IFoA CP1 cheat sheet

Actuarial Profession Standards (APSs) and Technical Actuarial Standards (TASs) are mandatory for members; TASs comprise TAS 100 (principles for technical actuarial work), TAS 200 (pensions), TAS 300 (insurance) and TAS 400 (funeral plans), issued by the FRC where relevant.

The Actuaries' Code rests on five fundamental principles: integrity, competence and care, objectivity, communication, and compliance; a breach can trigger disciplinary action by the IFoA's disciplinary scheme.

CPD is mandatory: members in Category 1 (or equivalent) must record at least 30 hours per year, of which a specified minimum must be verifiable, and maintain a reflective record.

Actuarial work must be objective: a conflict of interest must be disclosed and managed, and an actuary may refuse to sign off work where independence is compromised.

Whistleblowing duty: the Actuaries' Code requires members to report material breaches of professional or legal obligations, including to the IFoA where appropriate, even where client confidentiality would otherwise apply.

Peer review and the 'actuarial function holder' / 'with-profits actuary' / 'scheme actuary' roles impose statutory or regulatory sign-off duties beyond generic professional standards.

The UK regulatory architecture separates prudential regulation (PRA) from conduct regulation (FCA), with the IFoA as the professional body; EU/overseas regimes differ, so jurisdiction must be identified before applying rules.

Data protection, anti-money-laundering and market-abuse rules bind actuaries as regulated persons; a breach of these is a regulatory matter, not merely a professional one.

The actuarial control cycle has four stages: define the problem, develop the solution, monitor the experience, and (professionalism) repeat; it is iterative and applies to every practice area.

Stage 1 (problem definition) requires identifying stakeholders, the decision to be supported, the time horizon, and the constraints (capital, regulation, tax, market).

Stage 2 (solution development) selects assumptions, builds the model, and tests sensitivity; assumptions must be justified, documented and consistent with the business context.

Stage 3 (monitoring) compares actual against expected experience and feeds back into revised assumptions; a variance analysis separates model, parameter and random error.

External environment: economic (interest rates, inflation), social/demographic, regulatory, tax, and competitive factors all constrain the solution and must be explicitly considered.

Capital and solvency requirements (e.g. Solvency II SCR, or local equivalents) shape product design and the risk appetite of the insurer or scheme.

Stakeholder analysis: policyholders, shareholders, regulators, tax authorities and reinsurers may have conflicting objectives, so the recommendation must state whose interests are being served.

The control cycle is applied differently by practice area: pricing and reserving in general insurance, benefit design and funding in pensions, and asset-liability management in life insurance.

Risk is measurable variation around an expected outcome; uncertainty is a lack of knowledge about the distribution itself; the two require different treatments.

Risk taxonomy: market, credit, liquidity, insurance/underwriting, operational, and strategic risk; the enterprise risk management framework addresses all categories, not just insurable risk.

Risk appetite and risk tolerance must be defined by the board; limits, triggers and escalation routes operationalise them.

The risk management process: identify, assess/measure, manage (avoid, reduce, transfer, retain), monitor, and report.

Diversification reduces risk where risks are imperfectly correlated; correlation assumptions are themselves a major source of model risk and can break down in stress.

Stress testing and scenario analysis examine the tail; reverse stress testing identifies the scenario that breaches solvency or viability.

Risk mitigation tools include reinsurance, hedging, coinsurance, deductibles, and capital; each transfers risk at a cost and may introduce counterparty or basis risk.

Emerging risks (e.g. climate, cyber, longevity) may not be captured by historical data, so expert judgement and qualitative assessment are essential.

Data quality dimensions: accuracy, completeness, relevance, timeliness, consistency and granularity; limitations must be disclosed and their impact assessed.

Data checks include reconciliation to source, reasonableness tests, outlier detection, and checks on the run-off of claims or exposure.

Model selection balances accuracy against simplicity; the principle of proportionality applies, and complexity must be justified by materiality.

Deterministic models give single-point results; stochastic models give distributions and support risk measurement, capital and option pricing.

Sensitivity analysis varies one assumption at a time; scenario analysis varies several jointly; both are required to communicate uncertainty.

