LFV-C Sample Study Guide

Transcription

1 LFV-C Sample Study Guide You have downloaded a sample of our Spring 2015 ILA-LFV-C study guide. The full version covers the entire syllabus and is included with the online seminar. Each portion of the detailed study manual is available in DRM-free PDF, which can be printed or used in your favorite desktop, tablet, or smartphone PDF viewer. Though not shown in the sample material, we also offer a highly condensed version of the detailed study manual (the condensed outline mentioned in the product description). The condensed outline is in the same format as the detailed study manual. If you have additional questions about the detailed study manual or any aspect of the exam, please us. Peter Chong, FSA, MAAA peter@theinfiniteactuary.com J. Eddie Smith, IV, FSA, MAAA eddie@theinfiniteactuary.com 2015 The Infinite Actuary, LLC

2 The Infinite Actuary s Detailed Study Manual for SOA Exam ILA Life Finance and Valuation (Canada) Introduction to ILA-LFV-C The ILA-LFV material is challenging to learn, and the exam is challenging to pass. There is a great deal of material, some of which is difficult. There, unfortunately, are lots of ideas that require some memorization. Unlike the material in some of the preliminary SOA exams, the ILA-LFV material will be important for many of you to learn in order to effectively do your job. The syllabus is updated annually (sometimes more often) to reflect industry changes that impact the world of valuation and financial reporting. But don t worry! People actually do pass this exam many of them on their first attempt. Effectively using this study manual with our online seminar will help you focus on the most important concepts needed to pass. About this Study Manual If you start early enough (3-4 months before the exam), I highly recommend reading the source material at least once yourself. As you go through the material, I recommend reviewing this study manual to focus on the most exam-relevant topics. Some of the readings are very difficult to absorb on the first attempt. The study manual will help you pick out important information more quickly. This study manual is organized in exactly the same order as the study schedule included with the online seminar, which is not necessarily the same order as the official syllabus. The layout of the seminar reflects what I believe is the most logical order for learning the material start to finish: 2015 The Infinite Actuary ILA-LFV-C Study Guide Introduction

3 A. Valuation and Financial Reporting B. Reinsurance C. RBC and Economic Capital D. Financial Management and Value Creation E. Emerging Standards F. Professional Standards Section A is mostly a blend of the first 2 syllabus sections: 1) Financial Reporting and 2) Valuation. Many financial reporting concepts are tied closely to valuation concepts, and I feel the most efficient use of your time is to learn them together. Section A has been further subdivided into two primary subtopics: Canadian Valuation and Canadian Tax Topics. I strongly recommend pushing through the material at an even, steady pace so that you get through the entire course months prior to the exam date. At that time, you can return to any other part of the course you need to revisit. You will be surprised at how much easier the material is on the second pass. Remember, this is more of a marathon than a sprint. It s an endurance test that requires a multi-month commitment to learning the exam curriculum. Using this Study Manual with the Online Seminar This study manual is just one component of our ILA-LFV online seminar, which also includes video lessons and condensed outlines for all of the syllabus material, practice problems, commentary on previous SOA exams, and flash cards. This manual is specific to the Canadian syllabus and covers all readings on the Canadian syllabus. The advantage of an all-in-one package like the one we offer is that everything is integrated. You can think of this study manual as a highly detailed foundation for the video lessons, which focus more on the 10,000 foot view of each reading and provide illustrative examples with our commentary. Some things are just easier to explain verbally, after all. Some students prefer to go through the videos as they go through the material, while others prefer to get through the material on their own first, then use the videos for review. Do whatever feels the most natural for you The Infinite Actuary ILA-LFV-C Study Guide Introduction

