Revision Booklet Mnemonics Flashcards
1
Q
Investment and risk characteristics of assets
A
SYSTEM T Security (risk) Yield (real/nom, running yield, expected return, compare to other assets) Spread (diversification, volatility) Term Exchange rate/expenses/economic conditions/expertise required Marketability Tax
2
Q
Reasons to hold cash
A
POURS Protect monetary values Opportunities to take advantage of Uncertain outgo Recent cashflow Short term commitments
3
Q
Economic situations where cash is attractive
A
GRID General economic uncertainty Recession Interest rates rising Depreciation of domestic currency
4
Q
Theories of the yield curve
A
LIME Liquidity preference Inflation risk premium Market segmentation Expectations
5
Q
Characteristics of prime property
A
Take a walk along CALL ST Comparables Age/condition/use/flexibility Location Lease Size Tenant
6
Q
Difficulties in overseas investment/emerging markets
A
MTV
Mismatches domestic liabilities
Tax
Volatility of currency
7
Q
Other problems with overseas investment/emerging markets
A
CATERPILLAR Custodian needed Addation admin Time delays Expenses/expertise Regulation poorer Political problems Information poorer Language difficulties Accounting differences Restrictions on ownership of assets/repatriation problems
8
Q
External environmnet factors
A
CREATE GREAT LISTS Commerical issues e.g. underwriting Regulatation/legislation Environmental issues Accounting standards Tax Economic issues Governence Risk managment Experience from overseas Adequacy of capital Trends (demographic) Lifestyle considerations Institutional structure (mutual or proprietary) Social trends Tech State benefits
9
Q
Functions of a regulator?
A
SERVICE Setting sanctions Enforce regulations Reviewing and influencing govt policy Vetting and registering firms and individuals Investigating breaches Checking management and conduct of providers Educating customers and public
10
Q
Contract design factors?
A
Ample Direct Factors Admin systems Marketability Profitability Level and form of benefits Early leaver benefits Discretionary benefits Interests and needs of customers Risk appetite Expenses vs charges Competition Terms and conditions of contract Financing (capital requirements) Accounting implications Consistency with other products Timing of contribution to premiums Options and Gtees Regulatory requirements Subsidies (cross)
11
Q
Expenses incurred by a product provider?
A
RAPID COST Renewal admin Asset management Profits Initial admin e.g. put on computer system Design of contract costs Commission Overheads Sales/advertising Terminal (benefits payouts)
12
Q
Characteristics of well run projects
A
PROJECT CRAMPS Planning (full) Risk analysis is thorough Objectives are clear and meet customer needs Judge (monitor) development Excellent communications Conflict management Thorough testing
Critical path analysis
Relationships with suppliers challenging and stable
Appropriate pace so right things are done on time
Milestone review schedule
Performance and quality standards are set and measured
Supportive environment
13
Q
Criteria assessed in intial appraisal
A
SPURS Synergies with other projects Political constraints Upside potential Results (financial) Scare resources
14
Q
Contents of written strategy document
A
PROSE
Policies (financial, legal, tech, risk management, communications, IT)
Roles and responsobilities of sponsore and 3rd parties
Objectives identification, how to measure, quality standards and financial
Schedule of milestones and key points
Expected cost including insurance
15
Q
Risk identification tools
A
DR RUB Desktop analysis Risk analysis Risk register Upside aswell as downside risks identified Brainstorming
16
Q
Identification of sources of risks?
