IAI SA3 flashcards

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IAI SA3

A specialist-level examination of the Institute of Actuaries of India that tests applied actuarial judgement in a defined practice area, requiring structured, scenario-based answers rather than recall alone.

Actuaries Act 2006

Indian statute establishing the Institute of Actuaries of India and regulating the actuarial profession, including eligibility to act as an actuary and professional-conduct obligations.

IRDAI

The Insurance Regulatory and Development Authority of India, which sets solvency, reserving, pricing, and conduct rules for Indian insurers; specialist answers should cite the relevant regulation.

Professional conduct principles

Core duties of integrity, competence, confidentiality, and objectivity owed by an actuary; they apply to all advice, including internal work not directly seen by a client.

Recommendation structure

A defensible answer states the objective, lists options, sets criteria, evaluates each option against the criteria, gives a recommendation, and records limitations and assumptions.

Marks-proportional depth

Exam technique in which the length and depth of an answer are matched to the marks available, so a high-mark question receives full analysis and a low-mark one a concise point.

Stated assumption

An explicit, defensible assumption made when a scenario is under-specified, allowing the answer to proceed while flagging what information would change the conclusion.

Data-quality checks

Tests of completeness, consistency, accuracy, and credibility applied to data before analysis; anomalies must be investigated and their treatment disclosed in the answer.

Chain-ladder method

A claims-reserving technique that projects ultimate losses using historical development factors; it assumes past development patterns continue, so it is unreliable on immature or unstable data.

Bornhuetter-Ferguson method

A reserving method blending an expected loss ratio with actual reported claims, weighting the expectation heavily when data are immature; useful for new or volatile lines.

Gross-to-net bridge

The reconciliation from gross premium or gross claims to the net retained amount after reinsurance, showing ceded amounts, reinstatement costs, and retained exposure.

Risk taxonomy

A standard classification of risks into insurance, market, credit, liquidity, operational, and strategic categories, used to ensure no material risk is omitted from an analysis.

Credibility weighting

The blend of an insurer's own experience with a broader benchmark, where the weight on own experience rises with the volume and stability of that experience.

Discount rate consistency

The principle that a discount rate must match the currency, duration, and risk of the cash flows being discounted; mismatched rates produce meaningless present values.

Adverse scenario testing

Re-running a calculation under at least one unfavourable set of assumptions to show how the result deteriorates, which a single central estimate cannot reveal.

Peer review

Independent checking of a material actuarial judgement by a suitably qualified second person before it is relied upon or issued to a client or regulator.

Reinsurance decision rule

Cede risk when the reinsurance cost is below the risk-adjusted value of the capital and volatility released; retain when the reinsurer's loading exceeds that value.

IFRS 17 risk adjustment

The compensation an insurer requires for bearing the uncertainty in insurance cash flows; it is not a prudential solvency margin and is reported separately from the best estimate.

IFRS 17 measurement models

The general measurement model, the premium allocation approach for short-duration contracts, and the variable fee approach for direct-participating contracts; the choice must be justified.

Embedded value

The sum of free surplus, required capital, and the present value of in-force business; it measures shareholder value and is reported alongside, not instead of, statutory results.

Solvency ratio

Available solvency margin divided by required solvency margin, expressed as a percentage; Indian regulation prescribes a control level that insurers must exceed.

Profit testing

Projecting premiums, claims, expenses, reserves, and tax to derive the net cash flows to shareholders, then reporting both the internal rate of return and net present value.

Asset-liability management

The coordinated management of asset and liability cash flows by duration, currency, and interest-rate sensitivity to limit the impact of market movements on surplus.

Policyholder versus shareholder tax

The distinction between tax borne by the policyholder fund and tax borne by shareholders; every reported figure must state which basis it uses.

Reserving diagnostics

Periodic comparison of actual versus expected claims development; a persistent one-way deviation indicates a change in settlement patterns or case-reserving practice.

Large-loss treatment

Separating large individual claims from attritional claims in analysis, and stating whether each is included, because a single large loss can distort a loss ratio.

Capital allocation methods

Techniques such as marginal or Euler allocation that distribute diversified capital to lines; the result depends on the chosen method and is not unique.

Back-testing

Comparing earlier projections with subsequently emerging experience to validate, recalibrate, or reject a model before it is relied upon.

Uncertainty types

Parameter uncertainty (estimated inputs are wrong), model uncertainty (the structure is wrong), and process uncertainty (random variation); each requires different treatment.

Stakeholder analysis

Identifying policyholders, shareholders, regulators, reinsurers, and distributors, and stating explicitly when a recommendation favours one group at the expense of another.

Conflict of interest

A situation where the actuary's personal or firm interest could bias the advice; it must be declared, and if unmanageable, the engagement declined or escalated.

Whistleblowing duty

The obligation to report a suspected legal or regulatory breach to the appropriate authority, which overrides client confidentiality when the public interest requires disclosure.