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AC - CP1 – PNRB – 19

Subject CP1
Revision Notes
For the 2019 exams

Introductory Guide

To get the most from your revision, please read this

Introductory Guide before reading the Revision Notes booklets

The Actuarial Education Company

ISBN 313-1-3201-9202-5

3BDLNMA*bjcacf+
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CONTENTS

Contents Page

How to use the Revision Notes 2

Five habits of highly effective students 4
Links to the Course Notes and Syllabus 7
Overview 9
Brainstorm 11
Core Reading Questions 12
Solutions to Core Reading Questions 13
Past Exam Questions 16
Solutions to Past Exam Questions 15
Final Comments 16
Exam Preparation Checklist 17
Feedback 20

Copyright agreement

All of this material is copyright. The copyright belongs to Institute and

Faculty Education Ltd, a subsidiary of the Institute and Faculty of Actuaries.
The material is sold to you for your own exclusive use. You may not hire
out, lend, give, sell, transmit electronically, store electronically or photocopy
any part of it. You must take care of your material to ensure it is not used or
copied by anyone at any time.

Legal action will be taken if these terms are infringed. In addition, we may
seek to take disciplinary action through the profession or through your
employer.

These conditions remain in force after you have finished using the course.

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HOW TO USE THE REVISION NOTES

About the Revision Notes

These Revision Notes have been designed to help you to prepare efficiently
for Subject CP1. This Introductory Guide has been written to make sure that
you make the most of the other Subject CP1 booklets.

The Revision Notes are particularly suitable for retakers, but can also be
used by first-time sitters who have worked through the ActEd Course Notes
thoroughly. The booklets do not explain the concepts behind the Core
Reading – you should refer to the ActEd Course Notes if any of the points
made are unclear.

Much of the design of these Revision Notes is based on feedback from

students who told us what they would find most useful in the run-up to the
exams. We’ve split the Subject CP1 course into 10 separate booklets.

Each booklet covers material relating to a key theme and is designed to be

small enough to be carried conveniently and read frequently in the final
weeks before the exam, eg when commuting to work. We hope that you will
personalise your Revision Notes by adding your own comments and notes,
and ticking each section when you feel confident with the material covered.

The booklets bring together a useful summary of all the information you
should need to complete your exam preparation, including:
 full Core Reading and a set of integrated short questions to test your
bookwork knowledge
 a comprehensive list of past exam questions from 2008 to 2017 relating
to the topics covered by each booklet, with a summary of the main
points of each solution
 other useful revision aids (eg brainstorms and acronyms) designed to
help you generate ideas in the exam.

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About this Introductory Guide

This Introductory Guide contains information about the content and

objectives of the other Revision Notes booklets. The key features of this
guide are as follows:

 This guide is devoted to explaining how to use the other booklets

efficiently. This advice is presented in a box at the top of each page
with the heading Your guide to the Revision Notes.

 The guide also contains important advice on exam skills. This advice is
presented later in this section and in boxes throughout the booklet with
the heading Exam hints.

 We’ve kept the format of this booklet as similar as possible to the others
so that you quickly become familiar with how the material is presented.
Because there is no Core Reading nor Past Exam Questions included in
this guide, it does not include some of the features found in the other
booklets. It does however include a full description of what you’ll find in
the other booklets and how to use them efficiently.

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FIVE HABITS OF HIGHLY EFFECTIVE STUDENTS

This section contains advice to help you maximise your chances of passing
the Subject CP1 exam by preparing well and using your time efficiently in the
exam room.

1. Study actively

When studying, your aim must be to understand and remember the material
before you. You’ll only achieve this if you are focused on the task in hand.
Study when you feel alert and enthusiastic. When your mind wanders,
spend your time doing the other jobs that you have to squeeze into your
busy life and come back to your studying when you’re able to concentrate.

Study actively by thinking about what you are reading and attempting exam
questions under exam conditions before looking at the solutions. By doing
so, you’ll learn more in a shorter space of time and have more free time for
other things. That’s got to be worth the effort.

2. Leave enough time for revision and past exam questions

Whether you pass or fail depends on how well you can answer a small
number of questions in the exam(s). It's vital that a good proportion of your
study time is devoted to practising exam-style questions.

Reading the Course Notes is simply a stage in your study that needs to be
completed before you can start to attempt exam-style questions properly.
Do not allow your reading of the Course Notes to dominate your study time.
Most students find the Course Notes to be easy to understand and even
comment that they state the obvious. The key to scoring well in the exam is
to be able to identify how each question relates to the Course Notes.

