CS1 IFoA Syllabus Objectives

1 Data analysis [10%]

Production of simple visualisations and statistics from a data set

1.1 Describe the purpose and function of data analysis.

1.1.1 Aims of a data analysis (e.g. descriptive, inferential and predictive).
1.1.2 Stages and suitable tools used to conduct a data analysis to solve real-world problems
1.1.3 Sources of data and their characteristics, including extremely large data sets.
1.1.4 Meaning and value of reproducible research and the elements required to ensure a data analysis is
reproducible.

1.2 Complete exploratory data analysis.

1.2.1 Appropriate tools to calculate suitable summary statistics and undertake exploratory data visualisations.
1.2.2 Interpret and make statistical inferences using Pearson’s, Spearman’s and Kendall’s measures of correlation for
bivariate data.
1.2.3 Principal component analysis to reduce the dimensionality of a complex data set.

2 Random variables and distributions [20%]

The basic properties and uses of commonly-used probability distributions and the statistical properties of data
generated by randomly sampling from a known distribution
2.1 Understand the characteristics of basic univariate distributions and how to generate samples from them.
2.1.1 Geometric, binomial, negative binomial, hypergeometric, Poisson and uniform discrete distributions on a finite
set.
2.1.2 Normal, lognormal, exponential, gamma, chi-square, t, F, beta and uniform continuous distributions on an
interval.
2.1.3 Evaluation of probabilities and quantiles associated with these distributions (by calculation or using statistical
software as appropriate).
2.1.4 Poisson process and the connection between the Poisson process and the Poisson distribution.
2.1.5 Generation of basic discrete and continuous random variables using the inverse transform method.
2.1.6 Generation of discrete and continuous random variables using statistical software.

2.2 Determine the characteristics of jointly distributed random variables.

2.2.1 Probability function or density function for marginal and conditional distributions of jointly distributed random
variables.
2.2.2 The conditions under which random variables are independent.
2.2.3 Covariance, the correlation and the expected value of a function of two jointly distributed random variables.
2.2.4 Mean and variance of linear combinations of random variables.

2.3 Evaluate expectations and conditional expectations.

2.3.1 Conditional expectation of one random variable given the value of another random variable.
2.3.2 Mean and variance of a random variable as an expectation of conditional expected values.

2.4 Evaluate and apply generating functions.

2.4.1 Moment generating functions of a random variable.
2.4.2 Moment calculation via series expansion or differentiation of a generating function.

2.5 State and apply the central limit theorem

2.5.1 Central limit theorem for a sequence of independent, identically distributed random variables.
2.5.2 Comparison of simulated samples from a given distribution with the Normal distribution.
2.6 Describe random sampling and the sampling distributions of statistics commonly used in statistical inference.
2.6.1 Random samples from a population.
2.6.2 The sampling distribution of a statistic.
2.6.3 The mean and variance of a sample mean and the mean of a sample variance in terms of the population mean,
variance and sample size.
2.6.4 Basic sampling distributions for the sample mean and variance for random samples from a normal distribution.
2.6.5 The distribution of the t-statistic for random samples from a normal distribution.
2.6.6 The F distribution for the ratio of two sample variances from independent samples taken from normal
distributions.

3 Statistical inference [25%]

Use of statistics to make inferences about the process underlying a data set
3.1 Construct estimators and discuss their properties.
3.1.1 Method of moments for constructing estimators of population parameters.
3.1.2 Method of maximum likelihood for constructing estimators of population parameters.
3.1.3 Efficiency, bias, consistency and mean square error of an estimator.
3.1.4 Comparison of estimators using their mean square error and bias or unbiasedness.
3.1.5 Asymptotic distribution of maximum likelihood estimators.
3.1.6 Bootstrap method for estimating properties of an estimator.

3.2 Calculate confidence intervals and prediction intervals.

3.2.1 Confidence interval for an unknown parameter of a distribution based on a random sample.
3.2.2 Prediction interval for a future observation based on a model fitted to a random sample.
3.2.3 Confidence interval for an unknown parameter using a given sampling distribution.
3.2.4 Confidence intervals for the mean and the variance of a normal distribution.
3.2.5 Confidence intervals for a binomial probability and a Poisson mean, including the use of the normal
approximation in both cases.
3.2.6 Confidence intervals for two-sample situations involving the normal distribution and the binomial and Poisson
distributions using the normal approximation.
3.2.7 Confidence intervals for a difference between two means from paired data.
3.2.8 Bootstrap method to obtain confidence intervals.

3.3 Apply the concepts of hypothesis testing and goodness of fit.

3.3.1 Understand the concepts of Null and alternative hypotheses, simple and composite hypotheses, type I and type
II errors, sensitivity, specificity, test statistic, likelihood ratio, critical region, level of significance, probability value and
power of a test.
3.3.2 Use of basic tests for the one-sample and two-sample situations involving the normal, binomial and Poisson
distributions, and apply basic tests for paired data.
3.3.3 The permutation approach to non-parametric hypothesis tests.
3.3.4 Chi-square test to test the hypothesis that a random sample is from a particular distribution, including cases
where parameters are unknown.
3.3.5 A contingency (or two-way) table, and use of a chi-square test to test the independence of two classification
criteria.

4 Regression theory and applications [30%]

Use of statistics to examine and make inferences about the relationships between two or more data sets
4.1 Understand and use linear regression models.
4.1.1 Response and explanatory variables.
4.1.2 Simple regression model (with a single explanatory variable) and multiple linear regression model (with several
explanatory variables)
4.1.3 Least squares estimates of the slope and intercept parameters in a simple linear regression model.
4.1.4 Use of appropriate software to fit a linear regression model to a data set and interpret the output:
· Perform statistical inference on the slope parameter.
· Describe the use of measures of goodness of fit of a linear regression model.
· Use a fitted linear relationship to predict a mean response or an individual response with confidence limits.
· Use residuals to check the suitability and validity of a linear regression model.
4.1.5 Measures of model fit to select an appropriate set of explanatory variables.

4.2 Understand and use generalised linear models

4.2.1 Binomial, Poisson, exponential, gamma and normal distributions as an exponential family.
4.2.2 Mean, variance, variance function and scale parameter for a generalised linear model binomial, Poisson,
exponential, gamma and normal distributions. Evaluate these quantities for the distributions in 4.2.1.
4.2.3 The link function and the canonical link function, referring to the distributions in 4.2.1.
4.2.4 Variables, factors taking categorical values and interaction terms.
4.2.5 Definition of the linear predictor, including its form for simple models, including polynomial models and models
involving factors.
4.2.6 Deviance scaled deviance and estimation of the parameters of a generalised linear model.
4.2.7 Choice of a suitable model using an analysis of deviance and examination of the significance of the parameters.
4.2.8 Pearson and deviance residuals and their use.
4.2.9 Statistical tests to determine the acceptability of a fitted model: Pearson’s chi-square test and the likelihood-ratio
test.
4.2.10 Fit a generalised linear model to a data set and interpret the output.

5 Bayesian statistics [15%]

Use of Bayesian statistics to update prior beliefs about a data-generating process
5.1 Explain fundamental concepts of Bayesian statistics and use these concepts to calculate Bayesian estimators.
5.1.1 Use of Bayes’ theorem to calculate simple conditional probabilities.
5.1.2 Prior distribution, posterior distribution and conjugate prior distribution.
5.1.3 Posterior distribution for a parameter in simple cases.
5.1.5 Use of simple loss functions to derive Bayesian estimates of parameters.
5.1.6 Credible intervals in simple cases.
5.1.7 Credibility premium formula and the role played by the credibility factor.
5.1.8 Bayesian approach to credibility theory and its use for calculating credibility premiums in simple cases.
5.1.9 Empirical Bayes approach to credibility theory and its use for deriving credibility premiums in simple cases.
5.1.10 Understanding the differences between the two approaches (Bayes v Empirical Bayes) and the assumptions
underlying each of them.
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Learning Objectives of the subjects you wish to transfer Subject Code
 CS2 IFoA Syllabus Objectives

1 Random variables and distributions for risk modelling [25%]

Statistical distributions suitable for modelling the variables and risks that arise within insurance contracts.
1.1 Loss distributions, with and without risk sharing
1.1.1 Properties of the statistical distributions that are suitable for modelling individual and aggregate losses
1.1.2 Concepts of excesses (deductibles) and retention limits
1.1.3 Operation of simple forms of proportional and excess of loss reinsurance
1.1.4 Calculate the distribution and corresponding moments of the claim amounts paid by the insurer and the
reinsurer in the presence of excesses (deductibles) and reinsurance
1.1.5 Estimate the parameters of a failure time or loss distribution when the data is complete, or when it is
incomplete, using maximum likelihood and the method of moments
1.1.6 Fit a statistical distribution to a data set and calculate appropriate goodness-of-fit measures.
1.2 Compound distributions and their applications in risk modelling
1.2.1 Construct models appropriate for short-term insurance contracts in terms of the numbers of claims and the
amounts of individual claims
1.2.2 Major simplifying assumptions underlying the models in 1.2.1
1.2.3 Compound Poisson distribution and apply the result that the sum of independent random variables, each
having a compound Poisson distribution, also has a compound Poisson distribution
1.2.4 Mean, variance and coefficient of skewness for compound binomial, Compound Poisson and compound
negative binomial random variables
1.2.5 Loss distributions for both the insurer and the reinsurer after the operation of simple forms of proportional and
excess of loss reinsurance where underlying losses take the forms given in 1.2.4
1.3 Introduction to copulas
1.3.1 Characterise a copula as a multivariate distribution function that is a function of the marginal distribution
functions of its variates, and explain how this allows the marginal distributions to be investigated separately from the
dependency between them
1.3.2 Meaning of the terms ‘dependence or concordance’, ‘upper and lower tail dependence’, and state in general
terms how tail dependence can be used to help select a copula suitable for modelling particular types of risk
1.3.3 Know the form and characteristics of the Gaussian copula and the Archimedean family of copulas
1.4 Introduction to extreme value theory
1.4.1 Recognise extreme value distributions, suitable for modelling the distribution of severity of loss and their
relationships
1.4.2 Calculate various measures of tail weight and interpret the results to compare the tail weights

