Risk Management & Monitoring (34 – 36)

Question 1

Control current cost base

Answer 1

– staff levels
– budgetary constraints / targets
– not overqualified
– increase business volume
– improve efficiency
– increase loadings

Question 2

Monitor commissions at 3 levels

Answer 2

1. product line
2. distribution channel
3. specific sales / broker

Question 3

Control new business levels

Answer 3

– marketing
– PD
– pricing
– distribution channel

Question 4

Monitor for new business

Answer 4

– # contracts
– premium amount
=> (avg claim size)

also
– premium frequency
– policy charges / loadings
– actual expenses
– new business valuation strain

Question 5

Split non-commission expenses

Answer 5

– initial
– renewal
– termination
– investment

Question 6

Reasons for monitoring experience

Answer 6

– develop AS
– update assumptions
– monitor adverse trends
– management info

Question 7

AS require historic data on

Answer 7

– investment returns
– mortality
– withdrawal
– expenses

Question 8

Assumptions of future needed in

Answer 8

– pricing
– model office
– valuation
– discontinuance terms

Question 9

Corrective actions

Answer 9

– re-price
– re-design
– change investment strategy
– change sales
– change working
– change RE
– change underwriting
– change profit distribution

– capital allocation
– risk management & controls
– re-organise
– systems / data recording

Question 10

Identify profitable in analysis

Answer 10

– products
– sales channels
– markets
– business sections
– investment strategies

Question 11

Data consistency in

Answer 11

– form
– source
– grouping criteria

Question 12

Risk in big data

Answer 12

– reputational
– privacy & data protections
– regulations
– inaccurate / incomplete
– wrong model
– expenses

Question 13

Analysis of experience in

Answer 13

– expenses
– mortality
– persistency
– investment return

Question 14

Subdividing data for persistency

Answer 14

– contract type
– duration in-force
– sales method / target market
– premium frequency & size
– premium payment method
– original contract term
– age + sex

Question 15

Persistency influenced by

Answer 15

– economic
– competitive
– perceived value

Question 16

Expenses attributed

Answer 16

– proportionate to premium
– proportionate to benefit level
– fixed amounts

Question 17

Main expense items

Answer 17

– salary + related
– property
– computer
– investment costs

Question 18

AOS components

Answer 18

– investment
– mortality
– expense
– withdrawal
– (new business impact)

Question 19

Analysis of EV

Answer 19

– validate calcs / assumptions / data
– reconcile values (yr/yr)
– management info
– executive remuneration
– published accounts

Question 20

Using results

Answer 20

Update / revise
– pricing
– PD
– product mix / launch new
– u/w process
– RE
– marketing: message / channel / target market
– sales procedures
– policy working
– staffing resources
– actuarial models
– systems + data recoring
– investment strategy
– profit distribution
– reserving basis
– raise capital
– alter capital allovation
– risk management governance + controls

Question 21

Main PD + pricing steps

Answer 21

– formulation of product structure
– assumption setting
– profit test
– sensitivity test
– vs competitiors
– run office model

Question 22

Different parties

Answer 22

– current PH
– potential PH
– SH
– sales channels
– management
– marketing
– actuary
– RE
– competitors
– supervisory authority
– tax authority
– government

Question 23

Policyholder needs

Answer 23

–meet requirements
– understandable
– min hassle
– tax breaks
– large benefit give prem
– savings (inflation protection)
– max security

Question 24

Shareholder needs

Answer 24

– return (> risk discount rate)
– low risk
– smooth dividends
– financial info

Question 25

Sales channel

Answer 25

– max remuneration – good service – suitable products – happy customers

Question 26

Outperform competitors

Answer 26

– lower premium – better investment performance – better admin – quicker / simpler underwriting – brand awareness – different target market – specialist products – simpler PD – higher bonuses – greater security – sales incentives – PH incentives

Question 27

Risk Management Areas

Answer 27

1. expense 2. commission 3. persistence 4. new business mix + volume 5. manage options 6. systematic risks 7. ERM

Question 28

Reasons for AOS

Answer 28

1. financial effect of divergencies 2. financial effect of writing new business 3. ID non-recurring (profit distr.) 4. regulations 5. management info 6. check on the valuation data & process if carried out independently