For example, the chapter on overseas markets discusses the problems with
overseas investment, such as additional tax and currency fluctuations. The
points discussed are all fairly straightforward but beware – there's a big
difference between understanding the ideas and being able to generate
them quickly in the exam. The key skill is to be able to apply these factors to
questions that are not asking for them directly.

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For example, when an exam question includes the word ‘overseas’ or

‘international’ or ‘foreign’, there’s likely to be a mark for mentioning the
problems with (and also possibly the advantages of) overseas investment.
You’ll develop the ability to generate ideas in this way more efficiently by
practising exam questions than by reading the Course Notes over and over
again.

Work through the Course Notes carefully but aim to start revising (including
practising lots of past exam questions) at least 6-8 weeks before the exam.

3. Set clear objectives and stay motivated

You’ll need to be very self-disciplined to work through the course carefully

and practise an adequate number of past exam questions in the time
available. You’ll need to use your time efficiently.

At the start of every study session, set objectives so that you don’t find
yourself just studying for the sake of it. Set yourself a clear goal to complete
some key tasks on your study plan. Knowing why you are studying (and
how it will improve your chances in the exam) will help to keep you motivated
and focused.

At the end of every study session, spend a couple of minutes reviewing what
lessons you have learnt. Try to write out a list of 5 or 10 facts that you didn’t
know at the start of the study session. You can use this list as a useful
revision aid and, once again, knowing that the study session has improved
your chances in the exam will help to keep you motivated and focused.

Stay motivated. Think about results day. Remember that doing 90% of the
effort required to pass achieves nothing. Doing 110% is better!

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4. Identify your strengths and weaknesses

You’ll only increase your chances of passing by identifying your weaknesses

and working hard to improve before the exam. The best way to identify your
weaknesses is to practise exam-style questions under exam conditions and
review your answers objectively.

There are two potential problems with this approach: it’s hard work and it
can be uncomfortable to acknowledge that you can’t do certain types of
question very well. Whatever you do, don’t waste time repeatedly covering
those parts of the course that you already know well – this may be more
comfortable but it won’t help you in the exam. Face up to your weaknesses
and work hard to improve.

5. Write efficiently in the exam

You’ll only have three hours 15 minutes in each of the Subject CP1 exams to
prove to the examiners that you are good enough to pass. Most well
prepared students find it difficult to write out all of their answers in that time.
The key to success in the exam room is to write your answers efficiently.

Ideally, your answers should be:

 sufficiently detailed to convince the examiners that you fully understand
what you have written
 as short and succinct as possible (subject to the above).

Don’t be too brief (or you won’t score full marks for the point you are making)
but don’t waffle (or you’ll run into time pressures and make your good points
hard to find).

If you use ActEd’s marking services, read through the marker’s comments
and identify:
 where you didn’t write enough to score full marks
 where you wrote something that didn’t score any marks.

Please see our important advice (with examples of an efficient writing style)
on Page 15.

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LINKS TO THE COURSE NOTES AND SYLLABUS

Your guide to the Revision Notes

In each booklet, this section explains how the material relates to the ActEd
Course Notes, the Syllabus and the Core Reading. This allows you to refer
back to the ActEd Course Notes easily if you need further explanation on
any points and to check that your exam preparation has covered all areas of
the Syllabus.

Material covered in the other booklets

The table below shows how each of the other revision booklets relates to the
2019 versions of the ActEd Course Notes and the Syllabus objectives.

Booklet Title and chapter numbers from Syllabus objectives

the 2019 ActEd Course Notes
1 Actuarial advice and the 1, 2.2 (part), 2.3, 2.4, 3, 9.1, 9.2
environment
(Chapters 0, 1, 2, 3, 4)
2 Insurance products and providers of 2.1, 2.2 (part), 14 (part)
benefits
(Chapters 5, 6, 7)
3 Investment markets 9.3.2 to 9.3.5, 11.6.2, 11.6.4
(Chapters 8, 9, 10, 11, 12)
4 Investment strategy and 9.3.1, 11.6.1, 11.6.3, 11.6.5,
management 11.8.1 to 11.8.5, 12.2.2
(Chapters 13, 14, 15, 16)
5 Modelling 10.2, 11.1, 11.2
(Chapters 17, 18, 19)
6 Contract design and pricing 10.1, 11.3 to 11.5, 12.5 (part),
(Chapters 20, 21, 22, 23) 13.1 (part)
7 Risk management (1) 4.1 to 4.5, 5.1 to 5.5, 7.2, 7.3
(Chapters 24, 25, 26, 27)
8 Risk management (2) 6, 7.1, 7.4 to 7.8, 12.3.2, 12.3.3,
(Chapters 28, 29, 30) 12.5 (part), 14 (part)
9 Provisions and reporting (Chapters 11.7.1 to 11.7.6, 12.3.1, 12.4
31, 32, 33, 34)
10 Capital and surplus management 8.1 to 8.7, 12.1.1 to 12.1.3,
(Chapters 35, 36, 37, 38) 12.2.1, 12.2.3 to 12.2.6, 13

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The Core Reading glossary terms from Chapter 39, Syllabus objective 14,
have been spread throughout the revision booklets.