2 Time series [25%]

Statistical concepts for modelling, fitting and forecasting data that is indexed by time.
2.1 Understand the core concepts underlying time series models
2.1.1 General properties of stationary, I(0), and integrated, I(1), univariate time series
2.1.2 Stationary random series
2.1.3 Stationary random series with a filter applied
2.1.4 Know the notation for backwards shift operator, backwards difference operator and the concept of roots of the
characteristic equation of time series
2.1.5 Concepts and basic properties of Autoregressive (AR), Moving Average (MA), Autoregressive Moving Average
(ARMA) and Autoregressive Integrated Moving Average (ARIMA) time series
2.1.6 Concept and properties of discrete random walks and random walks with normally distributed increments, both
with and without drift
2.1.7 Basic concept of a multivariate autoregressive model
2.1.8 Cointegrated time series
2.1.9 Univariate time series models have the Markov property and how to rearrange a univariate time
series model as a multivariate Markov model
2.2 Applications of time series models
2.2.1 The processes of identification, estimation and diagnosis of a time series, the criteria for choosing between
models and the diagnostic tests that may be applied to the residuals of a time series after estimation
2.2.2 Other non-stationary, non-linear time series models
2.2.3 Simple applications of a time series model, including random walk, autoregressive and cointegrated models, as
applied to security prices and other economic variables
2.2.4 Develop deterministic forecasts from time series data, using simple extrapolation and moving-average models,
applying smoothing techniques and seasonal adjustment when appropriate

3 Stochastic processes [25%]

Application of Markov models to model time-indexed risk and claim data arising primarily in insurance and other
appropriate business-related scenarios.
3.1 Stochastic processes
3.1.1 Stochastic processes, in particular a counting process
3.1.2 A stochastic process according to whether it:
· operates in continuous or discrete time
· has a continuous or a discrete state space
· is a mixed type
3.1.3 Applications of mixed processes
3.1.4 Markov property in the context of a stochastic process and in terms of filtrations
3.2 Understand and apply a Markov chain
3.2.1 Essential features of a Markov chain model
3.2.3 Calculate the stationary distribution for a Markov chain in simple cases
3.2.4 Understand and apply systems of frequency-based experience rating in terms of a Markov
chain
3.2.5 Time-inhomogeneous Markov chain model and describe simple applications
3.2.6 Markov chains can be used as a tool for modelling and how they can be simulated
3.3 Define and apply a Markov process
3.3.1 Essential features of a Markov process model
3.3.2 Poisson process, derive the distribution of the number of events in a given time interval, derive the distribution
of inter-event times and apply these results
3.3.3 Kolmogorov equations for a Markov process with time-independent and time/age- dependent transition
intensities
3.3.4 Kolmogorov equations in simple cases
3.3.5 Simple survival models, sickness models and marriage models in terms of Markov processes and describe
other simple applications
3.3.6 Kolmogorov equations for a model where the transition intensities depend not only on age/time, but also on
the duration of stay in one or more states
3.3.7 Sickness and marriage models in terms of duration-dependent Markov processes and describe other simple
applications
3.3.8 The Markov jump processes and how it can be used as a tool for modelling and how they can be simulated

4 Survival models [25%]

Description, estimation and use of statistical models for the time until an event occurs.
4.1 Concepts of survival models
4.1.1 Model of lifetime or failure time from age x as a random variable
4.1.2 Consistency condition between the random variable representing lifetimes from different ages
4.1.3 Distribution and density functions of the random future lifetime, the survival function, the force of mortality or
hazard rate, and derive relationships between them
4.1.4 Understand the actuarial symbols tpx and tqx and derive integral formulae for them
4.1.5 Gompertz and Makeham laws of mortality
4.1.6 Curtate future lifetime from age x and state its probability function
4.1.7 Understand the symbols ex and °ex and derive an approximate relation between them. Define the expected
value and variance of the complete and curtate future lifetimes and derive expressions for them
4.1.8 Two-state model of a single decrement and compare its assumptions with those of the random lifetime model
4.2 Understand the estimation procedures for lifetime distributions
4.2.1 Various ways in which lifetime data may be censored
4.2.2 Estimation of the empirical survival function in the absence of censoring and what problems are introduced by
censoring
4.2.3 Kaplan–Meier (or product limit) estimator of the survival function in the presence of censoring, compute it from
typical data and estimate its variance
4.2.4 Nelson–Aalen estimator of the cumulative hazard rate in the presence of censoring, compute it from typical
data and estimate its variance
4.2.5 Models for proportional hazards and how these models can be used to estimate the impact of covariates on
the hazard
4.2.6 Cox model for proportional hazards, derive the partial likelihood estimate in the absence of ties, and state the
asymptotic distribution of the partial likelihood estimator
4.3 Derive maximum likelihood estimators for transition intensities
4.3.1 Identify an observational plan in respect of a finite number of individuals observed during a finite period of
time, and define the resulting statistics, including the waiting times
4.3.2 Understand the likelihood function for constant transition intensities in a Markov model of transfers between
states given the statistics in 4.3.1
4.3.3 Identify maximum likelihood estimators for the transition intensities in 4.3.2 and state their asymptotic joint
distribution
4.3.4 State the Poisson approximation to the estimator in 4.3.3 in the case of a single decrement

4.4 Transition intensities dependent on age (exact or census)

4.4.1 Dividing the data into homogeneous classes, including subdivision by age and sex
4.4.2 The principle of correspondence and its fundamental importance in the estimation procedure.
4.4.3 Specify the data needed for the exact calculation of a central exposed to risk (waiting time) depending on age
and sex
4.4.4 Calculate a central exposed to risk given the data in 4.4.3
4.4.5 Understand how to obtain estimates of transition probabilities
4.4.6 Identify the assumptions underlying the census approximation of waiting times.
4.4.7 Concept of the rate interval
4.5 Graduation and graduation tests
4.5.1 Statistical tests of the comparison of crude estimates with a standard mortality table testing for:
• the overall fit
• the presence of consistent bias
• the presence of individual ages where the fit is poor
• the consistency of the ‘shape’ of the crude estimates and the standard table. For each test, describe:
• the formulation of the hypothesis
• the test statistic
• the distribution of the test statistic using approximations where appropriate
• the application of the test statistic
4.5.2 Reasons for graduating crude estimates of transition intensities or probabilities, and state the desirable
properties of a set of graduated estimates
4.5.3 How to test for smoothness of a set of graduated estimates
4.5.4 The process of graduation by the following methods, and the advantages and disadvantages of each (the
candidate will not be required to carry out a graduation):
• Parametric formula
• Standard table
• Spline functions.
4.5.5 How should the tests in 4.5.1 be amended to compare crude and graduated sets of estimates
4.5.6 How should the tests in 4.5.1 be amended to allow for the presence of duplicate policies
4.5.7 Carry out a comparison of a set of crude estimates and a standard table or of a set of crude estimates and a
set of graduated estimates
4.6 Mortality projection
4.6.1 Approaches to forecasting of future mortality rates based on extrapolation, explanation and expectation, as
well as their advantages and disadvantages
4.6.2 Lee–Carter, age-period-cohort and p-spline regression models for forecasting mortality.
4.6.3 Use an appropriate computer package to apply the models in 4.6.2 to a suitable mortality data set
4.6.4 Identify main sources of error in mortality forecasts

5 Machine learning
5.1 Elementary principles of machine learning.
5.1.1 Bias/variance trade-off and relationships with model complexity.
5.1.2 Cross-validation to evaluate models on unseen data, and estimate hyper-parameters.
5.1.3 Understand how regularisation can be used to reduce overfitting in highly parameterised models.
5.1.4 The use of software to apply supervised learning techniques, to solve regression and classification problems.
5.1.5 the use of metrics such as precision, recall, F1 score and diagnostics such as the ROC curve and confusion
matrix to evaluate the performance of a binary classifier.
5.1.6 Unsupervised learning techniques (principal component analysis, K-means clustering) to reduce data
dimensionality, identify latent substructure and detect anomalies.
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Learning Objectives of the subjects you wish to transfer Subject Code
 CM1 IFoA Syllabus Objectives

1 Theory of interest rates [25%]

Understand the principles of time preference theory of interest and the time value of money, including the term
structure of interest rates and standard actuarial compound interest rate functions. Apply these principles to real world
examples of interest rates, discounting and evaluation of present values of cashflows.

1.1 Show how interest rates may be expressed in different time periods.
1.1.1 Relationship between the rates of interest and discount over one effective period, considered
arithmetically and by general reasoning.
1.1.2 Determine, when given a rate of interest under a specified payment frequency, the equivalent rate
under an alternative payment frequency, including:
· Annual effective rate of interest or discount
· Rate of interest of discount payable pthly (p>1)

· Force of interest

1.1.3 Calculate the equivalent annual rate of interest implied by the accumulation of a sum of money
over a specified period where the force of interest is a function of time.

1.2 Account for the time value of money using the concepts of compound interest and discounting.
1.2.1 Accumulate a single investment at a constant rate of interest under the operation of simple and
compound interest.
1.2.2 Calculate the present value of a future payment by discounting a single investment.

1.3 Extend the techniques in 1.1 and 1.2 where appropriate to allow for inflation.

1.4 Describe the operation of financial instruments and insurance contracts as a cashflow model (where
cashflows may be fixed or uncertain in terms of both amount and timing).

1.5 Calculate the present value and accumulated value for a given stream of cashflows under the following
individual or combination of scenarios:
1.5.1 Cashflows are equal at each time period.
1.5.2 Cashflows vary with time, which may or may not be a continuous function of time.
1.5.3 Some of the cashflows are deferred for a period of time.
1.5.4 Rate of interest or discount is constant.
1.5.5 Rate of interest or discount varies with time, which may or may not be a continuous function of
time.

1.6 Evaluate the following annuity and accumulation functions, when given the values for the term, n, and the
appropriate interest or discount rate function i, v, d, δ, i(p) or d(p):

1.6.1

1.6.2

1.6.3

and the respective deferred annuities.

1.7 Demonstrate an understanding of the term structure of interest rates.

1.7.1 Understand the main factors influencing the term structure of interest rates.
1.7.2 Understand and calculate:
· Discrete spot rates and forward rates.
· Continuous spot rates and forward rates.
1.7.3 Understand and calculate the par yield and yield to maturity.

1.8 Understand duration, convexity and immunisation of cashflows:

1.8.1 Demonstrate how the duration and convexity of a cashflow sequence may be used to estimate
the sensitivity of the value of the cashflow sequence to a shift in interest rates.
1.8.2 Understand, apply and discuss Redington’s conditions for immunisation of a portfolio of liabilities.

