Significant changes CA1 to CP1

This post sets out the most significant changes between Subject CA1 and the new Subject CP1.

Structural changes

There has been a significant restructuring of the course, so that Subject CP1 now consists of 39 chapters. The course still consists of 10 parts.

The chapter on contract design has been placed later in the course (Part 6) to sit alongside the chapter on pricing and financing strategies.

The chapters on the different asset classes have been amalgamated from the seven chapters in CA1 to three chapters in CP1 (the same asset classes are considered).

The chapters on “Economic influences on the investment markets” and “Other influences on the investment markets” have been combined into one chapter on the “Behaviour of the markets”. The material on theories of the yield curve is now covered in this chapter too.

There is now one chapter on “Choosing an investment strategy”, replacing the chapters on “Investment strategy – institutions” and “Investment strategy –individuals”.

The material on “Developing an investment strategy (1)” and “Developing an investment strategy (2)” has been reallocated, together with some new material, into chapters headed “Asset-liability management” and “Investment management”.

The chapters on risk have been restructured (and there is some new material). Risk is now covered earlier in the course in Parts 7 and 8. The risk chapters are headed:
· Risk governance – which covers the over-arching risk management process, including some new material
· Risk identification and classification – which covers the sources of risk
· Financial product and benefit scheme risks – which expands the current chapter on “Risks in benefit schemes” to include new material on the business risks that are relevant to insurance companies (previously covered to some extent in the “Sources of risk” chapter)
· Accepting risk – which builds on the previous chapter on “Pricing and insuring risks”
· Risk measurement and monitoring – which includes new material on risk measures, aggregation of risks and risk reporting
· Risk transfer
· Other risk controls

The material in the chapters “Valuation of liabilities (1)” and “Valuation of liabilities (2)” has been reallocated across chapters headed “Provisions” and “Valuation of liabilities”.

The chapter on “Surplus and surplus management” is now in part 10 of the course just before the chapter on Monitoring.

Material removed

Most of the material on “Doing a professional job” has been removed. The remaining material together with material from the chapter, “Stakeholders” is now covered in a chapter on “Actuarial advice”.

The chapter on “Cashflows” has been removed. Material on cashflow matching is now covered in a chapter “Asset-liability management”.

The material on project management and capital project appraisal has been removed, so these two chapters have disappeared. (The approaches to identifying risk for a project, eg high level preliminary analysis etc are still covered but in a chapter on risk.)

Immunisation is no longer included as a technique for determining investment strategy.

There is less detail in relation to required return formulae and the creation of yield gap equations is no longer covered in the Core Reading.

The Modelling chapter no longer covers the requirements/features of a good model (there is a bookwork list of operational issues when modelling). The steps for running a deterministic and stochastic model have been removed from Core Reading, although still have some coverage in the Course Notes.

The chapter headed “Data” has changed significantly. The material on users of data has been removed and there is new material on big data, data governance, data risks and algorithmic decision making.

The chapter on “Accounting and disclosure” is renamed as a chapter on “Reporting results” and includes some additional material.

The material on discontinuance by individuals is now included in the chapter on “Contract design”. The remaining material on discontinuance is now covered in a chapter “Insolvency and closure”.

New material

There are two new life insurance products (keyperson insurance and investment bonds) and one new general insurance product (cyber insurance).

There is a new chapter headed “Mortality and morbidity” in part 6 of the course, which includes material very similar to the Subject CT5 chapter “Mortality, selection and standardisation”.

Money-weighted and time-weighted rate of return are now included in a chapter on “Investment management”.

There are some additional methods covered on models for evaluating risk covered in the chapter on “Risk measurement and monitoring”.

There is new material on capital requirements and profitability in the chapter on “Capital requirements”.

There are several other less significant amendments, additions or removals of material in the course.

The CP1 exam

The first paper of the CP1 exam is expected to be of a similar style to the current Subject CA1 exams.

The second paper of the CP1 exam will consist of one or two case studies. You will have 45 minutes planning time for Paper 2 and 2.5 hours for writing out your answers.

There are now six X Assignments. The first five consist of one case study as well as Paper 1 style questions. The X6 Assignment consists of two case studies to give you extra practice on the Paper 2 style questions.

 

Hi Sophia

Infrastructure assets were never explicitly covered in CA1 (and in the same way not explicitly covered in CP1). This question is therefore an application test, and quite a challenging one at that.

An infrastructure project could be financed directly, ie like a direct property investment or it may be that the finance is structured as a bond or equity, ie investors provide funding by purchasing bonds or equity and then receive a stream of coupons/ redemption payment (if bonds) or dividends (if equity) when profits are made from the infrastructure project.