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IFoA SA3 study materials
IFoA SA3 study resources

IFoA SA3: General Insurance (SA3): Applied Judgement Across the Value Chain

IFoA SA3 · Work through your exam, one topic at a time.

All guide sections

General Insurance (SA3): Applied Judgement Across the Value Chain

IFoA SA3 General Insurance tests how well you apply general insurance principles to realistic business decisions. The exam rewards structured reasoning, quantified estimates and clear communication to a board or regulator, not rote recall.

Pricing, reserving and reinsurance

  • Pricing builds up expected claims (frequency × severity), expenses, reinsurance cost, cost of capital and profit; it must reflect exposure, claims inflation, large-loss loadings and catastrophe risk.
  • Technical provisions are a best estimate of future claim payments plus a risk margin. The best estimate should be discounted and include IBNR, ULAE and reinsurance recoveries, net of counterparty default risk.
  • Reserving methods: chain ladder for stable development; Bornhuetter–Ferguson when development is immature; frequency–severity for large or low-volume portfolios. Back-test and challenge assumptions.

Capital and regulation

  • The SCR is a 99.5% one-year VaR; the MCR is a lower floor. Internal models need validation, documentation and a use test.
  • PRA/FCA dual regulation covers prudential soundness, Consumer Duty, pricing practices, claims handling, Solvency UK and IFRS 17.
  • Reinsurance structures (quota share, surplus, excess of loss, stop loss) change net risk, capital and wording risk.

Worked example

A motor portfolio has cumulative paid claims of 400 at 12 months, 500 at 24 months and 560 at 36 months. Development factors are 500/400 = 1.25 and 560/500 = 1.12. A new cohort has 600 paid at 12 months, so projected ultimate = 600 × 1.25 × 1.12 = 840 and IBNR = 240. Reasoning: the factors assume historical development patterns persist; check for large claims, case-reserving changes, inflation and mix shift before using the result.

Traps that cost marks

  • Quoting IBNR without separating case reserves and ULAE.
  • Ignoring reinsurance recoveries, discounting or default risk.
  • Treating the risk margin as part of the best estimate.
  • Using a standard formula or model output without challenging its limitations.
  • Failing to link pricing assumptions to reserving and capital.