Assumption setting uses past data, external evidence, expert judgement and regulatory constraints; each assumption should be documented with its rationale.

Communication must be tailored to the audience: technical detail for peers, decision-focused summaries for the board, and clear disclosure of limitations and uncertainty.

Model risk management: model validation, independent review, documentation, and governance around model changes are expected for material models.

Main contract types: term assurance, whole life, endowment, annuities, unit-linked and with-profits; each has different risk profiles for insurer and policyholder.

Life insurance risks: mortality, morbidity, longevity, persistency (lapse), expense, investment and credit risk; longevity is the dominant risk for annuities, mortality for protection.

Pricing uses expected claims, expenses, commission, profit margin and a risk discount rate; the premium must cover the expected cost plus a margin for risk and profit.

Reserves are the actuarial liability for future obligations; they depend on valuation assumptions (mortality, interest, expenses) and must be prudent under regulation.

With-profits business involves smoothing, bonuses (reversionary and terminal), and the estate; the with-profits actuary must ensure fair treatment of policyholders.

Unit-linked business passes investment risk to the policyholder but retains expense, persistency and operational risk for the insurer.

Asset-liability management matches asset cash flows to liability cash flows; duration, convexity and cash-flow matching are key tools.

Regulatory capital (e.g. Solvency II SCR) must cover unexpected losses over a one-year horizon at a specified confidence level (99.5% in Solvency II).

General insurance covers short-term, often annual, contracts; claims may be reported long after the premium is earned, creating reserving risk.

Premium rating uses frequency and severity: expected loss cost = frequency × severity, plus expenses, commission, profit and risk margin.

Claims reserving methods include chain-ladder (development factors), Bornhuetter-Ferguson (combines reported and expected), and expected loss ratio; each has different assumptions.

IBNR (incurred but not reported) reserves must be estimated; the reserving actuary assesses development patterns and tail factors.

Reinsurance (quota share, surplus, excess of loss, stop loss) reduces volatility but introduces counterparty and basis risk.

Catastrophe risk requires extreme value theory, cat models and scenario analysis; historical data alone is insufficient for tail events.

Underwriting cycle: soft markets compress margins, hard markets expand them; reserving must anticipate cycle effects on claims inflation.

Key ratios: loss ratio (claims/premium), expense ratio, combined ratio (loss + expense); a combined ratio above 100% indicates an underwriting loss.

Defined benefit (DB) promises a benefit based on salary and service; defined contribution (DC) provides a pot whose value depends on contributions and investment returns.

DB funding requires an actuarial valuation: assets versus liabilities, with assumptions on discount rate, mortality, salary growth and inflation.

The scheme actuary's role includes statutory valuations, funding certificates, and advising the trustee board; the actuary must report to the regulator where required.

Funding risks: longevity, investment, inflation, salary growth and sponsor covenant; the employer covenant is central to DB security.

DC risks fall on the member: investment risk, longevity risk and conversion risk at retirement; default funds and lifestyling are key design tools.

Pension accounting (IAS 19 / FRS 102) uses a corporate bond discount rate and recognises surpluses/deficits on the balance sheet.

Buy-ins and buy-outs transfer DB risk to an insurer; the pricing depends on the scheme's liability profile and asset backing.

Regulatory regimes differ (e.g. UK Pensions Act funding requirements, TPR codes); cross-border schemes must satisfy host and home state rules.

Health and care products include private medical insurance (PMI), critical illness, income protection, and long-term care; each has distinct morbidity and claims patterns.

PMI claims experience is driven by age, medical inflation, provider costs and utilisation; medical inflation often exceeds general inflation.

Critical illness pricing depends on incidence rates, definitions of covered conditions, and the risk of anti-selection.

Income protection requires assumptions on morbidity, recovery, termination and occupation class; deferred periods affect claim duration.

Long-term care risk is dominated by longevity, disability incidence and the cost of care; it is long-tailed and highly uncertain.

Investment principles: risk and return are related; diversification reduces unsystematic risk; the efficient frontier shows optimal portfolios.

Asset classes include equities, bonds, property, cash and alternatives; each has different return, volatility and liquidity characteristics.

Asset-liability matching and the matching of assets to the liability profile are central to investment strategy for insurers and pension schemes.