2 Equation of value and its applications [20%]

Understand and apply equation of value principles to evaluate financial problems in particular relating to loan
schedules, bond prices, bond yields and project appraisals.
2.1 Understand and apply the concept of an equation of value in terms of:
· Where payment or receipt is certain
· Where payment of receipt is uncertain
· The two conditions required for there to be an exact solution

2.2 Use the concept of equation of value to solve various practical problems.
2.2.1 Apply the equation of value to loans repaid by regular instalments of interest and capital. Obtain
repayments, interest and capital components, the effective interest rate (APR) and construct a
schedule of repayments.
2.2.2 Calculate the price of, or yield (nominal or real allowing for inflation) from, a bond (fixed-interest
or index-linked) where the investor is subject to deduction of income tax on coupon payments and
redemption payments are subject to deduction of capital gains tax.
2.2.3 Calculate the running yield and the redemption yield for the financial instrument as described in 2.2.2.
2.2.4 Calculate the upper and lower bounds for the present value of the financial instrument as described
in 2.2.2, when the redemption date can be a single date within a given range at the option of the
borrower.
2.2.5 Calculate the present value or yield (nominal or real allowing for inflation) from an ordinary share
or property, given constant or variable rate of growth of dividends or rents.

2.3 Apply cashflow and equation of value techniques to project appraisals.

2.3.1 Calculate the net present value and accumulated profit of the receipts and payments from an
investment project at given rates of interest.
2.3.2 Calculate the internal rate of return, payback period and discounted payback period and discuss
their suitability for assessing the suitability of an investment project.

3 Decrement and multiple life models [20%]

Understand how to model uncertain future cashflows, which may depend on the death or survival of an individual, or
other uncertain events. Be introduced to the life table, calculation of the mean and variance of the present value of all
of the main life insurance and annuity contracts, and their relationship in actuarial terms. Extend the single decrement
model to evaluate health insurance contracts involving two lives as well as the valuation of cashflows in a competing
risk environment using multiple state models.

3.1 Demonstrate an understanding of the operation of key assurance and annuity contracts.
3.1.1 Understand the following contracts, for example by explaining the timing and nature of the
cashflows involved:
• Whole-life assurance
• Term assurance
• Pure endowment
• Endowment assurance
• Whole-life level annuity
• Temporary level annuity
• Guaranteed level annuity
• Deferred benefits
3.1.2 Understand the operation of conventional with-profits contracts, where profits are distributed by the use of regular
reversionary bonuses and by terminal bonuses.
3.1.3 Understand the operation of conventional unit-linked contracts, where death benefits are expressed as
combination of absolute amount and relative to a unit fund.
3.1.4 Understand the operation of accumulating with-profits contracts, where benefits take the form of an accumulating
fund of premiums, where:
· the fund is defined in monetary terms, has no explicit charges and is increased by the addition of regular
guaranteed and bonus interest payments plus a terminal bonus; or
· the fund is defined in terms of the value of a unit fund, is subject to explicit charges and is increased by regular
bonus additions (through unit price increases or allocations of additional units) plus a terminal bonus (unitised with-
profits).

3.2 Apply formulae for the means and variances of the payments under various assurance and annuity
contracts, assuming a constant deterministic interest rate.
3.2.1 Life table functions and
and their select equivalents and
3.2.2. Describe the meaning of the following probabilities:

and their select equivalents

3.2.3 Express the probabilities defined in 3.2.2 in terms of life table functions defined in 3.2.1.
3.2.4 Use assurance and annuity factors and their select and continuous equivalents, including the
extension of the annuity factors to allow for the possibility that payments are more frequent than
annual but less frequent than continuous.
3.2.5 Use the relationship between annuities payable in advance and in arrear, and between temporary,
deferred and whole-life annuities.
3.2.6 Use the relationship between assurance and annuity factors using equation of value, and their
select and continuous equivalents.
3.2.7 Express the mean and variance of the present value of benefit payments as sums / integrals under
each contract defined in 3.1.1, in terms of the (curtate) random future lifetime, assuming:
• contingent benefits (constant, increasing or decreasing) are payable at the middle or end of the year of the
contingent event or continuously.
• annuities are paid in advance, in arrear or continuously, and the amount is constant, increases or decreases by a
constant monetary amount or by a fixed or time-dependent variable rate.
• premiums are payable in advance, in arrear or continuously and for the full policy term or for a limited period.
Where appropriate, simplify the above expressions into a form suitable for evaluation by table look-up or other means.

3.2.8 Evaluate the expected accumulations in terms of expected values for the contracts described
in 3.1.1 and contract structures described in 3.2.7.

3.3 Describe and use assurance and annuity functions involving two lives.
3.3.1 Extend the techniques of objectives 3.2 to deal with cashflows dependent upon the death or survival of either or
both of two lives.
3.3.2 Extend the technique of 3.3.1 to deal with functions dependent upon a fixed term as well as age.

3.4 Describe and apply methods of valuing cashflows that are contingent upon multiple transition events.
3.4.1 Demonstrate an understanding of simple health insurance premium and benefit structures.
3.4.2 Describe how a cashflow, contingent upon multiple transition events, may be valued using a multiple-state
Markov Model, in terms of the forces and probabilities of transition.
3.4.3 Construct formulae for the expected present values of cashflows that are contingent upon
multiple transition events, including simple health insurance premiums and benefits, and
calculate these in simple cases. This includes regular premiums and sickness benefits are
payable continuously and assurance benefits are payable immediately on transition.

3.5 Describe and use methods of projecting and valuing expected cashflows that are contingent upon
multiple decrement events.
3.5.1 Understand the construction and use of multiple decrement tables.
3.5.2 Understand the operation of a multiple decrement model as a special case of multiple-state
Markov model.
3.5.3 Determine dependent probabilities for a multiple decrement model in terms of given forces of
transition, assuming forces of transition are constant over single years of age.
3.5.4 Determine forces of transition from given dependent probabilities, assuming forces of transition
are constant over single years of age.

4 Pricing and reserving [35%]

Understand the future loss random variable and its application to the calculation of premiums for conventional life
assurance and annuity contracts. Use the prospective and retrospective approaches to calculate reserves, the
recursive relationship between reserves, and calculate mortality profit. Project cashflows to profit test life insurance
contracts and apply projected cashflow techniques to pricing and reserving.
4.1 Determine the gross random future loss random variable under an insurance contract.

4.2 Calculate gross premiums and reserves of assurance and annuity contracts.
4.2.1 Calculate gross premiums for the insurance contract benefits listed in 3.1.1 under the following
scenarios, or a combinations therefof using the equivalence principle or otherwise:
• Contracts may accept only single premium.
• Regular premiums and annuity benefits may be payable annually more frequently than annually or continuously.
• Death benefits (which increase or decrease by a constant compound rate or by a constant monetary amount) may
be payable at the end of the year of death or immediately on death.
• Survival benefits (other than annuities) may be payable at defined intervals other than at maturity.
4.2.2 Understand why an insurance company will set up reserves.
4.2.3 Calculate gross prospective and retrospective reserves.
4.2.4 Understand the equivalence of the prospective reserve and the retrospective reserve under certain
conditions, with or without allowance for expenses, for all fixed benefit and increasing/decreasing
benefit contracts.
4.2.5 Obtain recursive relationships between successive periodic gross premium reserves, and use this
relationship to calculate the profit earned from a contract during the period.
4.2.6 Understand the concepts of net premiums and net premium valuation and how they relate to gross
premiums and gross premium valuation respectively.

4.3 Describe and calculate, for a single policy or a portfolio of policies (as appropriate):
· death strain at risk
· expected death strain
· actual death strain
· mortality profit
for policies with death benefits payable immediately on death or at the end of the year of death, policies paying annuity
benefits at the start of the year or on survival to the end of the year and policies where single or non-single premiums
are payable.

4.4 Project expected future cashflows for whole life, endowment and term assurances, annuities, unit- linked contracts
and conventional/unitised with-profits contracts, incorporating multiple decrement models as appropriate.
4.4.1 Profit test life insurance contracts of the types listed above and determine the profit vector, the
profit signature, the net present value and the profit margin.
4.4.2 Show how a profit test may be used to price a product, and use a profit test to calculate a premium
for life insurance contracts of the types listed above.
4.4.3 Show how gross premium reserves can be computed using the above cashflow projection model
and included as part of profit testing.

4.5 Show how, for unit-linked contracts, non-unit reserves can be established to eliminate (‘zeroise’) future negative
cashflows, using a profit test model.
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 CM2 IFoA Syllabus Objectives

1 Rational economic theory [10%]

Theories and modelling techniques used to explore, understand and evaluate rational economic decision making
and asset pricing. In particular, the application of utility functions to financial and economic problems.
1.1 Understand the principles of rational expectations theory
1.1.1 Three forms of the Efficient Markets Hypothesis and their consequences for investment management
1.1.2 Evidence for or against each form of the Efficient Markets Hypothesis

1.2 Understand the principles of rational choice theory

1.2.1 Meaning of ‘utility function’
1.2.2 Concept of utility theory and the expected utility theorem
1.2.3 Understand of the properties of utility functions that express the following economic
characteristics of investors:
· Non-satiation
· Risk aversion, risk neutrality and risk seeking
· Declining or increasing absolute and relative risk aversion
1.2.4 Economic properties of commonly used utility functions
1.2.5 Identify how a utility function may depend on current wealth and discuss state-dependent utility
functions
1.2.6 Perform calculations using commonly used utility functions that compare investment
opportunities.
1.2.7 Use utility theory to analyse simple insurance problems

2 Measures of investment risk [10%]

Apply a range of financial risk measurement tools to evaluate investment opportunities in the context of utility
functions. Understand how mitigating actions can reduce risk faced by insurance companies.
2.1 Identify the properties of risk measures and use these risk measures to compare and analyse investment
opportunities
2.1.1 Measures of investment risk:
· Variance of return
· Downside semi-variance of return
· Shortfall probabilities
· Value at Risk (VaR)
· Tail VaR (also referred to as Expected Shortfall)
2.1.2 How the risk measures listed in are related to the form of an investor’s utility function
2.1.3 Compare investment opportunities via calculations using the risk measures listed in 2.1.1
2.1.4 How the distribution of returns and the thickness of tails will influence the assessment of risk

2.2 The role of insurance companies in reducing or removing risk.

2.2.1 How insurance companies help to reduce or remove risk.
2.2.2 The meaning of ‘moral hazard’ and ‘adverse selection’.

3 Asset valuations [30%]

The use of models in portfolio selection and asset pricing, including the term structure of interest rates and credit
risk.
3.1 Understand mean-variance portfolio theory and its application.
3.1.1 The assumptions of mean-variance portfolio theory.
3.1.2 When does the application of mean-variance portfolio theory lead to the selection of an
optimum portfolio.
3.1.3 Use mean-variance portfolio theory to calculate the expected return and risk of a portfolio of
many risky assets, given the expected return, variance and covariance of returns of the
individual assets.
3.1.4 Benefits of diversification using mean-variance portfolio theory.

