Lists Flashcards
Advantages of the DCF method for pricing (FAST CAR WOER)
-allows for financing requirement of the product and the insurer
-allow for need to set up reserve and meet solvency requirements
-sensitivity testing to determine margins
-tax
-complex charge and benefit structures
-assumptions may vary over time
-reinsurance and funding requirements can be allowed for
-withdrawals and coversion to PU can be allowed for
-Options and guarantees are modelled
-expected returns that providers of capital will receive can be measured
-risk discount rate can allow for the term structure of interest rates
Actuarial function needs to express an opinion to BoD on (TRP MACADAMS)
-Calculations underlying the TPs
-Appropriateness and impact of risk mitigation strategies
-Appropriateness of policies
-calculations underlying the MCR
-appropriateness of assumptions, methods and models
-accuracy of calculations
-appropriateness of approx and judgement
-data sufficiency and quality
-actual vs expected when evaluating TPs
-appropriateness or impact of assumed management actions
-calculations underlying the SCR
Actuarial function needs to evaluate and provide advice on (BII FOIST)
-awarding of bonuses
-internal controls
-investment policy
-financial soundness position (impact of dividends and bonuses)
-actuarial matters related to ORSA
-development and use of internal models for financial and solvency projections
-standard formula (why accurate reflection of risk profile)
-actuarial soundness of terms and conditions
Aims of EEV (GOES)
-ensure guidance is credible and robust to address key concerns relating to consistent application
-explicitly include valuation of time value of options and guarantees
-ensure method reflects economic value of long term business
-prescribe minimum levels of disclosure and sensitivity analysis to help comparability concerns
Reasons for analysing change in surplus (DNR DCT RADAR)
-financial effect of divergences between actual experience and that assumed in val basis
-financial effect of writing NB
-reasonability check on items of surplus
-identify recurring items for dbn
-consistency check between val data and result
-trend in surplus
-required for regulatory returns
-assist in setting future assumptions
-assist decisions relating to derisking the balance sheet to improve solvency
-analyse the effect of alterations
-new items identified may be used to inform risk identification process
Key principles of framework of financial soundness (TRAC ROC)
-have a trigger point of EOF vs RC at which point regulatory intervention will occur
-risk tolerance should be defined in terms of insurer being able to maintain solvency in adverse scenarios
-value assets and liabilities on market based methodologies when calc EOF
-Account for correlations between risks and benefits of diversification
-risk based, forward looking approach used to determine EOF and RC for fin soundness
-hold OF of sufficient quantity and quality to absorb losses from risks underlying business
-level of capital should address the risks the insurer is exposured to and should be proportionate to NSC of business
Standard formula advantages and disadvantages (SS GC NOMAD)
-it is simple to apply
-suitable to companies with typical risk exposure, stable book and standard risk management techniques
-inappropriate for fast growing book or closed books
-no allowance for complex risk management techniques
-no allowance for non-linearity of risks
-operational risk modelled at high level with no link to risk management framework
-if there are multiple corr matrices, diversification will be invalidated
-allowance for risk sharing in cell captive on an approximate basis which may result in over statement of SCR
-only allows for double counting LACTP in market risk module
Full/partial internal model has to meet the following requirements (GTR DA)
-must have an effective governance system of internal model including development and maintenance
-use test to demonstrate that the model is widely used in risk management and decision making
-meet statistical and data quality, model calibration and verification requirements
-need to document the design and operational details
-partial model may be approved if sufficiently justified and integrated into the standard model
Practical considerations before declaring a bonus (IS RAU FIRS)
-Avoid changing a company’s investment strategy
-bonus is sustainable and no threat to solvency
-consider regulations and industry requirements
-consistent with actuarial basis
-easy to understand
-takes into account company financial resources
-capable of accurate implementation
-consider restrictions in company’s memorandum and articles of association
-homour safeguards in policy docs of transferred policies
Factors to consider in a bonus declaration (BASICS PBF)
-BSR
-returns on assets underlying the fund
-shareholders vs policyholders
-investment strategy
-competition
-sources of surplus
-policyholder benefit expectations
-balance sheet
-free assets
Factors to consider in smoothing (PRAM BCM)
-PPFM
-RBE
-Asset mix underlying the portfolio
-marketing and policy documents
-BSR
-Communication with ph
-method of distributing surplus
Documentation surrounding AS (A BAND)
-how underlying assets are invested
-factors that contribute to bonus declaration
-definition, calculation and uses of asset share
-when non-vested bonuses can be removed
-nature and extent of discretion
Type of reinsurance required and amount specified depends on (RT CLAMANT)
-risks introduced (legal,counterparty,operational)
-technical expertise needed
-cost of reinsurance
-legal and tax conditions
-amount of reinsurance needed
-maturity of business
-types of reinsurance available
-need for reinsurance and reasons for taking out
-type of business
Reasons for projecting solvency (DRRC)
-assess results of key business decisions including NB strain and hence volume of new business that can be written
-for WP closed to new business, to prepare run off plans
-successful risk manamgement and management of company
-model the pattern of capital releases to SH
The actuary should consider to what extent the following should affect a review (PRE-ARM)
-changes in PH behaviour
-change in cost of reinsurance
-corrections of modelling errors made in PD
-implicit assumptions in pricing
-experience resulting directly from previous review
-management actions taken that have influenced future experience
Considerations for retrospective method (WC PLAICE)
-problems are less acute for with profit annual premium policies
-whether method is comparable with that of competitors depends on method and basis that they use
-returns a proportion of the EAS
-rise in interest will result in lapse and re-entry
-interest rates may lead to fall in EAS which may not meet the needs of non-profit policyholders
-disadvantage of having no independent meaning for non-ptofiy contracts if FV approach is used
-not overly complex
-at early durations is will look reasonable against premiums paid
Prospective method considerations (PAUSE PE)
-allows you to measure profits earned on non-profits products
-comparable to auction values and competitors
-unreasonable values at early durations
-allows for separate value to be given to sum assured and any attaching bonuses
-for WP, can produce values that are different from EAS
-at later durations, meets the objectives of pragmatic approach if terminal bonus is excluded from calc
-relatively easy to operate
Principles for surrender values (PLACED ACCC RAPE)
-takes into account PRE
-at later durations, consistent with maturity values
-in aggregate, should not exceed AS over reasonable period of time
-consider surrender offered by competitors
-at early durations, should not be too low compared to premiums paid
-must be capable of being documented
-avoid anti-selection against insurer
-must not be subject to frequent change unless dictated by financial conditions
-not excessively complicated to calculate
-allow for cost of administering
-meet regulation 5
-consistent with auction value
-account for profit the company intends to make on surrender
-ensure equity between policyholders