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OVERVIEW

Your guide to the Revision Notes

Each booklet contains an introductory overview of the material. The

overview is designed to:
 remind you of the key concepts covered in the ActEd Course Notes
 help you to identify the main issues.

Using the control cycle

The Subject CP1 course is structured around the Actuarial Control Cycle, a
diagram of which is shown below. Overleaf, we look at how the topics
covered in Subject CP1 map onto the control cycle.

The General Commercial

and Economic Environment

Specifying the Developing the

Problem Solution

Monitoring the
Experience

Professionalism

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Subject CP1 – Mapping to the Actuarial Control Cycle

 The General Economic and Commercial Environment – understanding

the different types of financial contracts and asset classes,
stakeholders, regulation and the external environment helps to set the
scene in which the actuary operates.

 Specifying the Problem – the course introduces the factors to consider

when designing contracts: the needs of the different parties involved
and the risks and capital requirements associated with the contracts.

 Developing a Solution – the solution to many actuarial problems

involves the building of a model, setting assumptions and managing
issues such as risk and capital, eg through reinsurance.

 Monitoring the Experience – the chapter on Monitoring looks at how the

actual results can be compared with the expected results in order to
feed back into the control cycle, eg by modifying the assumptions or by
respecifying the problem.

 Professionalism – the course considers issues such as giving advice

and the potential conflicts of interest that can arise in doing so. It also
discusses the professionalism framework of the Institute and Faculty of
Actuaries.

(However that there is no single correct interpretation of the actuarial control

cycle. For example, in the description above we would consider risk when
‘specifying the problem’, but it would be just as reasonable to monitor risks,
or to maintain an awareness of risks arising from the general economic
environment.)

Understanding the control cycle is important in order to understand how the

Subject CP1 course fits together. The principles of the control cycle can
often be applied to good effect in idea generation questions. When faced
with an unusual question in which you are expected to describe how you
would carry out a task, it can be useful to think through the various parts of
the course within the framework of the control cycle.

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BRAINSTORM

Your guide to the Revision Notes

Before you read the booklet, we’ll sometimes ask you to test yourself on how
many of the key topics you can remember. We’ll do this by asking you to
use this section to brainstorm the key words from the Core Reading and the
Course Notes. Each booklet which asks you to do this exercise also
includes a full solution, often with over 50 important ideas and key words.

Term Currency

Risk & return

Liabilities Nature

Uncertainty
Investment
strategy

Exam hints

Being able to brainstorm the topics in Subject CP1 is an important skill for
scoring well on idea generation questions. By working through the
brainstorming exercise carefully, you’ll develop a better understanding of the
links between the main topics and learn to be able to generate lots of ideas
under exam conditions. It will also help you to identify what you do know
and what you don’t.

Remember that to improve your chances of passing the exam you should
concentrate on your weak areas, however much this may feel like hard work.
If you find idea generation difficult, practise until you find it easier.

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CORE READING QUESTIONS

Your guide to the Revision Notes

This section has been designed to help you develop a thorough knowledge
of the Core Reading (for the bookwork questions) and a good understanding
of the concepts (for the questions in which you must apply your knowledge
to a specific situation). You’ll need both of these skills to pass the exam.

In each booklet, this section contains a set of short questions that test your
knowledge of the Core Reading. The solutions are taken directly from the
Core Reading. By attempting every question and reading every solution
carefully, you will cover the full Core Reading for that part of the course.

We recommend that you think carefully about each Core Reading question
before reading the solution. By taking such an interactive approach and
answering the questions (possibly several times), you will develop a better
knowledge of the bookwork in Subject CP1 – this will enable you to score
more highly on bookwork questions and spend more time in the exam
concentrating on non-standard questions that require application of the
underlying principles.

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SOLUTIONS TO CORE READING QUESTIONS

Your guide to the Revision Notes

In each booklet, this section contains the answers to the Core Reading
Questions. By working through all of the answers, you will read all of the
Core Reading for the topics covered in each booklet.

To pass the exam, you’ll need both a thorough knowledge of the Core
Reading (for the bookwork questions) and a good understanding of the
concepts (for the questions in which you must apply your knowledge to a
specific situation).