4 Good Luck If you study regularly and put in the time, you will be amazed at how much material you can pack into your head by exam day especially if you prioritize concept learning over memorization. That said, a good deal of memorization is needed. Use the condensed lesson handouts and flash cards as a guide for that. And remember one of the most important features of our online seminar is customer support. Our course forum is a great place to post questions about any of the material because it gives other students a chance to answer and see answers. You can also me anytime with any questions. Your Instructors, Peter Chong, FSA peter@theinfiniteactuary.com J. Eddie Smith, IV, FSA, MAAA eddie@theinfiniteactuary.com Acknowledgements I would like to thank Anita Solow, FSA, MAAA, the previous TIA ILA-CSP instructor, for creating much of the foundation for this study manual The Infinite Actuary ILA-LFV-C Study Guide Introduction

5 Canadian Valuation Aggregation and Allocation of Policy Liabilities Aggregation and Allocation of Policy Liabilities Source: CIA Educational Note: Aggregation and Allocation of Policy Liabilities Advantages and Disadvantages of Aggregating Portfolios Advantages o Recognizes permanent synergies o Reflects interest rate risk of whole company/group Disadvantages o Difficult to identify temporary synergies o Additional volatility as temporary synergies appear/disappear Considerations for Determining the Appropriate Level of Aggregation Asset-liability management practice o Insurers typically break asset portfolio into segments o Characteristics of asset segments Specifically identified assets Separate investment strategy Investment income determined from segment Persistency of interest rate risk synergies o Issues the actuary would consider Practice of offsetting portfolio mismatch between opposing portfolios E.g. short life insurance portfolio used to fund a long annuity portfolio Permanency of offsets Whether funds can flow freely between portfolios o Permanent consistently observed over time and expected to persist with reasonable confidence o Temporary not expected to be sustainable o Should assume asset portfolio positions reverse when expected o Example Because portfolios 2 and 3 have a more stable mismatch provision historically, they are considered to have permanent synergies with each other Portfolio is less consistent with its mismatch, so the higher mismatch provision is chosen for conservatism Idea is that if we chose the best result (scenario 1), that benefit may go away next period Aggregation to Take into Account Other Synergies Different risks should be considered in the aggregate 2015 The Infinite Actuary, LLC ILA-LFV-C Section A Page 36

6 Canadian Valuation Aggregation and Allocation of Policy Liabilities E.g. if a subset of a life block is reinsured, the subset will probably need a negative MfAD but the remaining policies will likely need a positive MfAD o Probably more appropriate to set an overall MfAD Reasons Allocations may be Required Reporting or filing requirements o Reporting by LOB o Identification of impact of assumption changes by product line o Reporting negative policy liabilities and cash value deficiencies by policy o Identification of new business liabilities o Regulatory capital reporting Mortality, morbidity, C-2, C-3, and lapse risk components of liabilities o Tax purposes: pre-1996 vs. post 1995 business CALM needs o Determining sign of margins o Projecting tax liabilities to determine future tax cash flows Other needs for allocation o Profitability analysis/reporting by LOB o Source of earnings analysis o Embedded value analysis o Policy-level detail for audit purposes Characteristics of a Good Allocation Method Reflects basic characteristics and risks of policies being valued Reflects characteristics of assets backing policies Reasonably simple to apply Allows for a reasonable projection of policy liabilities o For DCAT, EV, etc. o Should result in total liabilities similar to CALM result Produces consistent results when used for different purposes in successive periods Allocating Interest Rate Provisions to Segments or Portfolios Principles of a reasonable allocation method o C-3 provision of each portfolio is positive o Reflects relative interest rate risk among portfolios o Method is consistent over successive reporting periods Example of allocation approaches 2015 The Infinite Actuary, LLC ILA-LFV-C Section A Page 37

7 Canadian Valuation Aggregation and Allocation of Policy Liabilities Company total allocation o P1: 10/560 * 145 o P2: 250/560 * 145 Alternate o P1 = 10 o P2: 250/( ) * (160 10) Review of Potential Allocation Methodologies within a Segment or Portfolio Should consider that policy liabilities are issued at different times o Assets will have different yields o Can distort reported earnings if assume same return for all Use of interest rate vectors o Base scenario portfolio rates o Pricing interest rates o Margin can be added to above interest rates to reproduce CALM result 2015 The Infinite Actuary, LLC ILA-LFV-C Section A Page 38