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In case 1) the insured would have died within the term of the policy; so is a payment the insurer would have paid anyway. In case 2) an insured...
The relative change in the value of a country’s currency affects its attractiveness to internationally mobile investors. eg Sterling reduction...
Hello, Setting up the captive will enable Coca Cola / FedEx to deal ‘directly’ with a reinsurer. Reinsurers enter into contracts of insurance....
The total return on an investment = income yield plus capital growth. It’s the total return that ultimately matters.
Hello, The higher initial yield on the lease would be needed to reflect the complete loss on your investment (and the right to collect the rental...
The TVOG can be valued using option pricing techniques. CM2 may set out what you’re looking for.
Example: a with profit contract may have a guarantee that exceeds the asset share. The difference between the guarantee and asset share is the ‘in...
The value of an option is equal to the intrinsic value + time value. The cost of guarantees is equal to TVOG if the contract is ‘out of the...
An internal model allows a firm to calculate the SCR using its own model, methodology, assumptions etc. All firms (IM and SF) are bound by the...
The SCR is defined as the change in basic own funds. A number (dare I say, all...) of the Standard Formula demographic [sub]modules includes the...
The approach to calculating the risk margin is prescribed. My (and I suspect your colleagues) comment is in relation to where the current design...
Including the risk margin within the calculation of the SCR introduces circularity. The risk margin is the discounted value of future SCRs...
Yes, it would not be unreasonable to expect some of the credit widening to be due to the market changing (increasing) its expectation around the...
Responses in turn. 1. credit spread = retained risk + illiquidity premium. The retained risk is generally equated to downgrade and default risk....
You’re over thinking and overly worrying. Write it down if you think it makes sense and move on. Don’t obviously write down none sense if you deem...
I haven’t looked at the specific question you mention. Nevertheless, it sounds like you have the right sort of idea. I wouldn’t be disheartened if...
Hi Trevor, It sounds like your preparation is going well ! Don’t be too hard on yourself. At this stage, it’s important to (stay) relaxed. Be...
Yes, sure - a couple of things. 1. Doing lots of question practice can be really good in helping to understand the scoring system. Knowledge in...
This is a good question. I think the key word in the quoted text is 'may'. You are right to be cautious: as you imply, a view would need to be...
This is a good question. Equivalent does not necessarily mean the same. For example, the reserving or capital number between the EEA and Bermuda...
Hi, Cash at bank is a type 1 exposure for standard formula purposes.
Hi, More people (e.g. those who do not have access to the notes) might be able to help if you provided more context. The benefit feature you...
Is the discount rate used a 6 month rate...
This is a question that only you can answer. CP3 is a communication based exam. The content of the exam can be on any aspect of the earlier...
An increase in bond yields will increase demand to buy bonds. This will reduce the demand for other assets, e.g. property. Property yields will...
An unfunded pension scheme pays members out of current revenue streams (assets aren't built up over time to meet the scheme's liabilities). One...
Yes, sure. One way to think about it is to consider what applying a discount rate higher than the risk-free rate means for the purpose of valuing...
This is a great question and response from Mark; so much so that I felt compelled to contribute :). I have added some complimentary comments to...
BEL = UF + NUR. Em's first response would appear to hold the key. If the charges are applied as a monetary amount then the change in the VIF...
I should have added: a higher discount rate applied to a negative / positive NUR will increase / decrease this part of the unit-linked BEL.
I haven't looked at the exam question / solution. Nevertheless, the BEL for unit-linked business will be equal to the unit fund + non-unit fund....
This is a difficult question: and I'm uncertain whether it is answerable ! Have you completed the Acted assignments? This paper is about...
My advice would be to focus on the underlying concept set out in the core reading here. Correct me if this is outdated but this is based on the...
It means that the value of the portfolio in the next period is known with certainty; i.e. it doesn't matter if the stock price increases or decreases.
There may be a number of actuaries on this forum who are closer to the underlying workings of stochastic models or modelling than me. Nevertheless...
No. For example, the normal distribution has a 'certain' bell shaped curve. The probability under the curve (P<0) of a standard normal random...
Recoveries would not increase BEL. It would reduce BEL (net of reinsurance). I don't in-principle see why you would lose marks unless...
In the first instance, it may be worth checking whether / how illiquidity risk has been defined, eg in the core reading. There likely is a term...
The choice of distribution channel will likely vary by cost. For example, selling insurance via the internet could be cheaper than employing a...
I've just taken a look at the question you reference (Q9(iii)). The question is asking you to calculate the hedging portfolio in shares and cash...
1, No - Solvency II only came into effect on 1.1.16. The statutory reserves would have included prudence within the reserves (i.e. best estimate +...
It would depend on whether you purchased or sold the call option. A long call option is long delta: you would need to sell stock to neutralise...
Which part of the question are you unable to understand? The question is asking you to think about why an insurer may or may not like the specific...
The insurer purchases reinsurance. The addition of a reinsurance recoverable (an asset) is broadly offset by a reduction in the insurer's cash...
Equity holders are paid only after / if all other obligations have first been settled.
Hi mystery128, The position, from what you describe, is not similar to either. The position is similar to a long strangle. It looks to be...
2 cents U.K. recruiters typically ‘pitch’ U.K. actuarial jobs at the fully qualified, nearly / newly qualified or student level of experience....
To add to Ems comments, it’s also worth saying that the material purchasers of IP are companies (Group IP). Companies need a stable source of...
yes
CEIOPS-SEC-40-10. The paper is titled: Solvency 2 calibration paper and was published on 15 April 2010
Hi Vidhya36, General comment: my advice would be to develop the intuition behind the concepts underlying the standard formula. The SF is...
These look like questions for the Institute.
