April 2014 ST7 - very unusual!

What are people's thoughts on this paper? I thought it was very different to the standard ST7 layout and closer to an SA3 paper. There were only 5 questions and very few sub parts. The 22 mark question on products was nice but I thought it was difficult to be sure what the examiners were looking for on a couple of the other questions.

Question 1 - I assume they were looking for 2 out of the five approaches to reserving for outwards RI e.g. net/gross, broad brush factors etc. (even though I understand it was a captial modelling question although I couldn't think of anywhere in the capital modelling chapters that specifically discussed the treatment out outwards RI in the model, just insurance risk overall).

Question 2 - I assumed (but wasn't sure) this 12 marks on regulation really just looking for a tailored answer based on the bookwork from the Regulation chapter (ch. 26) regarding where regulationg is focusses on for a general insurere (within U/W, capital modelling, reporting, investments ) and highlighting where policyholders interests are being considered

i.e. the actuary might investigate that sufficient assets are backing the reserves to ensure future claims can be paid... to protect policholders in the event that assets are inadequate to cover claims.

Question 4 - this was frustrating as the first part was 15 marks and asked to 'list' the risks and then 'highlight' the particular risks relevant to the company. I can only assume that since there were 15 marks on offer that the examiners were looking for a brief definition of each risks and not just insurance, credit, market. Again, highlight indicates a very short response so it was difficult to know how much detail was required - i just talked about group risk and some of the other risks I thought were most relevant.

Overall, a very strange paper. The concensus from most of the people who I spoke to was that it was very difficult and they all thought they would be repeating in September (although I know most err on the catious side so maybe there were a few people who were hopeful but didn't let on).

 

In Q4 part ii of the April 2014 paper

When considering what forms of outward reinsurance to purchase for Stop Loss Re, the solution states "Because the business covered is whole account the only traditional types of reinsurance available are stop loss and quota share."

I don't fully understand this comment - couldn't Stop Loss Re purchase individual XL cover on a single stop loss policy it writes for one of its cedants?
Or Agg XL cover on a group of stop loss policies it writes?

 

couldn't Stop Loss Re purchase individual XL cover on a single stop loss policy it writes for one of its cedants? - I think that is effectively a stop loss cover
Or Agg XL cover on a group of stop loss policies it writes? - probably would not be available or too expensive. An alternative would be an ILW and this could be linked to Stop Loss Re actual loss experience as well as the industry or just the industry loss amount

 

Thanks. I had another question on the April 2014 paper, this time in Q5 part iii. The ASET solution mentions that because of the guarantee involved, it is recommended to hold a reserve for business not yet written.

I don't recall reading about a reserve of this type - how common is it in practice? How would it be calculated? I assume it would need to link to the company's planned new business volumes.

Dan