Chapter 1, 2 and 3

Question 1

Professional role of an actuary

Answer 1

Actuaries help stakeholders to 
- IDENTIFY
- ANALYSE
- MANAGE 
- and MITIGATE
the FINANCIAL RISKS they face.

Question 2

What do actuaries need to be able to do?

Answer 2

• assess,
• quantify,
• manage,
• monitor,

the risks inherent in:

• financial structures,
• products,
• schemes,
• contracts,
• transactions that provide benefits on future financial events.

Question 3

Skills necessary to perform the actuarial role:

Answer 3

• PROJECT and discount future cashflows using assumptions
• Use ECONOMIC ANALYSES to form judgements about future inflation and interest rates
• handle ASSUMPTIONS in a critical manner,
• build appropriate MARGINS into assumptions and appreciate the impact of such margins,
• Build, parameterise, test and implement MODELS,
• Use data relating to future LIABILITIES to estimate payments that need to be met
• handle DATA in a critical manner.
• manage the ACCUMULATION of assets to meet future liabilities.
• monitor the progress of the ACCUMULATION of a fund,
• manage the VARIANCE in the progress of a fund to ensure that future liabilities are met
• calculate the CONTRIBUTIONS required to build up a fund over time to meet future liabilities,
• analyse the variation between the actual and expected EXPERIENCE,
• advise on REINSURANCE and other risk transfer mechanisms,
• contribute to decisions on INVESTMENT POLICIES aimed at meeting future liabilities.

Question 4

Roles of actuaries as professionals

Answer 4

• participate with the government in SHAPING LEGISLATION that affects financial structures, products, schemes, contract and transactions that provide benefits on future financial events;
• work with other professionals to SOLVE PROBLEMS,
  understand where and when the expertise of other professionals is needed,

FUZZY STUFF:

• operate within an environment that requires professionalism, scrutiny, transparency in the disclosure of information,
• apply the highest standards of independence and due diligence to protect the public interest. There should be no conflict of interest for an actuary in working for a client and at the same time serving the public interest.
• communicate the results of all his/her work.

Question 5

Statutory roles of actuaries

Answer 5

Mainly relate to the certification of the adequacy of the valuation of assets and liabilities for a life insurer, general insurer or pension scheme.

Certify:

• proper RECORD being kept for liability valuation
• proper PROVISION for liabilities made
• liabilities valued in accordance with any legislative rules
• liabilities valued in the context of the assets, which are valued acc. the appropriate rules
• PREMIUMS / contributions for future years will be sufficient, to meet commitments.
• statement of the difference btn assets and liabilities
• He/she has complied with professional guidance.

Question 6

5 principles of the Actuaries’ Code

Answer 6

• integrity
• competence and care
• impartiality
• compliance`
• communication

Question 7

3 Generic Technical Actuarial Standards (TAS)

Answer 7

• TAS R (reporting)
• TAS D (data)
• TAS M (modelling)

Question 8

3 Practice specific Technical Actuarial Standards (TAS)

Answer 8

• insurance (TAS I)
• pensions (TAS P)
• areas of activity such as business transformations (TAS T)

Question 9

Materiality (TAS definition)

Answer 9

Matters are material if they could
… individually or collectively …
INFLUENCE the DECISIONS to be taken by users of the related actuarial information.

Assessing materiality is a matter of reasonable judgement which requires consideration of the users and the context in which the work is performed and reported.

Question 10

3 groups of principles when considering the application of a principle in TAS

Answer 10

• Principle is not applicable
• Is applicable but its inclusion is not material to the decision
• Is applicable and its inclusion is material to the decision.

Question 11

Professionalism

Answer 11

Way in which an actuary carries out the work and presents the advice resulting from the use of the skills acquired.

Question 12

Requirements of being a professional actuary

Answer 12

• recognises VIEWS of others
• detachment from own circumstances
• acts with INTEGRITY
• good COMMUNICATOR
• gives sound ACTUARIAL ADVICE (due to competence and skills)
• develops a direct, personal and trusting RELATIONSHIP with client (to suitable solutions).

Question 13

Knowing the client

Answer 13

• Sufficient BACKGROUND about the client to put the task into context
• know FOR WHOM in the firm the work is being performed
• Aware of any CONFLICTS within firm
• Aware of COMPLAINTS procedures in place

Question 14

Procedure for completing a task at work

Answer 14

• agree exactly WHAT “the task” is; problems to be addressed
• gather & assess available INFORMATION
• decide on a METHOD
• set ASSUMPTIONS
• arrive at “the SOLUTION(s)”
• check the SOLUTION
• COMMUNICATE the answer

Question 15

4 Questions to ask before embarkation

Answer 15

• How will the results be reported & to whom.
• What will the implications of results be & for whom.
• How will implementation of the results of proposals be monitored?
• What can be learnt from the actual outcomes

Question 16

Issues regarding “what is the problem?”

Answer 16

• WHO owns the problem
• WHAT are the questions that need answering?
• CAN it be broken down into smaller problems?
• WILL answers be relevant in finding an optimal solution to the problem?

