IAI CP3 flashcards
IAI CP3 · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Risk appetite
- The amount and type of risk an organisation is willing to accept in pursuit of its objectives, often expressed qualitatively and quantitatively.
- STARR framework
- A structured approach to risk management: Stakeholders, Terms of reference, Actuarial analysis, Risks, and Rewards.
- Diversification
- Combining assets or risks to reduce overall risk through low correlation, eliminating unsystematic risk but not systematic risk.
- Value at Risk (VaR)
- The maximum loss over a given time horizon at a specified confidence level, e.g., 99% one-year VaR.
- Defined benefit scheme
- A pension plan where the benefit is determined by a formula, typically based on salary and years of service, with employer bearing investment risk.
- With-profits fund
- A life insurance fund where policyholders share in profits via bonuses, with smoothing of investment returns over time.
- Guaranteed annuity rate
- An option in some pension policies allowing conversion of fund to annuity at a guaranteed rate, creating interest rate risk for insurers.
- IBNR
- Incurred But Not Reported: reserves for claims that have occurred but not yet been reported to the insurer.
- Chain-ladder method
- A claims reserving technique that uses historical development factors to project ultimate claims from paid or incurred amounts.
- Bornhuetter-Ferguson
- A reserving method blending expected loss ratio with chain-ladder development, useful for new or volatile lines.
- Excess of loss reinsurance
- A non-proportional reinsurance where the reinsurer pays losses above a retention up to a limit.
- Critical illness insurance
- A policy paying a lump sum on diagnosis of specified serious illnesses, subject to definitions and survival periods.
- Income protection
- Insurance replacing income during disability, with benefit period, deferred period, and occupation-based definitions.
- Activities of daily living
- Basic self-care tasks such as bathing, dressing, eating, used as triggers for long-term care benefits.
- Modified duration
- A measure of bond price sensitivity to yield changes: Macaulay duration divided by (1 + yield/m).
- Convexity
- The second-order sensitivity of bond price to yield changes, improving duration estimates for large yield moves.
- Put-call parity
- For European options: C - P = S - PV(K), linking call and put prices to the underlying and strike.
- Interest rate swap
- An agreement to exchange fixed and floating interest payments on a notional principal over a set period.
- Executive summary
- A concise overview of a report's key findings, conclusions, and recommendations, written for decision-makers.
- Plain language
- Communication using clear, simple wording avoiding unnecessary jargon, tailored to the audience's expertise.
- Model risk
- The risk of loss or error due to flaws in model design, assumptions, implementation, or use.
- Model validation
- Independent review of a model's conceptual soundness, data, assumptions, and outputs, including back-testing and sensitivity analysis.
- Continuing professional development
- Ongoing learning required for actuaries to maintain and enhance competence throughout their careers.
- PESTLE analysis
- A framework examining Political, Economic, Social, Technological, Legal, and Environmental factors affecting a business.
- Conflict of interest
- A situation where personal or organisational interests could improperly influence professional judgement; must be disclosed and managed.
- Corporate governance
- The system by which companies are directed and controlled, including board structure, risk oversight, and accountability.
- Overfitting
- When a model captures noise rather than signal, performing well on training data but poorly on new data.
- Cross-validation
- A technique splitting data into folds to assess model generalisation and reduce overfitting.
- Generalised linear model
- A flexible regression model allowing non-normal error distributions via a link function, widely used in insurance pricing.
- Solvency Capital Requirement
- Under Solvency II, the capital needed to absorb a 1-in-200 year loss over one year, covering all quantifiable risks.
- ORSA
- Own Risk and Solvency Assessment: an insurer's forward-looking evaluation of its risk profile and capital adequacy.
- Immunisation
- An asset-liability matching strategy where asset duration equals liability duration, protecting against small interest rate changes.