3.2 Understand and use the Capital Asset Pricing Model (CAPM)
3.2.1 The assumptions, principal results and uses of the Sharpe-Lintner-Mossin Capital Asset
Pricing Model (CAPM).
3.2.2 The limitations of the basic CAPM and some of the attempts that have been made to develop
the theory to overcome these limitations.
3.2.3 Perform calculations using the CAPM.
3.2.4 Main issues of estimating parameters for asset pricing models.

3.3 Understand and use single and multifactor models for investment returns.
3.3.1 Three types of multifactor models of asset returns:
· Macroeconomic models
· Fundamental factor models
· Statistical factor models.
3.3.2 Single-index model of asset returns.
3.3.3 Concepts of diversifiable and non-diversifiable risk.
3.3.4 Construction of the different types of multifactor models.
3.3.5 Perform calculations using both single and multifactor models for investment returns.

3.4 Appreciate different stochastic models for security prices and how and when they can be applied.
3.4.1 Continuous time log-normal model of security prices and the empirical evidence for and against
the model.
3.4.2 Basic properties of standard Brownian motion or Wiener process.
3.4.3 Principles of stochastic differential equations, the Ito integral, diffusion and mean-reverting
processes.
3.4.4 Understand Ito’s Lemma and apply it to simple problems.
3.4.5 Describe the stochastic differential equation for geometric Brownian motion.
3.4.6 Describe the stochastic differential equation for the Ornstein-Uhlenbeck process.

3.5 Understand the principles and characteristics of models of the term structures of interest rates and their
application.
3.5.1 Principal concepts and terms underlying the theory of a term structure of interest rates.
3.5.2 Desirable characteristics of models for the term structure of interest rates.
3.5.3 Apply the term structure of interest rates to modelling various cashflows.
3.5.4 Risk-neutral approach to the pricing of zero-coupon bonds and interest-rate derivatives for a
general one-factor diffusion model for the risk-free rate of interest, as a computational tool.
3.5.5 The Vasicek, Cox-Ingersoll-Ross and Hull-White models for the term structure of interest rates
and their limitations.

3.6 Understand the principles and application of simple models for credit risk.
3.6.1 What is a ‘credit event’ and ‘recovery rate’.
3.6.2 Identify the different approaches to modelling credit risk: structural models, reduced form
models, intensity-based models.
3.6.3 Understand and apply the Merton model
3.6.4 Understand and apply the two-state model for credit rating with a constant transition
intensity.
3.6.5 Generalisation of the two-state model:
· to the Jarrow-Lando-Turnbull model for credit ratings.
· to incorporate a stochastic transition intensity.

4 Liability Valuations [20%]

The use of models in insurance to calculate the probability of ruin and estimate claims.
4.1 Understand the principles and application of ruin theory.
4.1.1 The aggregate claim process and the cashflow process for a risk.
4.1.2 Use the Poisson process and the distribution of inter-event times to calculate probabilities of
the number of events in a given time interval and waiting times.
4.1.3 Understand the compound Poisson process and calculate probabilities using simulation.
4.1.4 The probability of ruin in infinite/finite and continuous/discrete time and state, and the
relationships between the different probabilities of ruin.
4.1.5 Understand the effect on the probability of ruin, in both finite and infinite time, of changing
parameter values by reasoning or simulation.
4.1.6 Calculate probabilities of ruin by simulation.

4.2 Understand and use run-off triangles to estimate claims.

4.2.1 Understand what a development factor is and show how a set of assumed development factors
can be used to project the future development of a delay triangle.
4.2.2 Understand and apply a basic chain ladder method for completing the delay triangle using
development factors.
4.2.3 Basic chain ladder method and how this can be adjusted to make explicit allowance for inflation.
4.2.4 Understand and apply the average cost per claim method for estimating outstanding claim
amounts.
4.2.5 Understand and apply the Bornhuetter-Ferguson method for estimating outstanding claim
amounts.
4.2.6 Understand how a statistical model can be used to underpin a run-off triangles approach.
4.2.7 Understand the assumptions underlying the application of the methods in 4.2.1 to 4.2.6 above.

4.3 Value basic benefit guarantees using simulation techniques.

5 Option theory [30%]

The construction and evaluation of common forward and option contracts as well as theoretical models for
derivatives and option pricing, in particular the theory and application of binomial and Black-Scholes models.
5.1 Understand the principles of option pricing and valuations.
5.1.1 What is meant by arbitrage and a complete market.
5.1.2 Factors that affect option prices.
5.1.3 Determine specific results for options that are not model dependent:
· Show how to value a forward contract.
· Develop upper and lower bounds for European and American call and put options.
5.1.4 The meaning of put‑call parity.

5.2 Understand the principles of the binomial option-pricing model and its application.
5.2.1 Use binomial trees and lattices to value options and solve simple examples.
5.2.2 Determine the risk-neutral pricing measure for a binomial lattice and describe the risk-neutral
pricing approach to the pricing of equity options.
5.2.3 Difference between the real-world measure and the risk-neutral measure and why the risk-
neutral pricing approach is seen as a computational tool (rather than a realistic representation
of price dynamics in the real world).
5.2.4 The alternative names for the risk-neutral and state-price deflator approaches to pricing.
5.2.5 Apply the state-price deflator approach to the binomial model and understand its equivalence
to the risk-neutral pricing approach.
5.2.6 What is meant by risk-neutral pricing and the equivalent martingales measure.
5.2.7 Use the martingale approach to pricing and hedging using the binomial model.

5.3 Understand the principles of the Black-Scholes derivative-pricing model and its application.
5.3.1 Underlying principles of the Black-Scholes partial differential equation both in its basic and
Garman-Kohlhagen forms.
5.3.2 Use the Black-Scholes model to price and hedge a simple derivative contract using the
martingale approach.
5.3.3 Value options and solve simple examples using the Black-Scholes model
5.3.4 Apply the state-price deflator approach to the Black-Scholes model and understand its
equivalence to the risk-neutral pricing approach.
5.3.5 Validity of the assumptions underlying the Black-Scholes model.
5.3.6 Commonly used terminology for the first and, where appropriate, second partial derivatives
(the Greeks) of an option price.
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ng transferred
Subject Code
 CB1 IFoA Syllabus Objectives

1 Corporate governance and organisation [24%]

Understand corporate governance and regulation and the different objectives and stakeholders that companies
might try to satisfy.
1.1 The regulation of financial reporting of incorporated entities.

1.2 Key principles of corporate governance and the regulation of companies.

1.3 Key principles of finance.

1.3.1 Relationship between finance, real resources and objectives of an organisation.
1.3.2 Relationship between the stakeholders in an organisation (including lenders and investors).
1.3.3 Role and effects of the capital markets.
1.3.4 Maximisation of shareholder wealth and the strategies designed to achieve it.
1.3.5 Problems relating to the maximisation of shareholder wealth in practice: social responsibility concerns,
agency problems and divergent objectives.
1.3.6 Determinants of value and the actions managers can take to influence value.

1.4 Ethical responsibilities of the owners and managers of businesses.

2 How corporates are financed [29%]

Know the different types of corporations, how they are structured and financed and factors which should be
considered when deciding on their structure.
2.1 Structure and methods of financing a company.
2.1.1 Characteristics of sole traders, partnerships, limited companies and social enterprises as
business entities.
2.1.2 Different types of loan and share capital.
2.1.3 Authorised and issued share capital.
2.1.4 The main differences between a private and public company.
2.1.5 Advantages to a company of limited liability.
2.1.6 Different types of medium-term company finance:
· Credit sale
· Leasing
· Bank loans.
2.1.7 Different types of short-term company finance:
· Bank overdrafts
· Trade credit
· Factoring
· Bills of exchange
· Commercial paper.
2.1.8 Alternative methods of raising finance outside the regular banking system, including ‘shadow banking’,
direct project financing, peer-to-peer lending, crowd-funding and micro-finance.

2.2 Principles of personal and corporate taxation.

2.2.1 Taxation of personal income and capital gains.
2.2.2 Company taxation, including for the individual shareholder.
2.2.3 Different systems of company taxation from the points of view of an individual shareholder
and the company.
2.2.4 The principles of double taxation relief in the international corporate tax system.
2.2.5 Taxation and the use of offshore investment funds.

2.3 Principal forms of financial instrument issued or used by private companies and the ways in which they may
be issued.
2.3.1 Reasons for seeking a quotation on a stock exchange.
2.3.2 How shares are issued and traded.
2.3.3 The advantages and disadvantages of remaining as a private company versus becoming a publicly quoted
company
2.3.4 Characteristics of the following:
· Debenture stocks
· Unsecured loan stocks
· Eurobonds
· Preference shares
· Ordinary shares
· Convertible unsecured loan stocks
· Convertible preference shares
· Contingent convertibles
· Floating rate notes
· Subordinated debt
· Asset-backed securities
· Options issued by companies
2.3.5 Characteristics and possible uses by a non-financial company of:
· Financial futures
· Options
· Interest rate and currency swaps
2.3.6 Methods of obtaining a quotation for securities:
· Offer for sale
· Offer for sale by tender
· Offer for subscription
· Placing
· Introduction
2.3.7 Rights issue to existing shareholders.
2.3.8 Role of underwriting in the issue of securities.

2.4 Factors a company should consider when deciding on its capital structure and dividend policy.
2.4.1 Impact of chosen capital structure on the market valuation of the company.
2.4.2 Impact of taxation on the capital structure chosen by a company.
2.4.3 Principal factors a company should consider in setting dividend policy and the impact on the market
valuation.
2.4.4 Alternative ways of distributing profits, such as buybacks.

2.5 Corporate growth, restructuring and divestment.

2.5.1 Why companies want to grow larger, how companies achieve internal growth and the
relationship between growth and profitability.
2.5.2 Constraints on a company’s growth.
2.5.3 Why a company may wish to divest subsidiaries or business units.

3 Evaluating projects [15%]

Understand the evaluation of investment projects in a corporate setting.
3.1 Interaction of the cost of capital of a company with the nature of the investment projects it
undertakes.
3.1.1 A company’s cost of capital.
3.1.2 The calculation of a company’s weighted average cost of capital.
3.1.3 Principal methods used to determine the viability of a capital project.
3.1.4 Cash flow projections and the application of techniques to estimate cashflows.
3.1.5 Methods used to evaluate risky investments including simulation, scenario planning and certainty
equivalents.
3.1.6 Determination of the required rate of return for a capital project.
3.1.7 Factors underlying the choice of discount rate within project assessment, including:
· Assumptions underlying the limitations of the use of the weighted average cost of capital
· Allowance for leverage
· Allowance for risk
3.1.8 Methods to identify risks present for different types of projects.
3.1.9 Techniques to identify the probability and financial impact of different risks occurring over varying
timescales.
3.1.10 Techniques to ascertain the distribution of possible financial outcomes of a capital project.

