IAI SA1 flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Statutory Funding Objective

The requirement under the Pensions Act 2004 for trustees of defined benefit schemes to have sufficient and appropriate assets to cover the scheme's technical provisions, calculated on a prudent basis.

Technical Provisions

The amount required, on an actuarial calculation, to make provision for the scheme's liabilities, calculated on a prudent basis and including an allowance for future expenses and any other relevant factors.

PPF compensation cap

The maximum annual compensation payable by the Pension Protection Fund to members below normal pension age, set at 90% of the capped pension, with the cap increasing with age and service.

Scheme Actuary duties

The Scheme Actuary must prepare the actuarial valuation, the Schedule of Contributions, and the Statement of Funding Principles, and must report to the Pensions Regulator if the employer fails to meet the schedule.

Buy-in versus buy-out

A buy-in is a bulk annuity purchased by the trustees as a scheme asset, while a buy-out transfers the liabilities to the insurer and is typically more expensive because it includes a full risk transfer.

Auto-enrolment minimum contributions

The minimum total contribution is 8% of qualifying earnings, of which at least 3% must come from the employer, with the balance from the employee and tax relief.

With-profits estate

The excess of the with-profits fund's assets over the sum of asset shares plus the regulatory surplus; it is used to provide smoothing and to support the fund's solvency.

Asset share

The accumulated value of a with-profits policyholder's premiums, net of charges and claims, accumulated at the fund's investment return and adjusted for any cross-subsidy.

Guaranteed annuity option

A guarantee that allows the policyholder to convert the fund value into an annuity at a guaranteed rate; the insurer must reserve for the cost using option-pricing techniques.

Critical illness definition set

The list of conditions and severity levels that trigger a claim; broader definitions increase claim incidence and therefore the premium, and must be reflected in the reserving basis.

Income protection deferred period

The waiting period before benefit becomes payable; a longer deferred period reduces claim incidence and duration and therefore reduces the premium.

Longevity risk

The risk that annuitants live longer than assumed, increasing the cost of annuity payments; the insurer must reserve for future mortality improvement and hold capital against it.

Morbidity improvement risk

The risk that the incidence or duration of illness changes over time; the insurer must reserve for this risk in long-term care and income protection products.

Modified duration

A measure of the percentage change in a bond's price for a small parallel shift in yields; it equals Macaulay duration divided by (1 + yield/k) for k coupons per year.

Convexity

The second-order price sensitivity of a bond to yield changes; positive convexity means the price gain from a fall in yields exceeds the loss from an equal rise in yields.

Immunisation

A strategy that matches the duration and present value of assets to liabilities, protecting against small parallel shifts in yields but not against non-parallel shifts or changes in liability timing.

Cash-flow matching

A strategy that aligns asset cash flows exactly with liability outflows, eliminating interest rate risk at the cost of a potentially more expensive and less liquid portfolio.

Expected credit loss

The product of probability of default, loss given default, and exposure at default; credit spreads reflect expected loss plus a risk premium for bearing credit risk.

Liquidity stress test

A test of the insurer's ability to meet cash outflows under adverse scenarios, such as a mass lapse or a collateral call, without forced asset sales.

Economic scenario generator

A model that produces stochastic paths for economic variables such as interest rates, inflation, and equity returns, calibrated to market data for use in ALM and capital modelling.

Solvency II risk margin

A margin added to best-estimate liabilities, calculated as 6% of the cost of capital multiplied by the projected SCR for non-hedgeable risks over the run-off of the liabilities.

SCR calibration

The Solvency Capital Requirement is calibrated to a 99.5% one-year Value-at-Risk, meaning the insurer should be able to meet its obligations with a 99.5% probability over one year.

ORSA

The Own Risk and Solvency Assessment requires the insurer to assess its overall solvency needs, its compliance with capital requirements, and the significance of deviations from the SCR assumptions.

Use test

The requirement under Solvency II that an internal model is actually used in the insurer's risk management and decision-making, not merely for regulatory capital calculation.

Risk appetite statement

A Board-approved statement defining the insurer's tolerance for each risk category, expressed in quantitative limits such as an SCR coverage ratio and cascaded into business unit limits.

Model validation

An independent assessment of a model's logic, implementation, and outputs against independent data and expert judgement, required for internal models under Solvency II.

TPR moral hazard powers

The Pensions Regulator's powers to issue Contribution Notices, Improvement Notices, Financial Support Directions, and Clearinghouse Orders against employers and connected parties.

FCA Consumer Duty

A regulatory requirement for firms to act to deliver good outcomes for retail customers across products and services, price and value, consumer understanding, and consumer support.

Actuaries' Code

The Institute and Faculty of Actuaries' professional standards covering integrity, competence and care, compliance, and communication, binding on all members.

TAS 300

The Technical Actuarial Standard for insurance, requiring actuaries to document data, assumptions, and methodology, and to report results clearly to the intended user.

Monte Carlo standard error

The standard deviation of the simulated estimate divided by the square root of the number of simulations; accuracy improves with the square root of the number of simulations.

Antithetic variates

A variance reduction technique that pairs each simulated path with its mirror image, reducing the standard error of the estimate without increasing the number of simulations.