAF - oversee creation of domestic and licensing of foreign insurers - investment restrictions on types of investments that are permitted to reduce risk - rating bureaus authorization for info sharing - compliance: enforce compliance by giving government departments authority - adequacy: create boards to oversee and ensure adequacy of rates file financial statement regularly
30
relationship manager reponsibility
for maintaining an up to date risk assessment of FRFI main point of contact looks to board and sm to be proactive in providing OSFI with timely notification of important issues affecting FRFI OSFI requires BoD involvement during interventions to determine best corrective action plans
31
BOD and SM responsibility in managing FRFI
accountable for its safety and soundness and compliance with governing legislation
32
items of RAF
RAS risk appetite statement RL risk limits RR roles and rep of RAF implementation
33
RAS description
reflects level and type of risk FRFI is willing to accept to meet business objectives
34
key features of RAS
linked to FRFI short and long term strategic, capital and financial plans includes qualitative and quantitative measures of risk forward looking consider normal and stressed scenarios
35
RL description
refers to allocations of FRFI's RAS to - specific risk categories - business unit - lob or product
36
how is compliance with RAF ensured?
CRO: ensures aggregate risk limits are consistent with RAF/ provide regular reports to BoD and SM assessing ras and rl internal auditor: ensure compliance with raf
37
orsa key elements
risk identification and assessment relate risk to capital oversight monitoring and reporting of risks internal controls and objective review
38
differences between orsa and fct
orsa uses osfi guidelines, fct csop orsa quan and qual, fct quan orsa management responsibility, fct AA
39
similarity between orsa and fct
both consider risk identification and control concerned with capital available and required base and adverse scenarios
40
challenges of orsa and fct integration
oversight: AA/ board and SM methodology: FCT follows prescribed regulatory basis/ ORSA reflects own models and assumptions different staff responsible
41
territorial changes
- magnitude proposed < magnitude indicated - direction proposed = direction indicated - magnitude proposed within +-10% (-10%, 10%)
42
prohibited risk classification elements
ccones claims where fault <=25% credit history occupation net worth employment salary
43
filing items actuary needs to certify
effective dates for new and renewal business/ vehicle classification system/ data is relsuf/ AAP used
44
parallelogram v ee
on level adjustments: if parallelogram, calculations should be disclosed if ee, description of the process should be provided with a comparison of results to results obtained using parallelogram. any sig difference should be explained.
45
minimum requirements to RSP
PPA only insured can't be eligible for FARM policy must satisfy statutory minimum coverage requirements insurer must follow proper classification, rating and provide documentation insurer must use approved rates
46
AB and ON RSP diff
ON has 1 RSP/ AB has 2 ON has a 5% limit on risks that can be ceded/ AB grid has no limit, non grid has 5% limit
47
items required in the consent of credit score use
authorization from customer to assess credit info what/how/how long notify customers they have the right to withdraw but note they might not receive the best quote
48
argument for cs use
statistically significant good rating variable
49
argument against cs use
unfairly discriminatory: poor families, recent immigrants privacy concerns: too invasive accuracy: credit bureau errors may cause inaccurate credit data
50
regulator's concern on cs use during economic crisis
- on agg prem: a new rating variable along should not increase aggregate premium - on ind prem: a distributional shift when economic crisis causes every insured's cs to worsen, that doesnot reflect the true cost differences
51
actuary's response to regulator concern regarding cs
- agg prem: insurer uses insurance scores to determine appropriate rate relationships between risk classes, not overall premium needed - ind prem: can stop using cs at least temporarily/ redo classification analysis after economy has stabilized
52
RA comparison
- longer duration - high sev low freq
53
quantile method to determine RA adv and disadv
adv: satisfy disclosure requirements regarding CI corresponding RA dis: if misrepresented, may introduce spurious accuracy
54
Coc adv and disadv
adv: allocation of RA at a more granular level disadv: requires projection of capital requirement as an input to liability calculation
55
when is bootstrap appropriate?