4 Constructing and interpreting company accounts [32%]

Understand the construction and interpretation of company accounts.
4.1 Basic construction and principal features of the different types of company accounts and reports
4.1.1 Reasons why companies are required to produce annual reports and accounts.
4.1.2 Value of financial reporting on environmental, social and economic sustainability.
4.1.3 Alternatives to traditional financial reporting.
4.1.4 Relevant accounting concepts in the drawing up of company accounts.
4.1.5 The purpose of:
· A statement of financial position
· A statement of comprehensive income
· A cash flow statement
· The notes to the accounts
4.1.6 The construction of simple statement of financial position and statement of profit or loss.
4.1.7 Interpretation of cash flow statements.
4.1.8 The basic structure and content of insurance company accounts.
4.1.9 The basic structure and content of banking company accounts.
4.1.10 Difference between a subsidiary company and associate company.
4.1.11 Purpose of consolidated accounts.
4.1.12 Treatment of depreciation in company accounts.
4.1.13 Meaning of share capital, other reserves and retained earnings.

4.2 Interpreting company accounting information.

4.2.1 Priority percentages and gearing.
4.2.2 Interest cover and asset cover for loan capital.
4.2.3 The impact of interest rate movements on a highly geared company.
4.2.4 The price earnings ratio, dividend yield, dividend cover and Earnings Before Interest,
Taxation, Depreciation and Amortisation (EBITDA).
4.2.5 The calculation of accounting ratios that indicate:
· Profitability
· Liquidity
· Efficiency
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SOA
 CB2 IFoA Syllabus Objectives

1 Economic schools, economic way of thinking and recent historical applications [5%]
An introduction to economic concepts and models, their use in business as well as recent economic and financial history
1.1 Relationship between economics and business
1.1.1 Principles of economic choice, including opportunity cost and scarcity
1.1.2 Core economic concepts used by businesses to make choices relevant to selection of outputs, inputs, technology,
location and competition
1.1.3 Features of and differences between microeconomics and macroeconomics

1.2 Main economic schools and their key features:

· Classical
· Marxian socialism
· Neo-classical, Keynesian, neo-Keynesian and post-Keynesian
· Monetarist
· Austrian.

1.3 Recent macroeconomic history

1.3.1 Progress of the world economy since the Great Depression, with a particular focus on banking crises, their
consequences and irrational behaviour.
1.3.2 Banking crisis of 2008, the Great Recession, and recovery, including:
· Effectiveness of monetary policy in the 2008 financial crisis
· Governments actions to combat recession.
· Aftershocks in Europe
· Stimulus–austerity debate and regulatory action after the 2008 crisis.

2 Microeconomics – the behaviour of consumers, firms and markets [40%]

Understand, in detail, models of consumer choice, the theory of the firm and how these affect business decisions under
different conditions
2.1 How competitive markets operate
2.1.1 Role of the price mechanism and the behaviour of firms and consumers in a free market
2.1.2 Factors that influence market demand and supply
2.1.3 How market equilibrium quantity and price are achieved
2.1.4 How markets react to changes in demand and supply
2.1.5 Calculation of price and income elasticities of demand and price elasticity of supply, using both
original and average quantities
2.1.6 Factors that affect elasticity
2.1.7 Effect of elasticity on the short- and long-term operation of markets
2.1.8 How firms deal with risk and uncertainty about future market movements
2.1.9 Price expectations and speculation and how price bubbles develop

2.2 Consumer demand and behaviour

2.2.1 The concept of utility and the representation of consumer preferences as indifference curves
2.2.2 How rational choice and optimal consumption choice is determined by using indifference curves and budget lines
2.2.3 Rational choice, perfect information and irrational behaviour in the context of behavioural economics

2.3 The impact of advertising on sales and demand

2.4 Impact of the production function, costs of production and revenue and profit to on a firm’s price and output decisions
2.4.1 The production function and the relationship between short- and long-term inputs and outputs
2.4.2 Average and marginal physical product
2.4.3 Meaning and measurement of costs and how these vary with short- and long-term output
2.4.4 Total, average and marginal costs
2.4.5 Economies of scale and how a business can achieve efficiency in selecting the level of its inputs
2.4.6 Revenue and profit and how they are influenced by market conditions
2.4.7 Calculation of average and marginal revenue
2.4.8 Measurement of profit and how a firm arrives at its profit-maximising output
2.4.9 The ‘shut-down’ point in the short and long run

2.5 Profit maximisation under perfect competition and monopoly

2.5.1 What determines the market power of a firm
2.5.2 Main features of a market characterised by perfect competition, including how output and price
are determined in the short and long term
2.5.4 Monopolies and how they emerge; how they select profit-maximising price and output; and the
determination of the profit of a monopolist
2.5.5 Barriers to entry and market contestability and their impact on the profit of a monopolist

2.6 Profit maximisation under imperfect competition

2.6.1 Behaviour of firms under monopolistic competition and why in this type of market only normal profits are made in the
long run
2.6.2 Main features of an oligopoly and the behaviour of firms in an oligopoly
2.6.3 Competition and collusion of firms in an oligopoly and how strategic decisions of such firms can be explained by
game theory
2.6.4 Behaviour of oligopolists and the consumer interest

2.7 Pricing strategies that firms in the financial services sector can adopt
2.7.1 How prices are determined in practice and factors that affect the ability of a firm to determine its prices
2.7.2 Average-cost pricing and price discrimination
2.7.3 Pricing strategy for multiple products and how pricing varies with the stage in the life of a product

3 Macroeconomics and the role of government [55%]

Understand aggregate economic variables and concepts which relates them to government policy, business decision
making and financial market variables
3.1 Government intervention in a market
3.1.1 Extent to which businesses meet the interests of consumers and society in general
3.1.2 Socially efficient’ perfect markets and why most markets fail to achieve the theoretical ideal of social efficiency
3.1.3 Why externalities can lead to inefficient markets
3.1.4 How governments intervene in markets to influence business behaviour and the drawbacks of such intervention
3.1.5 Role of taxation and regulation in correcting shortcomings in markets
3.1.6 Why government intervention might not improve market outcomes in practice even if the existence of ‘market
failures’ suggest they can in theory
3.1.7 Policy instruments that can be used to promote environmental sustainability

3.2 Relationship between the government and the individual firm

3.2.1 Main targets of ‘competition policy’ and the extent to which it is effective
3.2.2 Why a free market can fail to achieve the optimal amount of research and development
3.2.3 Government intervention to encourage technological advance and innovation

3.3 Globalisation and multinational business

3.3.1 Globalisation and its impact on business
3.3.2 The driving processes of globalisation and the benefit of globalisation
3.4 Importance of international trade
3.4.1 Growth of international trade and its benefits to countries and firms
3.4.2 Advantages of specialisation
3.4.3 Arguments for trade restriction and protection of domestic industries
3.4.4 Role of the World Trade Organization (WTO) in international trade

3.5 Impact of the macroeconomic environment on business

3.5.1 Main macroeconomic variables that governments seek to control
3.5.2 Impact of an economic stimulus on business output
3.5.3 Difference between actual and potential growth
3.5.4 Factors that determine economic growth and the reasons for differences in different nations’ growth rates
3.5.5 Why economies experience periods of boom followed by periods of recession and the factors that influence the
length and magnitude of the phases of a business cycle
3.5.6 Causes and costs of unemployment and its impact on the level of business activity
3.5.7 Determination of the price level in the economy by the interaction between aggregate supply (AS) and aggregate
demand (AD) in a simple AS–AD model
3.5.8 Causes and costs of inflation and its impact on the level of business activity
3.5.9 Gross domestic product (GDP) and its measurement
3.5.10 Representation of the economy as a simple model of the circular flow of income

3.6 Balance of payments and the determination of exchange rates

3.6.1 What is ‘the balance of payments’ and how trade and financial movements affect it
3.6.2 How exchange rates are determined and their impact on business.
3.6.3 Relationship between the balance of payments and exchange rates.
3.6.4 Advantages and disadvantages of fixed and floating exchange rates.
3.6.5 How governments and/or central banks seek to influence the exchange rates and the implications of such actions for
other macroeconomic policies and for business.
3.6.7 Purpose and effectiveness of monetary union and single currencies, with reference to the European Economic and
Monetary Union, the Exchange Rate Mechanism and the creation of a single Currency.

3.7 Role of money and interest rates in the economy.

3.7.1 Functions of money.
3.7.2 Factors that determine the amount of money in the economy, what causes it to grow and the role of banks in this
process.
3.7.3 Concept of the money multiplier.
3.7.4 Determination of interest rates.
3.7.5 Relationship between money and interest rates.
3.7.6 Why central banks play a crucial role in the functioning of economies.
3.7.7 How a change in the money supply and/or interest rates affects the level of business activity.

3.8 Role, structure and stability of the financial system.

3.8.1 Functions of the financial sector.
3.8.2 Role and functions of investment funds, banks and insurance companies/pension funds.
3.8.3 Different ways banks and insurance companies can be exposed to credit risk and liquidity risks
through:
· bank loans
· corporate bonds
· securitisations (which can be owned by the non-bank sector)
· syndicated loans
· credit derivatives.
3.8.4 Why the banking sector is more likely to be exposed to systemic risk than the non-bank financial sector.
3.8.5 How financial innovation could lead to some functions of the banking sector being performed by non-banks
3.8.6 Basic principles on which Islamic finance is based.
3.8.7 Evaluation of the features of an Islamic finance product against the principles of Islamic finance.

3.9 Factors that determine the level of business activity and how they also affect unemployment and inflation.
3.9.1 Determination of the equilibrium level of income within a simple aggregate demand–expenditure model.
3.9.2 Concept of the multiplier and the calculation of its value.
3.9.3 Impact of a rise in money supply on output and prices.
3.9.4 Relationship between unemployment and inflation and whether the relationship is stable.
3.9.5 How business and consumer expectations affect the relationship between unemployment and inflation and the
formation of such expectations are formed.
3.9.6 Inflation targeting and its effect on the relationship between unemployment and inflation.
3.9.7 Course of a business cycle and its turning points.
3.9.8 Whether the business cycle is caused by changes in aggregate demand or changes in aggregate supply (or both).