Question 17

Considerations when “checking the answers”

Answer 17

• Do the answers look reasonable?
• Do the sensitivity tests applied to the answers look reasonable?
• What range of answers is consistent with the level of confidence associated with the assumptions made?
• Has a peer reviewed the answers?

Question 18

4 Drivers promoted by the Actuarial Quality Framework

Answer 18

• Methods (reliability and usefulness of actuarial methods)
• Actuaries (technical skills of actuaries and ethics and professionalism of actuaries)
• Communication (communication of actuarial information and advice)
• Environment (working environment for actuaries and other factors outside the control of actuaries)

Question 19

Possible clients whom actuaries can advise (private sector)

Answer 19

INSURANCE COMPANY:

• prospective policyholders
• policyholders
• board of directors
• shareholders
• creditors
• auditors

BENEFIT SCHEMES:

• members and their dependants
• employers
• trustees
• sponsors
• auditors of the sponsors

OTHER:

• employees
• investment fund managers
• members of investment schemes
• sponsors of capital projects
• banks

Question 20

Issues on which actuaries can advise policyholders

Answer 20

• personal protection against death and illness
• protection of property
• investment

Question 21

Issues on which actuaries can advise members of benefit schemes and their dependants

Answer 21

• provision of benefits on future events such as death, retirement, illness and withdrawal

Question 22

Issues on which actuaries can advise employers

Answer 22

PROTECTION

• against financial loss arising from the death or ill-health of employees
• of tangible assets
• of intangible assets

PROVISION
- provision of work-related benefits that will attract and retain good quality staff

BUSINESS

• meeting legislative requirements
• managing the costs of running their business
• quantification of the amount of surplus capital in the business
• investment of surplus capital.

Question 23

Issues on which actuaries can advise insurance companies - board of directors

Answer 23

• meeting LEGISLATIVE REQUIREMENTS for the management of the business
• investing and managing the ASSETS of the company
• managing the LIABILITIES of the company
• determining the levels of PROVISIONS to hold to meet future liabilities
• setting PREMIUM RATES
• ensuring that policy proceeds are paid
• meeting policyholders’ reasonable expectations
• meeting the demands of shareholders
• good corporate GOVERNANCE
• obtaining appropriate and adequate REINSURANCE to protect the business

Question 24

Issues on which actuaries can advise insurance company shareholders

Answer 24

• obtaining a good return on their investment commensurate with risk.

Question 25

Issues on which actuaries can advise insurance company creditors

Answer 25

- Certainty that the monies owed to them will be paid

Question 26

Issues on which actuaries can advise trustees of benefit schemes

Answer 26

- managing the assets of the scheme - paying the benefits promised under the scheme as they fall due - maintaining solvency

Question 27

Issues on which actuaries can advise sponsors of benefits schemes

Answer 27

- providing protection benefits that meet the needs of the members and their dependants - providing retirement benefits that meet the needs of the members - managing the cost of providing the benefits - meeting legislative requirements

Question 28

Issues on which actuaries can advise employees

Answer 28

- provision of protection benefits on death - provision of pension benefits on retirement - investment of surplus personal funds

Question 29

Issues on which actuaries can advise auditors of insurance companies

Answer 29

- assessment of long-term liabilities for life insurance companies - assessment of long-tail claims reserves for general insurers.

Question 30

Issues on which actuaries can advise auditors of the sponsors of benefit schemes

Answer 30

- assessment of the future liability to pay benefits.

Question 31

Issues on which actuaries can advise government

Answer 31

LEGISLATION - setting legislation that impacts on the provision of financial products, schemes, contracts and transactions that provide benefits on future financial events - Monitoring the adherence to this legislation BENEFIT PROVISION - Funding benefit provision by the State - Monitoring the funding of benefit provision by the State.

Question 32

Issues on which actuaries can advise the regulator

Answer 32

- ensuring that regulatory requirements are met.

Question 33

3 types of advise that can be given

Answer 33

- indicative advice - factual advice - recommendations

Question 34

indicative advice

Answer 34

giving an opinion without fully investigating the issues (ex. responding to a direct oral question)

Question 35

factual advice

Answer 35

based on research of facts, e.g. legislation

Question 36

recommendations

Answer 36

researched and modelled forecasts, alternatives weighted, recommendations made consistent with requirements.

Question 37

In giving advice, actuaries should:

Answer 37

- set out alternative solutions and the implications of each solution on both the client and on other affected stakeholders - outline the assumptions made than the reasons for making them

Question 38

3 Basel II risk categories

Answer 38

- market risk - credit risk - operational risk

Question 39

Corporate structure of mutuals

Answer 39

- no shareholders - better benefits for the same cost - can't readily raise finance by usual methods - certain products may be restricted or more highly priced (especially those that are capital intensive) - product pricing is either "at cost" or takes allowance for surplus distribution to with-profit policyholders

Question 40

Proprietary / Public Companies

Answer 40

- Easier access to capital markets for finance - Economies of scale - More dynamic management

Question 41

The underwriting cycle relates to

Answer 41

- profitable business leading to new entrants, greater competition, "soft" premium rates and reduced profits, leading to: - insurers leaving the market or reducing their involvement, increased premium rates or loss of business or reduced solvency and the need for capital.