A
PNE FC PB
Political (government change, 3rd parties)
Natural (storm, earthquake)
Economic (interest rate, currency movement)
Financial (financing problems, costs too high)
Crime (fraud)
Project (poor design, runs behind time)
Business (competition, loss of key personnel, insolvency of contractor)
17
Q
Risk mititation techniques
A
FAT SIR Further research Avoid Transfer Share Insure Reduce
18
Q
Evaluation of risk mitigation onptions
A
OFFER Overall impact on distribution of NPV's Feasibility/cost Further mitigation required if secondary risks Effect on frequency/severity/correlation Resulting secondary risks
19
Q
Contents of an investment submission
A
FIRM PEN Financial results Identification and analysis of key residual risks Reccomendation Mitigation strategy Proposed method of financing Effect on investors Non-monetary issues like politics, environment
20
Q
Considerations beyond investment submission
A
LAND HO Last minute considerations Allowance for approximations and bias Nowledge not in possession of those who prepared submission Doubts over feasibility Hunch Overall credibility
21
Q
Factors effecting investment strategy
A
SOUNDER TRACTORS Size of assets (abs/rel) Objectives Uncertainty of liabilites Nature of liablities Diversification Existing portfolio Returns expected in the long term Tax treatment of assets, investor Restrictions (stat/legal/voluntary) Acrrual of liabilities in future Currency of existing liabs Term of liabs Other funds strategies (competitors) Risk appetite Solvency requirements
22
Q
Regulatory influences on assets held
A
TECH SCAM Types of assets restricted Extent of mismatching Currency mismatching allowed? Holder certain assets eg bonds Single counterparty exposure Custodianshup of assets Amount of any one asset restricted for solvency demonstration Mismatch reserve
23
Q
Ways to values assets
A
SHAM FADS Smoothed market val Historic book val Adjusted book val MV Fair val Arb val Disc cf Stoch models
24
Q
Inforamtion to be disclosed from benefit scheme
A
DISCLOSURE Directors pensions costs Inv strategy and perf Surplus/defecit in last year Calculation methods and assumptions Liabilities accruing Options and gtees Sponsors and members contribution obligations Uncertainties (risks) Rights on wind up Expense charges and entitlement to benefits
25
When does information from beenfit scheme need to be disclosed?
```
PRICE
Payment commencment
Request
Intervals
Combination
Entry
```
26
Reasons why disclosure is important
```
SIMMERS
Sposnsor becomes aware of financial significance of benefits
Informed decisions can be made
Misselling avoided
Manages expectations of memebers
Encourages individuals to make own provision
Regualtory requiremen
Security of scheme improved
```
27
Reasons to analyse surplus
DIVERGENCE
Divergence of A vs Expected, find the effect of
Infomration to management and accounts
Variance looking
Experience momitoring into ACC
Reconcile values for successive years
Group intone off and recurring sources of surplus
Executive remunerations schemes gives data for it
NB strain effects
Check our assumptions are ok
Extra check on valuation data and process
28
Principles of lending
```
CASPAR
Character and ability of lender
aMT
sECURITY
pURPOSE
aBILTIY TO REPAY
rISK VS REWARD
```
29
Reasons to use ART
DESCARTES
```
Diversification
Exploit risk as opportunity
Solvency improves
Cheaper than reins
Availability more than reins
Results smoothing
Tax advantages
Efficienct risk management
Security improved
```
30
Reasons to underwrite
SAFER
Substandard lives are identified and terms changed
Avoid anti-selection
Financial underwriting against overinsurance
Experience in line with expected
Risk classification to set a correct premium for the risk
Reinsurance easier to obtain
31
Why do financial providers need capital?
REG CUSHION
```
Regulatory requirement for solvency
Expenses of NB/new ops
Guarantees and options
Cashflow timing
Unexpected events e.g. fines, actual experience
Smooth profit and balance sheet
Help demonstrate financial strength to attract NB and to SandP
Investment freedom for some mismatching
Objectives and opportunity exploitation
NB strain financing
```
32
Requirements of a good model
VARIABLEE CRISPS CARD
```
Valid
Adequate documentation
Rigorous
Input parameter values are appropriate
Arb free
Behavious is consistent
Length of run not too long
Expenses not too high
Easy to understand
```
Communicable code and output
Reflects risk profile of contracts modelled
Independant verification of output
Sensible joint behaviious of variables
Paramters allow for all significant features
Siple but retain key features
Clear results
A range of implementation methods
Refineable
Developable
33
Uses of data
SIR MAPEMAP
```
Stat returns
Investment
Risk management
Mnagement info
Accounts
Pricinfg
Experience stats and analysis
Marketing
Admin
Porivsions
```
34
Sources of data
TRAINERS-A?
```
Tables like mortality tables
Reinsurers
Abroad
Insurstry data
National stats ONS
Experience investigation of existing ph's
Regulator reports and company accounts
Similar contracts
Account
```
35
Problems with industry data
DR DONEQ
```
Detail rubbish
Reporting format rubbish
Differences in market, sales, rating factors, contract wordings, claims
Out of data
Not everyone contributes
Errors
Quality only as good as contributors
```