3.10 Impact of macroeconomic policies on businesses.

3.10.1 Types of macroeconomic policy that are likely to have an impact on business and the way in which this impact
takes effect.
3.10.2 Impact of fiscal policy on the economy and business and the factors that determine its effectiveness in smoothing
out economic fluctuations.
3.10.3 Fiscal rules and their efficacy.
3.10.4 How monetary policy works in the UK and the eurozone and the roles of the Bank of England and the European
Central Bank.
3.10.5 Targeting inflation to influence interest rates and the economic activity.
3.10.6 The merits of central banks following a simple inflation target and possible alternatives

3.11 Supply-side policies and their impact on businesses.

3.11.1 Effect of supply-side policies on business and the economy.
3.11.2 Types of supply-side policies that can be pursued and their effectiveness.
3.11.3 Impact of cutting taxes on business
3.11.4 Major forms of government policy that can be used to encourage competition.
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Learning Objectives of the subjects you wish to transfer Subject Code
 CB3 IFoA Syllabus Objectives

1 Specify, describe or discuss a range of topics relevant to working as an actuary in the financial
services industry
1.1 Specify the type of skills that must be acquired to become a competent practising actuary in the financial services
industry
1.2 List the aspects of an employing company about which knowledge should be obtained.
1.3 Specify those aspects of the financial services industry about which knowledge should be obtained and maintained.
1.4 Describe why it is important to know how other industries affect the financial services industry
1.5 State those aspects of the global economy and politics about which some knowledge should be gained and
maintained.
1.6 Describe the activities of the Institute and Faculty of Actuaries
1.7 Discuss the issues and challenges faced currently by each main practice area, namely life, pensions, general,
healthcare, finance, investment and enterprise risk management.
2 Develop an approach to strategic thinking.
2.1 Describe what a strategy is and how it relates to competitive advantage and competitive positioning.
2.2 Develop a process for strategic decision making
2.3 Define a PEST analysis (Political/legislative, Economic, Societal, Technological) and describe how to carry one out.
2.4 Describe how to identify business and consumer needs and how to prioritise them.
2.5 Describe the industry value chain and how to apply it.
2.6 Discuss how to combat competitive forces.
2.7 Learn how to communicate strategic messages to gain buy-in and attention, selecting appropriate structures to present
different types of information.
2.8 Discuss how a company’s culture affects decision making
2.9 Discuss how a company’s structure affects decision making
2.10 Analyse case studies and present results of the analyses.
3 Develop an approach to business decision making.
3.1 Discuss the importance of a clear mission statement.
3.2 Describe the importance of a clear business strategy.
3.3 Describe the benefits of teamwork
3.4 Describe the advantages of time management.
3.5 Discuss the importance of extracting relevant information from a large volume of data.
3.6 Describe the interaction of various company functions.
3.7 Discuss the value of different people skills.
3.8 Assess their ability to influence others.
3.9 Discuss the advantages of communicating clearly
3.10 Describe how to develop a decision making process.
3.11 Discuss attitude to risk in decision making.
3.12 Discuss how competition can affect a market.
4 Describe and understand the basic legal principles that are relevant to the work of an actuary and
their practical implications.
4.1 Appreciate the sources of English law and how Scottish law may differ (overview only).
4.2 Understand the requirements for a valid contract (overview only).
4.3 Identify when the courts will imply terms into contracts.
4.4 Understand the extent to which liability can be excluded.
4.5 Make simple assessments of likely contractual remedies
4.6 Calculate a basic award of damages.
4.7 Identify the factors that must be established before liability for professional negligence can arise.
4.8 Understand the concept of a trust and the duties of trustees
4.9 Understand the concept of agency and list the types of authority an agent may possess
4.10 Appreciate the concepts of separate legal personality and limited liability
4.11 Understand and, at a basic level, be able to explain the role of directors and shareholders within a company
4.12 Appreciate the duties imposed on directors by statute, common law and equity.
4.13 At a basic level, be able to explain the nature of partnership and the duties owed by partners to insiders and third
parties
5 Describe or specify important aspects of professionalism and ethics.
5.1 State important characteristics of a profession and its advantages to interested parties.
5.2 Demonstrate a knowledge of the Actuaries’ Code that binds all members of the Institute and Faculty of Actuaries.
5.3 List the measures by which the Financial Reporting Council and the Institute and Faculty of Actuaries regulate the
activities of actuaries and candidates in the UK and overseas
5.4 Describe the corporate governance structure of the Institute and Faculty of Actuaries.
5.5 Analyse appropriate case studies relating to professionalism and ethics, and present results of the analyses.
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 CP1 IFoA Syllabus Objectives

1 Actuarial advice and meeting the needs of stakeholders [5%]

Recognise the considerations in providing actuarial advice and meeting the needs of stakeholders and the main
benefits and financial products that actuaries advise on.
1.1 Understand the clients that actuaries advise and the considerations to ensure that this advice meets the needs of
stakeholders
1.1.1 How stakeholders other than the client may be affected by any actuarial advice given.
1.1.2 The business roles that actuaries advise and the types of advice that actuaries may give to their clients.
1.1.3 Why and how certain factual information about the client should be sought in order to be able to give advice.
1.1.4 Why subjective attitudes of clients and other stakeholders – especially towards risk are relevant to giving
advice.
1.1.5 The professional and technical standards that may apply to actuarial advice.

1.2 Understand the main benefits and financial products that actuaries advise on
1.2.1 Main providers of benefits on contingent events.
1.2.2 Main types of social security benefits and financial products and how they can provide benefits on contingent
events that meet the needs of clients and stakeholders.
1.2.3 Main principles of insurance and pensions that impact on these benefits and products.
1.2.4 Ways of analysing the needs of clients and stakeholders to determine appropriate financial products.

2 General business environment [20%]

Understand how the external business environment can impact an organisation’s commercial decisions
2.1 Understand the regulatory environment for an organisation.
2.1.1 Principles and aims of prudential and market conduct regulatory regimes.
2.1.2 The role that major financial institutions can play in supporting the regulatory and business environment.
2.1.3 The concept of information asymmetry.
2.1.4 How certain features of financial contracts may be identified as unfair, and the impact of the requirement to
treat a customer fairly.

2.2. Understand the various external forces on an organisation and their impact
2.2.1 The implications of external forces on financial products for the main providers of financial products:
· Legislation, regulations, tax and accounting standards.
· state benefits.
· capital adequacy and solvency.
· corporate governance and risk management requirements
· competitive advantage and commercial requirements.
· changing cultural and social trends, demographic changes and lifestyle considerations
· climate change and other environmental issues.
· international practice.
· technological changes.

2.3 Understand the impact of the investment environment.

2.3.2 The characteristics of the principal investment assets and of the markets in such assets.
2.3.3 How the risk profile of the principal investment assets affects the market in such assets.
2.3.4 Principal economic influences on investment markets.
2.3.5 Other factors affecting supply and demand in investment markets.

3 Specifying the problem [20%]

Understand how to identify, classify, measure and manage risks in a range of commercial situations including use of
the actuarial control cycle for risk management
3.1 Apply the Actuarial Control Cycle for an organisation
3.1.1 The Actuarial Control Cycle and the purpose of each of its components.
3.1.2 How the Actuarial Control Cycle can be applied in a variety of practical commercial situations, including its use
as a risk management control cycle.

3.2 Understand the principles of organisational risk governance

3.2.1 The risk management process for a business that can aid in the design of financial products.
3.2.2 The differences between systematic and diversifiable risk.
3.2.3 How enterprise risk management can add value to the management of a business.
3.2.4 The roles and responsibilities of various stakeholders in the management of risk.
3.2.5 Risk appetite and the attainment of risk efficiency.

3.3. Identify risks and understand how risk classification can be used in the design of financial products or for actuarial
problem solving
3.3.1 Techniques used to identify the risks associated with financial products for their purchasers and providers
3.3.2 The risks and uncertainties affecting:
· the level and incidence of benefits payable on contingent events.
· the overall security of benefits payable on contingent events.
3.3.3 How risk classification can aid the design of financial products.
3.3.4 The possible risk categories that apply to businesses in general, and particularly financial services businesses.

3.4 Understand and apply the main methods of measuring and monitoring risk that can be used
3.4.1 The methods used to quantify risk.
3.4.2 Uses of scenario analysis, stress-testing and stochastic modelling in the evaluation of risk.
3.4.3 Methods of risk aggregation and their relative advantages and disadvantages.
3.4.5 The methods of measuring and reporting risk that can be used by the main providers of financial products.

3.5 Understand the main factors to be considered in deciding on the contract design of financial products.
3.5.1 The factors to be considered in determining a suitable design for financial products in relation to:
· the characteristics of the parties involved.
· the risk appetite or risk aversion of the parties involved.
· the regulatory environment.
· the market for the product.
· competitive pressures.
· the level and form of benefits to be provided.
· any options or guarantees that may be included.
· the benefits payable on discontinuance or transfer of rights.
· the method of financing the benefits to be provided.
· the choice of assets when benefits are funded.
· administrative issues.
· the charges that will be levied.
· the capital requirements.
3.5.2 The issues surrounding the management of options and guarantees.

3.6 Recognise the potential risks and issues in working with data and understand how to manage
those issues and risks
3.6.1 Ethical and regulatory issues associated with the use of data, and data governance.
3.6.2 Data requirements for determining values for assets, future benefits and future funding requirements.
3.6.3 Checks on data.
3.6.4 Circumstances under which the ideal data may not be available and ways in which this can be addressed.

4 Developing the solution [45%]

Understand how models are used to solve actuarial or financial problems including the considerations in setting the
assumptions to be used for modelling and apply relevant approaches and techniques to the valuation of liabilities
4.1 Understand how models are used to solve actuarial or financial problems
4.1.1 The approaches available to produce the solution to an actuarial or financial problem.
4.1.2 The construction of actuarial models in terms of:
· the objectives of the model.
· the operational issues that should be considered in designing and running models.
4.1.3 The use of models for:
· pricing or setting future financing strategies.
· risk management: assessing the capital requirements and the return on capital or the funding levels required.
· assessing the provisions needed for existing commitments to provide benefits on contingent events.
· pricing and valuing options and guarantees.
4.1.4 How sensitivity analysis of the results of the models can be used to help decision making.

4.2 Understand the considerations in setting the assumptions to be used for modelling an actuarial or financial
problem.
4.2.1 The principles behind the determination of assumptions as input to a model relevant to
producing a specific solution having regard to:
· the types of information that may be available to help in determining the assumptions to be used.
· the extent to which each type of information may be useful and the other considerations that may be taken into
account, in deciding the assumptions.
· the level of prudence in the assumptions required to meet the objectives of the client.
4.2.2 Allowance for mortality and morbidity.
· Principal forms of heterogeneity within a population, the ways in which selection can occur and how the use of risk
classification can address the consequences of selection.
· Why it is necessary to have different mortality tables for different classes of lives.
· how to determine the appropriate grouping of data to achieve the optimal level of homogeneity.
· Principal factors that contribute to the variation in mortality and morbidity by region and according to the social and
economic environment
· How various types of selection (e.g. temporary initial selection, class selection) can be expected to occur among
individuals or groups.
· The concept of mortality convergence.
· How decrements can have a selective effect on the remaining business.
4.2.3 Allowance for expenses.
· The types of expenses that the providers of financial products must meet.
· How expenses may be allocated when pricing financial products.

