Mapa mental
Context of Actuarial Work
Contenido del mapa
Context of Actuarial Work
What?
- External forces influencing the problem
- Actuary, Client, Institution can't control
- Can change over time
- E.g.
- life office valuation
- Data
- Policyholder data
- Policy details (t&c, declared bonuses)
- Asset data
- Valuation model and assumption
- mortality rates and changes
- interest rates (past and present)
- inflation rates (past and present)
- valuation regulations
- Data
- develop new life assurance product
- company information
- strategic plan & existing product portfolio
- distribution methods (direct sales, broker, etc)
- ability to raise capital
- competitive advantages
- ability to mitigate the risks of the product
- context to develop
- mortality, interest, inflation rates
- competitors and competing products
- taxation
- marketing regulations
- income and wealth of potential policyholders
- company information
- valuing defined benefit pension scheme
- pension shceme
- membership data
- assets data
- scheme rules defining all of the benefits
- models and assumption
- interest rates
- inflation rates
- decrement rates
- mortality
- early leavers
- illness
- pension shceme
- life office valuation
- External forces influencing the problem
Why?
- Way to understand the problem
- Use model that depends on context
- Assumptions of context
- interest rate
- mortality rate
- surrender rate
- inflation
- Compare Past vs present
- See how assumption differs and change
- Simplification of real world
- e.g. Pension valuation
- one rate of interest
- one future rate of salary increase (pension salary index)
- all retire age 65
- e.g. Pension valuation
- Assumptions of context
Actuarial Control Cycle
- Variable Context
- Allow simple assumption
- Result different from model projection
- Change model assumption
- Result different from model projection
- Allow simple assumption
- How it fit
- Know Context
- to Designing the solution
- monitor result
- check model accuracy
- assess effect of changing context and particular circumstances of the client
- Not static
- Context change over time
- Know Context
- Variable Context
Component
- Professionalism
- Code of conduct
- Practice standards
- Valuation to comply practice standards
- Regulatory environment
- Laws and regulations of the country
- valuation comply UK regulation, Solvency II
- val. report is checked by UK FSA
- e.g.
- fin. reporting
- competition
- sales of financial product
- business conduct at point of sale and in force business conduct
- content of insurance contract
- compulsory insurance. e.g. sell motor business to have GI license
- Supervisory authorities
- Laws and regulations of the country
- Government and Judicial context
- Government policy
- Policy propose new regulation
- parliament debate of possible new regulation
- experts on policy discussions
- impact to financial institutions
- Taxation
- interest allow for UK tax
- encourage/discourage investment in product
- affects
- product design e.g. max capital gains vs div.
- pricing
- valuations
- cash flows
- EBITDA as performance measure instead
- expense analysis
- Low tax on ISA
- retirement contribution tax free
- Social assistance and social insurance
- Means- testing
- subsidize insurance very basic cover
- dependend state provision
- e.g. EPF
- Judicial decisions
- Claims assumption allow award decisions behavior
- interpretation of legislation
- judicial attitude towards interpreting Policy wording
- affect liability claims
- Government policy
- Physical environment
- Climate and natural perils
- E.g.
- floods
- drought
- hurricane
- tsunami
- earthquake
- typhoon
- Large insurance claim at once
- Expensive premium in area-prone
- Govt provide assistance to encourage insurance coverage
- Reinsurance programme
- CAT model
- Expert inputs
- Pricing
- E.g.
- Pandemics
- E.g.
- SARS
- HIV virus
- H5N1
- H1N1
- Impact
- health claim rates
- key staff absences
- Mortality rates
- defaults by debtors or payment delay
- Asset price, index price
- E.g.
- Man made disasters
- sometimes difficult to quantify
- terrorist, oil spill, mines, nuclear reactor explosion
- Technological developments
- impact to claims expense (low cost transaction system vs manual labor)
- impact to claim rate
- Medical technology
- new business: insure phone, laptop
- Admin/selling cost
- Climate and natural perils
- Economic and Social Environment
- Economic conditions and trends
- interest rates and inflation assumptions
- recession affects claim rates
- Demographic structure and trends
- majority population at what age?
- affects pension liabilities
- majority population at what age?
- Work and employment patterns
- retirement age
- wage inflation
- mobile work force:jump to different job
- M&A and Rationalisation
- flexibility in pension scheme
- Social factors and trends
- theft rates affect claim frequencies
- fraudulent claim trend
- trends in propensity of claim based on geographic area
- legislation against discrimination gender, race and age
- development of micro-finance, micro-insurance, takaful, islamic banking and sukuk to cater lower income markets and muslim market
- Industrial and labour union issues
- E.g. surplus allocation in a DB pension shceme
- union negotiate salary--> affect cost of employee benefit
- Economic conditions and trends
- Industry and business environment
- Range of products and services offered
- Convergence of financial institutions
- Banccasurance
- Product distribution and intermediaries
- Accounting standards and practices
- Affect assumption for published valuation
- earned premium UPR
- Affect assumption for published valuation
- Competition
- Industry associations
- Provide claims information
- assumptions benchmark
- Stakeholders
- Corporate culture
- Conservative business approach
- Globalisation
- Multinational
- Professionalism