Hi, The question is asking you to calculate the approximate probability. The 'exact' probability would be determined using the binomial...
Collateral definition Not quite. The reinsurer is exposed to the counterparty risk when PV fixed > PV floating. The effect of the collateral...
Hi curiousactuary, Some comments from me: hope it helps. 1. Whether the insurer or reinsurer posts collateral will depend on the difference...
Studier has provided a good answer within the UK context. Solvency 2 leaves it up to individual member states to decide whether firms in their...
Hi, I actually think you have the right sort of idea. Part ii of the question makes reference to the liabilities. I'd therefore be inclined,...
A covered put is a "covered" short put position. In practice, there can be restrictions on an investor’s trading permissions that limits their...
Different regulatory regimes will have its own requirements and practices. Within the European regulatory regime (Solvency II), the role of the...
How far are you in your ‘actuarial journey’?
Your questions, taken together suggest that you may be muddling the concepts underlying the assets and liabilities. Q1 &2 Asset side: the...
I've not read the relevant Core Reading notes. Nevertheless: The tax authorities will allow the policyholder to reduce their taxable benefit by...
An insurer will charge a risk premium for the risk(s) they are exposed. A without profit contract (which could also be wrapped as a unit-linked...
I had a look at the relevant passage in Hull: and my personal view is that it could've been articulated slightly differently. Options are priced...
Yes, sure. The preceding sentence to the one quoted above says " In general, call options on high-interest currencies [are] most likely...". It...
General comment: an American option can always exercise early if it is beneficial to the option holder to do so. Specific: This part of the text...
I think you're over analysing this. Nevertheless, some comments: 1. The vega of an option (the impact on the price of an option for unit movement...
I see that nobody has provided an answer to this difficult question :). In answer to your questions: 1. I think it's less to do with any...
The delta of a call option is given by: N(d1) where d1 = [log(S/K) + (r - q + 0.5*sigma^2) * (T-t)] / (sigma*(T-t)^0.5). The notation follows the...
Hi, The below is my reconciliation 'attempt' :). 1. f(x+h) = f(x) + hf'(x) + 1/2h^2f''(x) + … subtracting f(x) 2. f(x+h) - f(x) = hf'(x) +...
Caveat: I haven’t read / seen the quoted IFOA exam paper / revision question. Nevertheless, some responses below. A. Call holders do not receive...
There is a distinction to be made. The best estimate represents an expectation (ie mean). The distribution that may be used to model a risk will...
Hi Good questions: 1 & 2. The official definition of the fundamental spread is set out in the Solvency 2 text, which as you say is based on the...
Ok, it suddenly dawned on me that I’m in the weeds :). In answer to your question: I’m not entirely convinced that there is a “1 year RM horizon”...
1. Each stress is calibrated (in isolation) at a 99.5% CI. If you simply add up the independently calibrated 99.5th stresses you'd get a...
1. The pre-diversification non hedgeable risk stresses would be at the 99.5th confidence level. The non hedgeable risks SCR would allow for...
A negative holding in the risk free asset means that an investor short sells it and combines the proceeds with the investor’s funds to buy (100 +...
The aggregated SCR under 1 before diversification would give a result that is stronger than a 1 in 200 year VaR. This is because it’s unlikely...
An OTM bull spread is relatively risky (for the buyer) and is reflected in the lower price (relative to the reward on offer; eg risking 1 for a...
In addition to the articulation given by radex, you can also think of the OTM bull spread through the lens of delta, which is lower compared with...
Hi It comes from the following: Var(aX) = a^2 Var(X) where X is a random variable and ‘a’ is a constant. Therefore 0.5x0.5 = 0.25.
Hi Aisha Another name for the negative holding of an asset in the real world is 'short selling'. This is a term used to describe a speculator...
In a solvency 2 context, the unit fund would be projected at the risk free rate (or at risk free plus a volatility adjustment / matching...
It’s probably useful to make a distinction between 1. the actual timing of cash flows (ie when reserves and the CSM would be released into profit...
I’m surprised that emailing your script to the examination team didn’t occur to you.
Yogesh, I note that you ask a lot of questions. Have you genuinely thought about the features of equity release and annuity products? This is...
It's difficult to answer your question without further context (I don't have access to the notes). However, if this is getting at what I think it...
The MA eligibility criteria are set out in the Solvency 2 Directive. The criteria themselves focus on the features of an insurance contract and...
These are actually really good questions. < couldn't you hedge reinsurance credit risk by use of derivatives such as credit default swaps? Also,...
Consider the following: a) A 25 year policy that matured in 2018. The contract would therefore have been written in 1993. b) A 25 year policy...
It's helpful to think about the objectives an insurer is trying to achieve with its chosen bonus policy. A super-compound bonus policy is seeking...
The profit loading would typically be reflected within the reinsurance premium; which would be set at a level in excess of the best estimate. If...
Good challenge :). It may indeed be the case that an investor would look at the rating on a bond to determine what to bid for it (which will...
I’m surprised this is not in the notes... MA is added to the risk free rate prescribed in the rules. Conceptually, the MA can be thought of as...
This question is really old and is no longer relevant (in Europe) since the regulatory regime switched to Solvency 2. Putting the above aside,...
Not quite. For the avoidance of doubt, the RM would be calculated on the non-hedgeable SCR elements (e.g. longevity, expenses, operational risks...
Cross subsidies will result in a company offering: 1. a relatively lower price on the 'high' risk contracts than is justified on the basis of the...
In general, it's helpful to include the actual question [as opposed to the paper reference] here to save the lazy amongst us from trawling the...
All text in bold text (core reading) is examinable. Otherwise it is not.
Is the Chartered Actuary (broadly Associate) designation not an attempt to rebase the equivalence of the Uk syllabus... ie does this not...