4.3 Understand the considerations for determining the cost of a financial product or benefit and the price charged to
the consumer.
4.3.1 How to determine the cost of providing benefits on contingent events.
4.3.2 The factors to take into account when determining the appropriate level and incidence of
contributions to provide benefits on contingent events.
4.3.3 The influence of provisioning and regulatory capital requirements on pricing and setting
financing strategies.

4.4 Understand relevant investment management principles

4.4.1 The principles and objectives of investment management and the needs of an investor, taking into account
liabilities, liquidity requirements and risk appetite.
4.4.2 Methods for the valuation of individual investments and their appropriateness in different situations.
4.4.3 The theoretical relationships between the total returns and the components of total returns,
on equities, bonds and cash, and price and earnings inflation.
4.3.4 Methods for the valuation of portfolios of investments and their appropriateness in different situations.
4.3.5 Methods for quantifying the risk of investing in different classes and sub-classes of investment.
4.5 Apply relevant approaches and techniques to the valuation of liabilities
4.5.1 Reasons for the valuation of the benefits from financial products and the impact on the choice of methodology
and assumptions.
4.5.2 How to determine values for provisions in terms of:
· the need for placing values on provisions and the extent to which values should reflect risk management strategy.
· the principles of fair valuation of assets and liabilities and other market consistent methods of valuing the
liabilities.
· the reasons why the assumptions and methods used to place a value on guarantees and options may differ from
those used for calculating the accounting provisions needed.
· how sensitivity analysis can be used to check the appropriateness of the values.
4.5.3 Methods of allowing for risk in cash-flows.
4.5.4 Methods of allowing for uncertainty in present values of liabilities.
4.5.5 The influence of comparisons with market values.

4.6 Understand the relationship between assets and liabilities.

4.6.1 The principles of investment and the asset/liability matching requirements of the main providers of financial
products.
4.6.2 How actuarial techniques such as asset/liability modelling may be used to develop an appropriate investment
strategy.
4.6.3 The use of a risk budget for controlling risks in a portfolio.
4.6.4 The techniques used to construct and monitor a specific asset portfolio.
4.6.5 The need to monitor investment performance and to review investment strategy.

4.7 Understand stakeholder responses to risk and how they can be managed
4.7.1 Methods of risk acceptance, rejection, transfer and control for stakeholders.
4.7.2 Difference between the risks taken as an opportunity for profit and the risks to be mitigated.
4.7.3 Principle of pooling risks.
4.7.4 Risk management aspects of a particular business issue and development of an appropriate risk management
strategy.
4.7.5 Tools for the management and control of risk.
4.7.6 Management of risks with low likelihood but high impact.

4.8 Recognise the importance of capital for an organisation

4.8.1 Interrelationship between risk and capital management.
4.8.2 Implication of risk for capital requirement, including economic and regulatory capital requirements.
4.8.3 How the main providers of benefits on contingent events can meet, manage and match their capital
requirements.
4.8.4 Implications of the regulatory environment in which the business is written for provisioning and capital
requirements.
4.8.5 Risk-based capital and other measures of capital needs.
4.8.6 Merits of an economic balance sheet to determine risk-based capital requirements.
4.8.7 Use of internal models for assessment of economic and regulatory capital requirements.

5 Living with the solution [10%]

Monitoring, reporting and responding to experience
5.1 Apply appropriate techniques to manage and maintain an organisations profitability
5.1.1 How the main providers of financial products can control and manage the cost of:
· payments arising on contingent events.
· expenses associated with the payment of benefits.
5.1.2 How regulatory capital requirements impact on a provider’s profitability.
5.1.3 The tools available for capital management.
5.2 Analyse and understand performance and the considerations for an organisation to distribute surplus
5.2.1 How a provider can analyse actual performance against expected performance.
5.2.2 How a provider can analyse performance of an investment portfolio against a benchmark.
5.2.3 Sources of surplus/profit and the management actions that can control the amount of surplus/profit.
5.2.4 Why a provider will carry out an analysis of the changes in its surplus/profit.
5.2.5 How any surplus/profit arising may be distributed.
5.2.6 Considerations in determining the amount of surplus/profit that may be distributed at any time and the rartionale
for retention of surplus/profit

5.3 Understand how an organisation can monitor its experience and manage risk
5.3.1 Reports and systems that may be set up to control the progress of the financial condition of the main providers
of financial products.
5.3.2 Reports and systems that may be set up to monitor and manage risk at the enterprise level.
5.3.3 Issues facing the main providers of financial products relating to reporting of risk.
5.3.4 How the actual experience can be monitored and assessed, in terms of:
· the reasons for monitoring experience.
· the data required.
· the process of analysis of the various factors affecting the experience.
· the use of the results to revise models and assumptions.
5.6.5 How the results of the monitoring process in the Actuarial Control Cycle or the Risk Management Control Cycle
are used to update the financial planning in a subsequent period.
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 CP2 IFoA Syllabus Objectives

1 Preparation and analysis of data [10%]

1.1 Use appropriate tools for checking, cleaning, restructuring and transforming data to make it suitable for analysis
1.2 Summarise data using appropriate analysis, descriptive statistics and graphical representation
1.3 Select and carry out appropriate statistical tests of reasonableness
1.4 Make appropriate assumptions about the data provided
1.5 Repair corrupt or missing data

2 Development of a model with clear documentation [20%]

2.1 Plan and produce a spreadsheet model to solve a specified problem
2.2 Create appropriate charts to support visual interpretation of the results
3 Model testing [5%]
3.1 Perform checks on the intermediate and final results of a model
3.2 Comment on the reasonableness of the results from a model under different scenarios

4 Documentation [45%]
4.1 Create a clear audit trail, which could be followed by a senior actuary and would enable the model to be worked
on and corrected by a fellow student and includes:
· key assumptions
· description of data and model checks
· methodology
· reasonableness checks
4.2 Draft a clear summary of the model and the results for a senior actuary to include:
· the data
· assumptions
· approach taken
· results
· conclusions
· suggested next steps to develop the model

5 Communication of results and conclusions [10%]

5.1 Provide commentary on the results from a model appropriate for the target audience. This should cover, but not be
limited to:
· Analytical comments on each stage of the results, including explaining patterns in
the results and any unusual features
· An explanation of the differences between the results under the various strategies
modelled

6 Next Steps [10%]

6.1 Identify possible next steps for the client having taken into consideration the initial modelling and the results, including:
· Possible enhancements to the model
· Additional modelling to provide additional information to support the project’s objectives
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ults, including:
 CP3 IFoA Syllabus Objectives

1. Identify relevant information and appropriate content

1.1 Identify key information that must be conveyed in order for a communication to meet the
objectives, including:
· setting out any implications that may affect the intended recipients’ decisions
· disclosing the extent of any uncertainty involved and any limitations in the information being communicated, if that
uncertainty or those limitations may affect the intended recipients’ decisions.

1.2 Assess what information is not necessary and may, if included, detract from communicating effectively.

1.3 Use numbers in a way that is appropriate for the intended recipient(s), given the objectives of the communication:
· Prepare numerical examples, where appropriate, by drawing on some or all of the available data or creating
representative numeric examples (if suitable data is not provided).
· Prepare numerical information so that it is presented in an appropriate format (e.g. appropriate use of
percentages, ratios, fractions) and level of detail (e.g. well judged number of significant figures or decimal places).
1.4 Be able to justify the choice of information and content.

2. Use an effective structure

2.1 Prepare an appropriate structure for a specific communication objective
2.2 Justify the choice of structure

3. Adopt appropriate language

3.1 Assess what terminology will be easily understood by the intended recipient(s).
3.2 Explain or define necessary technical terms at an appropriate level of detail for the intended recipient(s)
3.3 Justify the choice of language and terminology.

4. Include appropriate explanation

4.1 Set out a draft communication for the intended recipient(s), including:
· sufficient explanatory steps
· effective explanation
· appropriate level of detail
· technically correct information that is not misleading

5. Incorporate effective communication tools

1.1 Set out information using simple and effective communication tools:
· Visual presentation of numerical information
· Diagrams or pictures
· Bullet points

5.2 Justify the choice of communication tool(s) for presenting numerical information (e.g. data tables, bar charts, line
charts, pie charts, scatter charts etc.).
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 SP1 IFoA Syllabus Objectives

1 Health and care products and general business environment [15%]

Understand the Health and Products which are commonly available and the environment in which they are sold
1.1 Describe the main types of health and care contact and their purpose for the customer products:
· Critical illness insurance
· Income protection insurance
· Long-term care insurance
· Health cash plans
· Major medical expenses
· Private medical insurance
· Group and individual covers.

1.2 Understand the operating environments in which health and care insurance products and services are traded:
· Distribution channels
· Regulatory and taxation regimes
· Professional guidance
· Economic and political influences.

1.3 Explain the role of the State in the provision of alternative or complementary health and care protection:
· Objectives of State healthcare provision
· Methods of State healthcare provision
· Funding approaches.

2 Product design and specific features [25%]

Have a knowledge of the considerations taken in the design of Health and Products.
2.1 Demonstrate an understanding of and apply actuarial principles to the design of health and care products
2.1.1 Principles of health and care insurance contracts design and the interest of the various stakeholders in
the process.
2.1.2 Create a suitable design for a product in a given situation.
2.1.3 Relative merits of different product designs.

3 Risks and risk management [30%]

Understanding potential risks faced by a health and care insurance company and how these risks can be managed.
3.1 Assess how the following can be a source of risk to a health and care insurance company
· Data
· Claim rates
· Claim amounts
· Investment performance
· Expenses and inflation
· Persistency
· Mix of new business
· Volume of new business
· Guarantees and options
· Competition
· Actions of management
· Actions of distributors
· Counterparties
· Legal, regulatory and tax developments
· Reputation
· Internal audit failures/fraud
 · Physical risks
· Aggregation and concentration of risk
· Catastrophes
· Non-disclosure and anti-selection
· Climate risks.

3.2 Demonstrate the application of reinsurance as a risk management technique.

3.2.1 Purposes of reinsurance.
3.2.2 Different types and structures of reinsurance.
3.2.3 Factors that should be considered in determining the level of retention.

