Chapter 0 - Syllabus objectives

Question 1

List 5 main syllabus objectives

Answer 1

1. Demonstrate knowledge of the South African commercial and economic environment
2. Specify the additional problems to those described in F102 that may arise in the operations of a South African Life insurance company, and in particular describe the requirements of a surplus distribution system in South Africa
3. Develop solutions to the problems faced by a South African life insurance company
4. Monitor the experience of a South African life insurance company and demonstrate how the analysis of experience can be used to feed back into the control cycle.
5. Produce coherent advice and recommendations for the overall financial management of a life insurance company.

Question 2

Factors to consider in a demonstration of the South African commercial and economic environment (8)

Answer 2

1. Define the principal terms used in life insurance in South Africa
2. Describe the general business environment for life insurance companies in South Africa and risks involved in different commercial activities
3. Describe the major life insurance products of South African life insurance companies
4. Describe the concept of micro insurance and how it applies to the South African environment
5. Describe the main methods and marketing channels used by South African life insurance companies to sell their products
6. Describe the South African regulatory environment as it affects life insurance companies (including material future developments)
7. The requirements of the professional and regulatory guidance relevant to actuaries practicing in or advising South African life insurance
8. Describe the main factors affecting investment returns, inflation and the other economic and demographic factors involved in actuarial work in South Africa

Question 3

Outline the actions involved in developing solutions to the problems faced by a South African life insurance company (12)

Answer 3

1. Determine the design of the life insurance contract to be marketed in South Africa and appropriate methods and bases for pricing them.
2. Determine appropriate methods and bases for varying the non-linked life insurance contracts of South African life insurance companies on terms that are not guaranteed.
3. Determine:
   - For the purpose of meeting supervisory requirements, appropriate methods and bases for valuing the liabilities of a South African life insurance company
   - For the purpose of financial reporting, appropriate methods and bases for valuing the insurance liabilities of a South African life insurance company
4. Determine appropriate methods and bases for assessing and reporting the value of new business, embedded values and the profitability of the existing business of a South African life insurance.
5. Analyse appropriate ways of determining the surplus distribution policy of a South African life insurance company transacting with-profits business
6. Analyse the asset-liability matching requirements of a South African life insurance company transacting with-profits business
7. Determine methods and appropriate bases for assessing the ongoing solvency of a South African life insurance company, bearing in mind the capital requirements of the company
8. Analyse the risk management and controls requirements of a South African life insurance company including the coverage of 6 key risks
9. Analyse the reinsurance and underwriting requirements of a South African life insurance company, for the purpose of efficient risk management
10. Describe how unit pricing, in respect of the internal unit-linked funds of a South African life company can be a source of risk
11. Describe the different valuation bases used in the valuation of life insurance companies in South Africa and the use of such valuation
12. Describe the principles and methods of determining the regulatory capital requirements of a South African life insurance company.

Question 4

List two techniques of monitoring experience for a life insurance company (2)

Answer 4

1. Carry out an analysis of surplus in respect of a South African Life insurance company and use the results to reassess the design of the company’s contracts or actuarial bases.
2. Carry out an analysis of the change in the embedded value of a proprietary South African life insurance company and use the results to reassess the design of the company’s contracts or actuarial bases.

Question 5

Items associated with complex problems for a life insurer (7)

Answer 5

1. Product design and pricing
2. Terms for varying and terminating contracts
3. Asset liability matching and associated investment policy
4. Emergence of profit
5. Bonus policy
6. Reinsurance arrangements
7. Investment policy

Question 6

Items to consider when describing the general business environment (7)

Answer 6

1. New business
2. The wider competitive environment, including major non-life savings products competing with traditional life savings products
3. Operational risk
4. Corporate finance and securitisation
5. Mergers and acquisitions
6. Demutualisation
7. Cell captives

Question 7

Factors to include in the description of major life insurance products (3)

Answer 7

1. The main types of products issued
2. The benefits, guarantees and options that may be provided.
3. The purpose and risks of the products to the policyholder and insurer.

Question 8

Items shaping the South African regulatory environment for life insurers (10)

Answer 8

1. the taxation of the South African business of life insurance companies and the effect of taxation on the benefits and premiums paid under South African life insurance contracts.
2. The supervision of the South African business of life insurance companies under the long-term insurance act 52 of 1998, the Insurance act no 18 of 2017, the regulations and Prudential Standards made under these Acts, and other directives or notices
3. Basic knowledge of the Financial advisory and intermediary services Act, National Credit Act and Financial Intelligence Centre Act, and their impact on long-term insurance.
4. Knowledge of the Ombud system in South African as it applies in the Life insurance industry
5. The code of Conduct of the Association for savings and Investment South Africa (ASISA)
6. Basic knowledge of the Insurance Core Principles and Methodology of the International Association if Insurance Supervisory (IAIS)
7. Awareness of Market Conduct (MC) developments
8. Awareness of the Twin Peaks model of financial regulation, which is the basis for regulation in the South African market.
9. Knowledge of Principles and Practices of financial management (PPFM)
10. Profit reporting under the International Financial Reporting Standards issued by the International Accounting Standards Boards.

Question 9

Supervision areas relevant for the actuarial work (10)

Answer 9

1. the powers, duties and obligations of the head of the actuarial function
2. The requirements that the insurer must be financially sound (including the valuation of assets, liabilities and capital requirements)
3. Deductions from Own Funds
4. The returns to be submitted.
5. The requirement that policies should be actuarially sound.
6. The limitation on remuneration to intermediaries
7. Requirements for a minimum values where contractual changes are made to savings policies
8. Product design restrictions (including “the five-year rule”)
9. Transfer of liabilities
10. The requirements of the policyholder protection rules relating to product design and market conduct.

Question 10

Key risks to be covered by the risk management and controls (6)

Answer 10

1. Credit and counterparty risk
2. Market risk
3. Liquidity risk
4. Operational risk
5. Insurance risk
6. Group risk