IAI SA1 cheat sheet

State pension: new State Pension requires 35 qualifying years for the full amount and a minimum of 10 qualifying years for any payment; contracted-out deductions apply only to pre-2016 records via the COPE adjustment.

Defined benefit (DB) scheme funding is governed by Part 3 of the Pensions Act 2004: trustees must hold a Statement of Funding Principles, a Schedule of Contributions, and an actuarial valuation at least every 3 years (with annual actuarial reports in between).

Scheme funding Technical Provisions must be calculated on a prudent basis and the Statutory Funding Objective is to have sufficient and appropriate assets to cover them; any recovery plan should be appropriate to the scheme, with the Regulator's affordability focus on employer covenant.

The Pension Protection Fund (PPF) compensates members of eligible DB schemes on insolvency: 100% for members at or above normal pension age, 90% (subject to a cap) for those below it, with annual increases capped at 2.5% for pre-1997 service and RPI-capped (max 5%) for later service.

Defined contribution (DC) default funds must meet the charge cap of 0.75% per annum of funds under management for auto-enrolment qualifying schemes, and must include a statement of investment principles and, where relevant, an implementation statement.

Auto-enrolment minimum contributions: total 8% of qualifying earnings, of which at least 3% must come from the employer; qualifying earnings band is aligned to the Lower and Upper Earnings Limits for National Insurance.

Buy-out / bulk annuity pricing depends chiefly on insurer solvency capital (SCR) requirements, credit spreads on the backing asset portfolio, longevity assumptions, and the scheme's data quality; full buy-out typically costs more than a self-sufficiency or buy-in basis.

The Pensions Regulator's moral hazard powers include Contribution Notices, Improvement Notices, and the power to issue a Financial Support Direction or a Clearinghouse Order against connected or associated parties.

With-profits funds: the estate is the excess of assets over the sum of asset shares plus the regulatory surplus; the estate is used to provide smoothing and to support the fund's solvency, subject to the PPFM (Principles and Practices of Financial Management) and its Consumer-Friendly Summary.

Unit-linked contracts: the policyholder bears investment risk, but the insurer carries guarantees (e.g., GAD or GMIB) and the cost of any guarantee must be reserved for using option-pricing or stochastic techniques; the insurer must also hold capital against lapse risk where guarantees are in the money.

Protection products: morbidity and mortality assumptions are set using reinsurer experience, CMI projections for mortality, and the insurer's own experience; the reserving basis must include an allowance for future improvements in mortality.

Critical illness cover pricing depends on the definition set (e.g., severity-based vs. broad definitions), the incidence of claim, the deferred period, and the proportion of claims declined; the insurer must reserve for IBNR claims and for deterioration in morbidity experience.

Individual annuities: the insurer carries longevity risk and must hold reserves on a prudent basis; the reserving basis typically includes a margin for future mortality improvement, expense inflation, and reinvestment risk.

Income protection: the deferred (waiting) period and the proportion of income replaced drive claim incidence and duration; the insurer must reserve for the possibility of a claimant returning to work and subsequently relapsing.

Group life and group income protection: experience is pooled across employer schemes, so the insurer must set premium rates by scheme size and industry classification, and must reserve for the risk of anti-selection at scheme renewal.

Long-term care products: product design typically offers a pre-funded or immediate-need annuity; the insurer must reserve for morbidity improvement and for the risk of a change in the definition of eligibility for state-funded care.

Duration: Macaulay duration is the present-value-weighted average time to cash flows; modified duration equals Macaulay duration divided by (1 + yield/k) for k coupons per year; it approximates the percentage price change for a small parallel shift in yields.

Convexity: the second-order price sensitivity; for a parallel shift in yields, the percentage price change is approximately -D_mod × Δy + 0.5 × C × (Δy)^2; positive convexity benefits the holder when yields move either way.

Immunisation: a portfolio is immunised against a parallel shift in yields if its duration equals the liability duration and its present value equals the liability present value; a duration-matching portfolio does not protect against non-parallel shifts or against changes in the timing of liability cash flows.

Matching: cash-flow matching eliminates interest rate risk by aligning asset cash flows with liability outflows; duration matching is cheaper but leaves residual risk; the choice depends on the certainty of liability cash flows and the cost of the matching portfolio.

Credit risk: expected credit loss equals PD × LGD × EAD; credit spreads reflect expected loss plus a risk premium; the insurer must hold capital against spread widening and against default, and must consider the correlation between credit and interest rate risk.

Liquidity risk: the insurer must hold sufficient liquid assets to meet cash outflows (e.g., claims, surrenders, collateral calls) without forced sales; liquidity stress testing should include a mass lapse scenario and a collateral call scenario.

Asset-liability modelling: stochastic ALM should use an economic scenario generator calibrated to market data; the output is a distribution of surplus, and the insurer must hold capital against adverse percentiles (e.g., the 99.5% one-year VaR under Solvency II).

Derivatives: interest rate swaps, swaptions, and inflation swaps are used to hedge interest rate and inflation risk; the insurer must consider counterparty credit risk and collateral management, and must hold capital against the risk of a counterparty default.