You can use this section in two ways:

 By thinking carefully about each Core Reading Question before reading
the solution, you will develop both your bookwork knowledge and your
understanding of the key concepts. When you revise, test yourself
properly and find out how much you can really remember without
reference to the notes. Identify your strengths and weaknesses now,
not in the exam.
 By reading just the solutions, you can quickly refresh your memory of
the extent and content of Core Reading. But please remember that
reading passively won’t necessarily help you to recall the Core Reading
quickly and accurately under exam conditions – this is a key skill for
success in the exams.

The text given in Arial Bold font is Core Reading.

The text given in Arial Bold Italic font is additional Core Reading that is not
directly related to the answers to specific Core Reading Questions.

Exam hints

Core Reading does contain some long lists of points that you may well need
to know to answer a question in the exam. Acronyms can help you to
remember these lists, but you must be able to identify which points are
important and which are irrelevant to the specific question. You may also
find that it’s much easier to remember acronyms that you’ve made up
yourself rather than acronyms that someone else has made up.

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PAST EXAM QUESTIONS

Your guide to the Revision Notes

This section contains the exam questions from 2008 to 2017 that are related
to the topics covered in each booklet. Each question is clearly labelled
showing the subject, year of exam, paper and question number. We have
amended the questions where necessary to make them more appropriate to
the current syllabus and Core Reading.

Each booklet also contains concise solutions to all these past exam
questions. These give a summary of all of the relevant points that should
have been covered in your solution. To score high marks in the exam, you’ll
need to explain each point more fully to convince the examiners that you
understand the point you are making – see the section on Solutions to Past
Exam Questions for more details.

You should attempt as many of these questions as possible under exam

conditions. By doing so, you are much more likely to identify what you do
and don’t know and work on your weak areas before the exam. If you just
read the solutions without trying the question first, it’s very easy to fall into
the trap of believing that you would have remembered all the points.

Exam hints

When you look at the exam questions arranged topic-by-topic in this way, a
useful exercise is to try to think up new questions that you would ask if you
were the examiner. This will help you to develop a better understanding of
the course, understand why the examiners ask the questions they do and
prepare you for unusual questions in the exam.

We would never recommend trying to guess which questions are likely to

come up (and when) based on what has been asked in the past. You will
maximise your chances of success not by gambling on certain areas of the
course but by practising lots of questions under exam conditions.

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SOLUTIONS TO PAST EXAM QUESTIONS

Your guide to the Revision Notes

This section contains concise solutions to all of the relevant exam questions
from 2008 to 2017 related to the topics covered in each booklet.

It is critical to your success that you understand the level of detail that
you need to produce in the exam room to score highly.

We have kept the solutions as short as possible so that you can read them
quickly and learn the key points. The solutions provide a summary of all of
the relevant points that should have been covered in your solution. To score
high marks in the exam, you’ll need to explain each point more fully to
convince the examiners that you understand the point you are making. By
the same token, you should avoid wasting time by writing too much.

Here’s an example.

The solutions in the Revision Notes might include the point:

 change investment strategy?

This will not score full marks in the exam because the examiners will not
know whether or not you understand how the investment strategy might
need to change and why. You must write clearly, for example:

 consider changing investment strategy from equities to bonds to match

fixed liabilities

There’s no need to write much more than this. As mentioned earlier, your
task in the exam room is not to produce study material (with lots of
explanation so that students can understand it easily) but to demonstrate
that you understand the Core Reading. If you write too much, you’ll run into
serious time pressures elsewhere in the exam.

In summary, write efficiently. Don’t be too brief but don’t waffle.

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FINAL COMMENTS

Your guide to the Revision Notes

In each booklet, this section contains extra information that we think you’ll
find useful as you prepare for the exam. This might include:
 the key areas to learn for the exam
 hints on how to generate ideas in the exam including popular acronyms.

As ever, knowing a checklist will only help you to score well if you use it
intelligently. You should read each question carefully to understand the
specific situation under consideration. Then you must be able to decide
which points are relevant and which are not.

These extra hints are no replacement for genuine understanding but, used
intelligently, they can help you to maximise your score and get your name on
the pass list.

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EXAM PREPARATION CHECKLIST

Your guide to the Revision Notes

This section allows you to record your progress through the booklets – on
both the Core Reading Questions and the past exam questions – to ensure
that you have covered all parts of the course. We will provide you with a
table that allows you to record which past exam questions you have
attempted and when.

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NOTES

We have inserted some blank pages near the end of each booklet for you to
make your own notes, if you wish.

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NOTES

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FEEDBACK

We’d be really pleased to receive feedback about what you like about our
Revision Notes and what you would like us to do differently. We will act as
quickly as we can to implement all good suggestions. Equally, we’d be
grateful to receive details of any errors that you find.

Please send any comments and feedback to [email protected].

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