IFoA CP1 key terms

A cyclical framework for actuarial work: define the problem, collect and analyse data, build a model, choose assumptions, interpret results, communicate advice, then monitor experience and feed it back into the next round.

The reasoned selection of assumptions, methods or recommendations in situations where data and rules do not determine a single answer, made transparently and defensibly by a qualified actuary.

A mandatory standard issued by the IFoA that binds members on specific topics such as peer review, reporting to the regulator, or the actuarial function, supplementing the Code of Conduct.

The IFoA's set of principles and rules governing members' behaviour, covering integrity, competence, communication, confidentiality and compliance, breach of which can lead to disciplinary action.

A standard issued by the Financial Reporting Council setting out principles for actuarial work in specified contexts, such as TAS 100 for general insurance and TAS 300 for pensions.

Independent scrutiny of another actuary's work before it is relied upon, checking data, methods, assumptions and documentation, required in certain contexts by professional standards.

Situations where a member's own interests, or duties to another party, could improperly influence their actuarial advice; they must be identified, disclosed and managed or avoided.

Reporting, internally or to a regulator, a genuine concern about wrongdoing or material risk that an actuary becomes aware of through their work, protected when done in the public interest.

The amount and type of risk an organisation is willing to accept in pursuit of its objectives, usually expressed through limits, tolerances and qualitative statements that guide decision-making.

The maximum risk an organisation can bear before its solvency, obligations or objectives are seriously threatened, a harder constraint than the softer, preference-based notion of risk appetite.

A structured record of identified risks, each with an owner, assessed likelihood and impact, existing controls and planned actions, reviewed regularly as part of risk management.

Action taken to reduce the likelihood or impact of a risk, such as diversification, reinsurance, hedging, controls or contingency planning, weighing cost against benefit.

Combining risks whose outcomes are not perfectly correlated so that total variability falls, reducing capital needs without necessarily reducing expected return.

Risk common to the whole market or economy that cannot be removed by diversification, such as interest rate shifts, inflation or pandemic events affecting many risks at once.

A measure of how two variables move together, ranging from minus one to plus one; used to model dependency between risks and to assess the benefit of diversification.

A mathematical function that links marginal distributions of individual risks into a joint distribution, allowing dependency structure to be modelled separately from the marginal behaviour of each risk.

A projection in which each input takes a single fixed value, producing one outcome path; simple and transparent but silent on the range of possible results.

A projection in which one or more inputs are random variables, producing a distribution of outcomes so that probabilities, percentiles and tail measures can be estimated.

A technique that repeatedly samples random values from input distributions, runs the model each time, and builds an empirical distribution of results for analysis.

Evaluating results under specified adverse or alternative sets of assumptions, often historical or hypothetical, to explore sensitivity and support risk discussions.

Assessing the impact of severe but plausible shocks to key assumptions, singly or in combination, to test resilience and inform capital and risk decisions.

Choosing the values for future experience drivers such as mortality, persistency, expenses and investment returns, using data, judgement and relevant benchmarks, and documenting the rationale.

Regular comparison of actual outcomes with the assumptions previously made, identifying sources of surplus or deficit and feeding corrections into future work.

The fitness of data for its intended use, judged on accuracy, completeness, consistency, timeliness and relevance; limitations must be understood and communicated.

Checks performed on data before use, such as reconciliation, range and consistency tests and investigation of outliers, to confirm it is suitable and to document adjustments made.

Presenting actuarial findings so the intended audience can understand and act on them, matching technical depth to the reader, explaining uncertainty, and stating key limitations and assumptions.

The written record of data, methods, assumptions, judgements and results sufficient for another competent actuary to understand and, if needed, reproduce the work.

The expected value of a future outcome given current information and assumptions, without deliberate margins for prudence or optimism.

An addition to or deduction from a best estimate intended to cover uncertainty and adverse deviation, reflecting the purpose of the calculation and the risk appetite of the user.

The amount of capital held in proportion to the risks actually borne, assessed through scenarios or models, rather than a flat percentage of a volume measure.

The regulatory amount of capital an insurer must hold to remain solvent under a specified confidence level over a specified period, usually one year.

Assets held in excess of those needed to meet liabilities and required capital, providing a buffer against adverse experience and supporting growth.

A life insurance contract where policyholders share in the insurer's profits through declared bonuses, typically with smoothing and some guarantee, creating discretion and communication challenges.

Selecting assets whose cash flows, term and sensitivity to interest rates and inflation align with those of the liabilities, reducing the risk of a funding shortfall.

Transfer of part of an insurer's risk to another insurer in exchange for premium, used to reduce volatility, increase capacity and support large or catastrophic exposures.

The risk of a single event or cluster of events, such as a storm or earthquake, causing very large aggregated claims, modelled with severity and frequency distributions and extreme value methods.

Provisions for claims incurred but not yet reported, plus development on reported claims, estimated using methods such as chain-ladder and Bornhuetter-Ferguson on historical triangles.

Estimating the ultimate cost of claims already incurred, using development patterns, expected loss ratios and judgement, and allowing for uncertainty in the resulting estimate.

A retirement arrangement promising benefits based on salary and service, so the sponsor or scheme bears investment and longevity risk and must fund a fluctuating liability.

A retirement arrangement where contributions are invested and the resulting fund provides the benefit, so the member bears investment and longevity risk.

The risk that people live longer than assumed, increasing the cost of pensions and annuities; it can be pooled, hedged or transferred but not eliminated.

The tendency for death rates at a given age to fall over time, modelled with projection scales or cohort effects when setting assumptions for long-term liabilities.

A contract paying a series of amounts, often for life, in exchange for a lump sum; the provider bears investment, longevity and expense risk.

The incidence and severity of illness or injury in a population, used to price and reserve for health and care insurance products such as income protection and critical illness cover.

Setting provisions for health and care contracts, allowing for claim incidence, recovery and relapse, deferred periods and the risk that experience deteriorates.

A life or investment contract where the policyholder's fund is invested in specified assets, so investment risk largely sits with the policyholder while the insurer bears expense and persistency risk.

The risk that policyholders lapse or surrender at different rates than assumed, affecting profitability, expense recovery and the value of future expected profits.

The risk that changes in interest rates alter the value of assets and liabilities, particularly where long-dated fixed liabilities are backed by assets of different duration.

Structuring an asset portfolio so its value and cash flows respond to interest rate changes in the same way as the liabilities, reducing surplus volatility.