if it appropriately corrects for data volume in each lob if suitable proxy data was used to derive historical LDFs and are re sampled in the bootstrap method
56
key drivers of flood
population growth and urbanization: urban centers are more prone to flood risks due to their location near coastlines climate change
57
differences between FRM and current framework
- alternative approach to conventional flood control measures - promotes the use of non structural mitigation measures to complement and enhance other types of mitigation - stakeholders include gov/industry/communities/non govt organizations/individuals - an iterative process of AMRA acting/monitoring/reviewing/adapting
58
roles and resp of gov in FRM
support provincial and local efforts to mitigate flood emergencies monitor emergencies, financial assistance
59
roles and reps of prov/terr govt
regulate insurers implement land use and flood risk management policies
60
goals/themes to help guide the development of policy options for Canada
minimize uncertainty maximize market penetration, minimize adverse selection and mutuality design for affordability minimize moral hazards
61
3 rating agencies
best/moodys/sp
62
identify best, moody, sp rating models
best: EPD expected policyholder deficit moody: stochastic cf to model economic capital sp: principle based models and erm practices
63
describe best rating model
EPD = p/v = pure premium of treaty/ market value of reserves choose required capital so that EPD = 1%
64
describe Moody's rating model
model is based on repeated simulations of loss distribution of separate risks, project cfs until liabilities are settled
65
describe sp rating model
principle based, weighted avergae of sp and insurer capital assessment
66
why do insurers maintain credit ratings with rating agencies
agents are wary of unrated insurers solvency assessment: 3rd party rely on rating agency's assessment efficiency: agents dont have the expertise to do their own rating
67
PML considerations other than non modelled exposures
data quality model uncertainty multi region exposure
68
2 financial and 2 non financial considerations regarding cfs in a reinsurance commutation
f: amount and timing of cf/discount rate applied to cf/pp of cf nf: court decisions/life expectancy of claimant/quality of reinsurer
69
adv of commutation primary insurer and reinsurer
p: removes reinsurance credit risk, decrease expense cost, receive cash flow right away r: give stability in the report for LT claims, savings in claims adjusting and admin costs, required after wind up
70
fletcher v mpic
customer relied on MPIC, there was no mention of Under insured motorist coverage on application or insurance certificate MPIC owes duty of care if customers rely on the information/ their reliance is reasonable/ MPIC knew or should have known the customer rely on this information
71
fletcher v mpic rulings and implications
insured wins both private agents and government institutions owe a duty or care but private agents owe a higher duty of care because of their promised expertise
72
whiten v pilot insurance co
did Pilot use the power imbalance to force insured into smaller settlement?
73
whiten v pilot insurance co rulings
supreme court restores 1m punitive damage would be higher if defendant abuse of a position of power, defendant shouldnt see the award simply as a fee
74
Belanger v Sudbury
city was liable for plaintiff's injury, salting occurred but were not sufficient given the storm conditions
75
Belanger v Sudbury rulings
appeal court rejected defendant's statutory defense and upheld trial judges decision city is expected to adapt to conditions, not just blindly follow procedures appeal judge implied that standard of care was breached, a qualified city worker should reasonably have foreseen the icy conditions and taken steps to mitigate them
76
subsequent event definition
an event where the actuary first becomes aware of after calculation but before report date
77
subsequent right branch
would event have been reflected in the work if it were subsequent? no -> no action yes -> does event invalidate report? yes-> withdraw or amend no -> inform dont reflect material? error?
78
OSFI expectation of AA
Canadian professional with Canadian experience: at least 3 years of Canadian experience in the past 6 years, 1 in valuation experience with canadian sop maintain professional designation requirements no adverse findings with CIA disciplinary tribunal
79
peer review contents
description of work, timing , materiality level compliance with AAP and changes in AM recommendations of further work relationship with AA
80
risk limiting features
terms set in advance - adjustability of reinsurance premiums or commissions - pre set limits on timing of loss payments from reinsurer to insurer - counterparties ceding back to original cedant exp based: - future terms based on past experience - forced renewals if the contract is in deficit
81
when can actuary report that the insurer is in satisfactory financial condition
throughout forecast period, base mct > 180 going concern mct > 100 solvency assets> liabilities
82
commutation of reinsurance
an agreement between a ceding insurer and reinsurer that provides for the valuation, payment and complete discharge of all obligations between the parties under a particular reinsurance contract
83
commutation of claims
a process in which one party is relieved of its obligations in respect of the claim in exchange for a cash payment
84
Under a non-proportional reinsurance treaty, particularly some catastrophe covers (such as those covering aggregate losses), the pattern of risk amortisation may differ significantly from the pattern of expected incurred claim costs and therefore may not qualify for the PAA if the contracts have coverage periods in excess of one year.
85
oversight management of FRFI
- board should establish a board risk committee to oversee risk management on an enterprise wide basis - FRFI should have a senior officer CRO or equivalent who is responsible for the oversight of all risks across the firm - board oversight of management - sm oversight of operations
86
coverage period
the period during which the entity provides insurance contract services. This period includes insurance contract services that relate to all premiums within the boundary of the insurance contract
87
grouping considerations
similar risks (underlying risk is same/diff) managed together
88
how to select adverse scenarios
percentile if a loss distribution is available reverse stress testing
89
reinsurance arrangement thats not uniform
- Risk-attaching proportional treaties; - Catastrophe treaties with material seasonality (e.g., hurricane); - Retrospective reinsurance (e.g., stop-loss or reserve protection coverage )
90

Exam 6 (58 decks)

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