pwc aims acutarial assurance roles
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Ralph Richards PwC work experience 2015 13/08/2015
WEx Actuarial Services Overview Ralph Richards. Work Experience team: Freddie, Ralph, Zak, Dean
Introduction During our work experience, we held meetings with numerous employees in the Assurance & AIMS
department of PWC at the More London office to gain an overview of the department, and learn about
the different roles in the department.
This document contains notes made from each meeting, with additional notes from further research.
Overview An actuary is a business professional who deals with the measurement and management of risk and
uncertainty. Actuaries provide assessments of financial security systems, focussing on complexity
mathematics & mechanisms.
Being an actuary requires analytical skills, business knowledge, an understanding of human
behaviour, and an understanding of information systems in order to design and manage programs
that control risks.
Pensions, Longevity Employee: Jia Hui Neo
Defined Benefit pensions
o The pensioner receives a set amount of income monthly
3 layers of pensions
o State Pension
o Occupational pension provision
Defined benefit
Defined contribution
o Personal pension provision
Main role: estimating how long general population (customers) will live for
Reserving, General Insurance Employee: Sheena Suchak
Predicting how the claims & losses are going to develop
o E.g. predict how much the company will have to pay out to insurance claimers
Many claims are incurred but not reported
o Predict the unreported incurred claims
Reserves correct amount of money to pay out the expected claims
o i.e. making sure the insurance company has enough cash to pay out
Independent Model Validation, AIMS, Actuarial Associate
Consultant, General Insurance Employee: Giustin Leonidou
IMV, Independent Model Validation
o Integral component of model risk management
o Important due to heavy regulations
Ralph Richards PwC work experience 2015 13/08/2015
Solvency II
o Regulating how much capital insurance companies must hold to avoid insolvency.
Insurance companies required to hold a buffer called SCR on top of best
estimate of liabilities
This is to ensure they have enough capital
This capital tied up in the buffer cannot be invested, so companies aim to
hold as little as they possibly can
Can either calculate the capital they hold using
o A standard formula
one size fits all, every insurance company puts in data and returns how much
capital they need to hold
o Create their own model
and have it validated by an independent auditor (PwC!)
AIMSActuarial & Insurance management Solutions
o Solvency, reserving, economic capital, risk management, mergers & acquisitions,
company restructuring, de-risking, financial modelling, underwriting, new legislation,
viability of new products, efficiency of claims, reporting processes
Ralph Richards PwC work experience 2015 13/08/2015
Corporates, Principal Consultant Daniel Zubaida (Non-Insurance)
Focus on gaining companies value for money
o cost cutting
Example of work
o Reducing health inequality
o Redistribute resources within the NHS
o Improving efficiency
o Cutting cost
Excel, research, researching relative risks,
SAS – mega database management software
Dealing with pure corporates
o Non-financial
o e.g. BP
Solvency II
o European wide insurance regulation
Stochastic modelling
o A method of financial modelling in which one or more variables within the mode are
random
o Used for the purpose of estimating the probability of outcomes within a forecast to
predict what conditions might be like under different situations
o Random variables are usually constrained by historical data (e.g. past market returns)
Comes up with solutions to problems
Ralph Richards PwC work experience 2015 13/08/2015
IFRS, Life Audits, Life Insurance Employee: Jokoll Mendy
IFRS
o International Financial Reporting Service
o A set of international accounting standards
o Rules and guidelines governing the reporting of different types of transactions and
events in financial statements
o States how particular types of transactions and other events should be reported in
financial statements
o Aims to make international comparisons as easy as possible
o Issued by the International Accounting Standards Board
Audit
o Official inspection of an organizations account
o Conduction or an official financial inspection of a company and its accounts
o Make sure records are fair and an accurate representation of the transactions they
claim to represent
o By an independent body
o Side off accounts that insurance companies issue to market
o Profit loss statements and balance sheets.
Signing off
o Happy with the data & model that has been used to calculate the numbers.