Solvency II Pillar 1: the SCR is calibrated to a 99.5% one-year Value-at-Risk; the MCR is a lower floor; technical provisions equal best-estimate liabilities plus a risk margin, where the risk margin is 6% of the cost of capital multiplied by the projected SCR for non-hedgeable risks.

Solvency II Pillar 2: the ORSA (Own Risk and Solvency Assessment) requires the insurer to assess its overall solvency needs, its compliance with capital requirements on a continuous basis, and the significance of its deviations from the SCR assumptions.

Solvency II Pillar 3: public disclosure (SFCR), supervisory reporting (RSR), and the ORSA supervisory report; the insurer must also disclose its SFCR annually and its quantitative reporting templates quarterly or annually depending on the template.

Internal model: the insurer must demonstrate use test, statistical quality, calibration, and validation; the model must be validated by an independent function and approved by the Board before submission to the regulator.

Risk appetite: the Board sets a risk appetite statement that defines the insurer's tolerance for each risk category; the statement should be expressed in quantitative limits (e.g., SCR coverage ratio) and should be cascaded into business unit limits.

Enterprise risk management: the insurer must identify, measure, monitor, and manage all material risks, including underwriting, market, credit, liquidity, operational, and reputational risk; the risk register should be reviewed at least annually and after any material change.

Capital management: the insurer must hold capital above the SCR and MCR, and must consider the cost of capital, the availability of subordinated debt, and the impact of any dividend or capital distribution on its solvency position.

Stress and scenario testing: the insurer must run a range of stress tests, including a 1-in-200 year event, a mass lapse scenario, a pandemic scenario, and a combined stress; the results must be reported to the Board and used to inform capital and risk decisions.

The Pensions Regulator (TPR) is the regulator of work-based pension schemes in the UK; its objectives include protecting members' benefits, reducing the risk of claims on the PPF, and promoting good administration; TPR's powers include Contribution Notices, Improvement Notices, and the power to appoint a trustee.

The Financial Conduct Authority (FCA) regulates conduct for life insurers and pension providers; its Consumer Duty requires firms to act to deliver good outcomes for retail customers across products and services, price and value, consumer understanding, and consumer support.

The Prudential Regulation Authority (PRA) regulates the prudential soundness of insurers; it requires firms to hold adequate capital and to meet the Threshold Conditions; the PRA and FCA operate a dual-regulation model for insurance firms.

The Actuaries' Code (IFoA) sets out the professional standards for actuaries: integrity, competence and care, compliance, and communication; the Code applies to all members and requires actuaries to report any material breach to the IFoA.

Technical Actuarial Standards (TASs): TAS 100 (principles for technical actuarial work), TAS 200 (pensions), TAS 300 (insurance), and TAS 400 (funeral plans); each TAS requires the actuary to document data, assumptions, and methodology, and to report the results clearly.

The Scheme Actuary's statutory duties under the Pensions Act 2004 include preparing the actuarial valuation, the Schedule of Contributions, and the Statement of Funding Principles; the Scheme Actuary must also report to TPR if the employer fails to meet the schedule of contributions.

Data protection: the UK GDPR and the Data Protection Act 2018 apply to the processing of member data; the insurer or scheme must have a lawful basis for processing, must minimise data, and must report a personal data breach to the ICO within 72 hours where it is likely to result in a risk to individuals.

Whistleblowing and fitness and propriety: the Senior Managers and Certification Regime (SMCR) requires senior managers to be approved by the regulator and to have a statement of responsibilities; the insurer must assess the fitness and propriety of certified staff annually.

Model documentation should cover purpose, scope, data sources, assumptions, methodology, limitations, and validation; the documentation must be sufficient for an independent actuary to review and reproduce the results.

Deterministic vs. stochastic modelling: deterministic models produce a single outcome for a given set of assumptions; stochastic models produce a distribution of outcomes and are required for option pricing, guarantees, and capital modelling.

Monte Carlo simulation: the accuracy of the estimate improves with the square root of the number of simulations; the standard error of the estimate is the standard deviation divided by the square root of the number of simulations; variance reduction techniques (e.g., antithetic variates, control variates) can improve efficiency.

Assumption setting: assumptions should be based on the best available data, should be internally consistent, and should be reviewed regularly; the actuary must consider the sensitivity of the results to the assumptions and must disclose any material uncertainty.

Model validation: the actuary must test the model against independent data, against known results, and against expert judgement; the validation should cover the model's logic, its implementation, and its outputs.

Communication: the actuary must communicate the results clearly, including the key assumptions, the limitations of the analysis, and the sensitivity of the results to the assumptions; the report should be tailored to the audience and should avoid unnecessary jargon.

Peer review: the actuary should arrange for an independent peer review of material work; the review should cover the data, assumptions, methodology, and results, and the reviewer should document their conclusions.

Professional scepticism: the actuary should challenge the data and assumptions, should consider alternative explanations, and should not rely on a single source of evidence; the actuary should document the reasons for their conclusions.