So far I know where I have lost some points question 1 i) I didnt mentioned the issue of PH taxation as disadvantage of equity release and the issue of the need to keep the house in good condition ii) it was hard for me to write fo 8 marks for advantages and disadvantages for isurer of equity release iii) My answer with regard to risk calculation on ICA was a bit chaotic and i conetrated too much on stochastic issues and did not go into stress tests - i am not happy with that although I have analyzed the basic risk inherent in equity release iv) to my understanding all actions should result in decreasing the ICA requirement v) I got the problem of how the future proceeds from selling the property will be show on the asset side - my conclusion was that due to the prudent assumption used in valuation a strain may appear as the annuity liability will be higher that prudent estimation of income from property sales question 2 i) it was bookwork ii) I have analysed the Peak 1 and Peak 2 - for Peak 1 there was a clear improvement while in Peak 2 no improvement was likely or perhaps a decrease of available capital the result on Pillar One depended on relation between Peak 1 and Peak 2 iii) Securitisation was interesting as there is only one page in Course Notes about it ! Difficult to write 28 points from that. I found that the issue was in CA1 material and in 2008 Actuary magazine I forgot to mention the need to consult the regulator when doing the securitisation iv) a rather bookwork question with description of financial reinsurance and subordinated debt however i did not mention the contingent loan
I thought this was a slightly peculiar exam, which is par for the course in these later subjects of course. I imagine the impact of fronting the two questions as equity release and securitisation was intended to throw the candidates off balance, before us realising that the questions were actually largely about ICA, solvency and pricing. I found the two longest parts, 1 iii and 2 iii, fairly tricky to write on: largely because of the inevitable issue with trying to guess what the examiner might put on the marking scheme. In particular, the 28 mark question on the vaguely phrased 'process and issues' of securitisation. I assumed that the bulk of the marks for the 18 mark ICA question could be gleaned from a quick recap on the bookwork followed by an in-depth analysis of each specific ICA risk (credit, market, insurance etc) as it related to the specific products. More of a guess and throw everything in on the 28 mark securitisation - but I tried to cover how to measure profit, some of the most relevant assumptions in calculating profit, (morbidity, persistency, expenses, tax), and a fairly lengthy section on TCF as the securitisation affects the WP funds. Other parts of the questions seemed more straightforward. Interested to hear other people's thoughts.
What about following issues : 1 iv) all actions seemed to decrease the ICA requirement - was there something that I have missed ? 1 v) what was the impact on Pillar 1 of product C ? In my opinion at the beginning it will be a strain due to the prudence in calculation of liabilities and PV of future income from property sale. 2 ii) how the Pilar 1 available capital will be affected by the securitisation ? In my opinion it depends an increase is possible but also a slight decrease 2 iii) main points I have made : a) the need to find the investment bank with experience b) decide on the business to be securitised, the term of securitisation, whether to add the NB c) calculate the value of future surpluses - decide on the basis, methodology and RDR - the need to have external audit d) decide on terms of agreement - any restrictions on the use of capital by company e) TCF and PRE - seek advice from WPA and AFH and discussion when it would be unfair this is all that came to my mind
I wrote about subordinated loan stock and surplus relief. I realised after the exam that weakening the valuation basis also releases future margins. Unfortunately, I started writing about it but ended up erasing it at the last minute. Horrible exam.
how about DAC and actuarial funding ? Aren't these another methods of improving financial condition on the basis of future profits ?
I guess you can argue those too. I separated my discussion of the securitisation question into protection, annuity, and UL to generate more ideas. Though I think what I wrote is still not enough for the 28 marks on offer.
Weird but not Wonderful Overall a weird exam!! slightly annoying as for someone like me who doesnt work on ICA's then there's only so much you can write about modelling and risks without knowing the intricacies of the day to day work. The Securitisation question was NOT an SA2 question, on the plus side at least i've done ST5 so have learnt about the process but then may have fallen into the trap of not thinking about tenuously linked SA2 issues. The other ways of raising capital was hard for 12 marks. Past financial reinsurance and grasping at either selling the closed book(the future surplus is used for the price) and a rights issue(based on more surplus more dividends??) then i must have missed a trick somewhere. Anyways not hopefull and will start trying to enjoy some freedom before it all starts again!!
The longer i think about this exams it is getting worse and worse mistakes I have made Q 1 i) I did not metion as the disadvantage the problem of entering higher taxation rate due to income from equity release i did not mention the need to spend money on keeping the house in good contidion - this is the second point from core reading I have missed Q 1 ii) I should have concetrated more on the features of Products A and B to comment on it to make an answer for full 8 marks, instead I have written generaly on pro & cons of offering equity release product Q 1 iii) I have described the stochastic nature of risks invloved but did not described how the stress tests are used in ICA calculation - in fact I have described the stochastic model that should be build to calculate the capital requirements Q 1 iv) I have missed the counterparty risks when entering the swap q 1 v) I have concetrated to much on how the assets will look like and what liabilities will be but did not put straight points like: the company is RBOLF so only Peak 1 applies, I should have analyze the LTICR, RCR and not only mathematical reserves Q 2 i) - the only answer I am happy with Q 2 ii) Again I have forgot to put some comments on RCM and LTICR Q 2 iii) - Thats a mystery Q 2 iv) i did not described the contingent loans as I have mentioned only subordinated debt beside the financial reinsurance, DAc and actuarial funding