Giving an opinion as a professional firm that the numbers are a good representation of the
company.
Assumptions must be realistic.
Ralph Richards PwC work experience 2015 13/08/2015
Catastrophe Risk, Solvency, Non-Life Reserving, General
Insurance Employee: Graham Hall
Catastrophe (Cat) Modelling
o Process of using computer assisted calculations
o Estimating the losses that could be sustained due to a catastrophic event
o Evaluating potential and probability of risk and financial loss from natural hazards
o Essential data for
Global & regional insurers
Reinsurers, brokers, financial markets, corporations
o Catastrophic event
Hurricane, Earthquake, etc…
What type of engineering damage would be caused by a natural disaster
What would be involved in a repair
Law of large numbers used
o A principle of probability and statistics
o As a sample size grows
o It’s mean will get closer to the average of the whole population
Reinsurance
o Insurance Companies purchase insurance themselves to spread the risk
o Especially when lots of claims from many policies sold
o Risk sharing
CAT modelling companies used in the market
o EQE
o AIR
o RMS
Damage curve
o e.g. for a hurricane
o x: wind speed
o y: loss caused
Ralph Richards PwC work experience 2015 13/08/2015
Asset Liability management, Life Insurance Employee: Nicola Kenyon
The practice of managing risks that arise due to mismatches between assets and liabilities
Involves risk management and strategic planning
Aims to maximise assets to meet complex liabilities increasing profitability in long term
Helps customers understand their risks
Helps customers understand solutions to risks
Liabilities
o The state of being legally responsible for something
o E.g. owe money
Liabilities management
o Use and management of liabilities, such as
Money from depositors
Funds secured from institutions
o To facilitate lending and allow for balanced growth.
o Hedging against changes in interest rates and controlling the gap between the
maturities of assets and liabilities
Manage assets to match liabilities
o Income must be greater than expenditure
o Assets must be greater than liabilities
Life insurance
o Income is fixed stream of cash flows.
o Accumulated money is used to buy bonds/equities/cash, e.g. 20 year bond.
The income from the bond is certain, however customer’s death is uncertain
o Liabilities are uncertain
o Liabilities are unmatched.
Bonds are more secure than equities
o More risk, more potential gain
Many constraints
o Regulator
o Shareholder
Many risks
o Mortality risk - predicted with average rates
o Economic risks
o Life insurance risks - customers recall money
o Liquidity risks
Think about all constraints and choose an investment strategy to reduce risk and satisfy
stakeholders
Derivatives
o Originally used to ensure a balanced exchange rate for goods traded internationally
o Used to reduce / hedge risk
Ralph Richards PwC work experience 2015 13/08/2015
Hedging is a strategy that helps an investor reduce the risk he or she takes on
an investment
o A contract between two or more parties
o Derives its value from the performance of an underlying entity.
Asset, index or interest rate
o Used for insuring against price movements (hedging)
o Used for increasing exposure to price movements for speculation
o Used to get access to otherwise hard-to-trade assets or markets
o Common derivatives
Forwards
Futures
Options
Swaps
o Equity derivatives provide the right to buy or sell stock at certain price
Call (buy), Put (sell)
Certain quantity of stock
1 contract = 100 shares of stock
At a strike price (set price)
Before a certain expiration date
Black-Scholes
o A mathematical model of a financial market
o A model of price variation over time of financial instruments such as stocks
o Black-Scholes formula derived from the model
o Yields prices very close to the observed market prices
o Necessary inputs
Underlying stocks price
Options strike price
Time to the options expiry
Volatility of the stock
Time value of money (risk free interest rate)
o Ignores dividends paid during the life of the option
o helps with pricing of derivatives http://www.bbc.co.uk/news/magazine-17866646
Notes Solvency, in finance or business, is the degree to which the current assets of an individual or entity
exceed the current liabilities of that individual or entity. Solvency can also be described as the ability
of a corporation to meet its long-term fixed expenses and to accomplish long-term expansion and
growth.