3.3 Demonstrate the application of underwriting as a risk management technique.

3.3.1 Purposes of underwriting.
3.3.2 Different approaches by which underwriting is applied.
3.3.3 Factors that should be considered when determining the level of underwriting to use.

3.4 Propose further ways of managing the risks in 3.1, including:

· claims management.
· data checks.
· product design.
· managing the distribution process and customer relationship.
· managing other counterparties.
· other internal processes.

3.5 Demonstrate the application of asset-liability matching as a risk management technique.

3.5.1 Principles of investment and how they apply to health and care insurance.
3.5.2 Analyse health and care insurance liabilities into different types for asset-liability matching purposes.
3.5.3 Propose an appropriate aAsset-liability matching strategy for different types of liability.

4 Models and valuation [15%]

Explore how health and care insurance companies use models within their business
4.1 Describe the main features of a health and care insurance model.
4.1.1 Objectives and basic features of a health insurance model.
4.1.2 Stochastic and deterministic approaches.
4.1.3 Formula and cashflow approach.
4.1.4 Basic features of multi-state models.
4.1.5 Use of sensitivity analysis.

4.2 Understand and apply the techniques used in pricing health and care insurance products in terms of:
· data availability
· assumptions used.
· equation of value/formula approach.
· cashflow techniques.
· group risk assessments.
· options and guarantees.
· external influences.

4.3 Demonstrate the different uses of actuarial models for decision-making purposes in health and care insurance
· pricing products.
· developing investment strategy.
· projecting solvency.
 · calculating embedded value.

4.4 Discuss the determination of supervisory reserves and solvency capital requirements for a health and care
insurance company.
4.4.1 Describe the purposes of reserves, solvency capital requirements and embedded values and the
methodologies by which they are calculated for a health and care insurer, including:
· role of statistical and individual case estimates.
· setting assumptions, including a comparison with those used in pricing.
· market consistent valuation.
· Value at Risk (VaR) capital assessment.

4.4.2 Discuss the interplay between the strength of the supervisory reserves and the level of solvency capital
required.
4.4.3 Compare passive and active valuation approaches.

5 Monitoring experience and setting assumptions [15%]

Considers the issues for health and care insurance companies in setting assumptions and monitoring experience for
heath and care insurance business.
5.1 Apply the principles of setting assumptions for health and care insurance business.
5.1.1 For pricing health and care insurance contracts.
5.1.2 For determining liabilities.
5.1.3 Explain why the assumptions used for supervisory reserves may be different from those used in pricing.
5.1.4 For determining a company’s embedded value.

5.2 Undertake experience monitoring in a health insurance company.

5.2.1 Why it is important for a health insurance company to monitor its experience.
5.2.2 How to monitor the actual mortality, morbidity, claims amounts, persistency, expense, new business and
investment experience of a health insurance company, including the data required.
5.3 Demonstrate the relevance of analysis of surplus or profit.
5.3.1 How to undertake an analysis of surplus and an analysis of embedded value profit.
5.3.2 Suggest ways in which the results of the analyses can be used.
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 SP2 IFoA Syllabus Objectives

1 Life insurance products and general business environment [15%]

Understand the different types of life insurance products which are commonly available and the environment in which
they are sold.
1.1 Describe the main types of life insurance products.
1.1.1 Main types of life insurance products that provide benefits on death, survival to a specified point in time or
continued survival.
1.1.2 Life insurance product bases:
· Conventional without profits
· With-profits
· Unit-linked
· Index-linked.
1.1.3 Typical guarantees and options that may be offered on life insurance products.

1.2 Understand the link between main types of life insurance products and the needs of the consumers, key risks for
the insured and the purpose and key risks for the insurer

1.3 Identify the impact of the general business environment on the management of a life insurance business
· propensity of consumers to purchase products.
· local culture.
· methods of sale.
· remuneration of sales channels.
· types of expenses and commissions, including influence of inflation.
· economic environment.
· legal environment.
· regulatory environment.
· taxation regime.
· professional guidance.

2 Product design and specific features [25%]

Understand the considerations which must be taken when designing life insurance products.
2.1 Demonstrate an understanding of and apply actuarial principles to the design of life insurance products.
2.1.1 Factors to consider when determining a suitable design, in terms of premiums, benefits and charges, for a life
insurance product.
2.1.2 Determine a suitable design for a product in a given situation.
2.1.3 Relative merits of different product designs.

2.2 Demonstrate an understanding of with-profits business management.

2.2.1 Methods of distributing profits to with-profits policyholders.
2.2.2 Main uses of asset shares and how they may be built up using a recursive formula.

2.3 Apply the principles of unit pricing for internal unit-linked funds.
2.4 Determine discontinuance and alteration terms for without-profits contracts.
2.4.1 Principles of setting discontinuance and alteration terms.
2.4.2 Different methods of determination of discontinuance and alteration terms.
2.4.3 Extent to which these methods meet the principles in 2.4.1.
2.4.4 Surrender values and alteration terms for conventional without-profits contracts using reserves or by equating
policy values.

3 Risks and risk management [30%]

Understand the potential risks faced by a life insurance company and how these risks can be managed.
3.1 Assess how the following can be a source of risk to a life insurance company:
· Policy and other data
· Mortality rates
· Investment performance
· Expenses, including the effect of inflation
· Persistency
· Mix of new business
· Volume of new business
· Guarantees and options
· Competition
· Actions of the board of directors
· Actions of distributors
· Failure of appropriate management systems and controls
· Counterparties
· Legal, regulatory and tax developments
· Fraud
· Aggregation and concentration of risk.

3.2 Demonstrate an understanding of reinsurance as a risk management technique.

3.2.1 Purposes of reinsurance.
3.2.2 Different types and structures of reinsurance.
3.2.3 Factors that should be considered before taking out reinsurance.

3.3 Demonstrate an understanding of underwriting as a risk management technique.

3.3.1 Purposes of underwriting.
3.3.2 Different approaches by which underwriting is applied.
3.3.3 Factors that should be considered when determining the level of underwriting to use.

3.4 Demonstrate an understanding of asset-liability matching as a risk management technique.

3.4.1 Principles of investment for a life insurance company.
3.4.2 Categorise life insurance liabilities into different types for asset-liability matching purposes.
3.4.3 Asset-liability matching strategy for different types of liability.

3.5 Propose further ways of managing the risks in 3.1, including:

· policy data checks.
· choice of with-profits bonus method.
· capital management.
· expense control.
· policy retention activity.
· management of new business mix and volumes.
· management of options.
· systematic risk assessment and management strategies.
4 Models and valuation [15%]
Have an understanding of how life insurance companies use models within their business.
4.1 Describe the main features of a life insurance model.
4.1.1 Objectives and basic features of a life insurance model.
4.1.2 Stochastic and deterministic approaches.
4.1.3 Use of sensitivity analysis.

4.2 Demonstrate an understanding of the different uses of actuarial models for decision making purposes in life
insurance
· pricing products.
· developing investment strategy.
· projecting solvency.
· calculating embedded value.

4.3 Demonstrate an understanding of the methods used for determining the cost of options and guarantees.
4.3.1 Use of stochastic simulation and the use of option prices to determine the cost of an
investment guarantee.
4.3.2 Assessment of the cost of simple mortality options.

4.4 Determine supervisory reserves and solvency capital requirements for a life insurance company.
4.4.1 How supervisory reserves and solvency capital requirements may be determined, including:
· market consistent valuation.
· non-unit reserves.
· Value at Risk (VaR) capital assessment.
4.4.2 Interplay between the strength of the supervisory reserves and the level of solvency capital
required.
4.4.3 Passive and active valuation approaches, including the valuation of assets.

5 Monitoring experience and setting assumptions [15%]

Consider the issues for life insurance companies in setting assumptions and monitoring experience for heath and care
insurance business.
5.1 Apply the principles of setting assumptions for life insurance business.
5.1.1 For pricing life insurance contracts, including profit requirements.
5.1.2 For determining liabilities.
5.1.3 Why the assumptions used for supervisory reserves may be different from those used in
pricing.
5.1.4 Principles of setting assumptions for determining embedded value.

5.2 Demonstrate the relevance of experience monitoring to a life insurance company.

5.2.1 Why it is important for a life insurance company to monitor its experience.
5.2.2 How to monitor actual mortality, persistency, expense and investment experience of a life
insurance company, including the data required.

5.3 Demonstrate the relevance of analysis of surplus or profit.

5.3.1 How to undertake an analysis of surplus and an analysis of embedded value profit.
5.3.2 Use the results of the analyses
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 SP4 IFoA Syllabus Objectives

1 Pension provision and the general business environment [20%]

Develops an understanding of the concept of benefit provision, the key stakeholders involved, their roles and
responsibilities, and the environment in which the benefits are provided.
1.1 Understand the roles and responsibilities of stakeholders in the provision of benefits
· State and statutory bodies.
· Employers or groups of employers.
· Trustees or scheme managers.
· Financial advisers for individuals.
· Consultants and other professional advisers
· Individuals or groups of individuals.

1.2 Understand and compare the provision of benefits from State, public and private sector employers, and
individuals.

1.3 Identify the impact of the environment in which benefits are provided on stakeholders
· Different presentation and reporting of benefits and contributions.
· Regulation and taxation.
· Relevant professional guidance for actuaries or other professional advisers.

1.4 Understand the relevance, and impact, of sponsor covenants

· Methods by which sponsor covenant can be measured.
· Integration of sponsor covenant with funding and investment.

2 Scheme design and financing [20%]

Explore the factors to consider when designing and financing pension and other benefit arrangements.
2.1 Understand the different ways in which providers may be able to finance the benefits to be provided
· Timing of contributions (relative to when the benefits are due to be paid).
· Forms and characteristics of investment that may be available (if benefits are funded).
· Financial instruments, including contingent assets, that may be used to back benefit promises.
· Insurance products, including protection and annuity policies

2.2 Understand the factors to consider to determine a suitable design for a pension scheme, or other benefits (such
as social security benefits)
· Type of pension scheme (e.g. defined benefit, defined contribution, risk-sharing).
· Governance requirements.
· Level and form of benefits and/or contributions.
· Method of financing the benefits.
· How risk is shared between parties.
· Choice of assets (when benefits are to be funded and when assets are to be invested).

3 Managing schemes and risks [20%]

Understand potential risks affecting key aspects of benefit design and financing, as well as how these are managed
and reported.
3.1 Understand the risks affecting:
· the level and incidence of benefits.
· the level and incidence of contributions.
· the level and incidence of return on assets.
· the extent to which assets are exhausted during a member’s lifetime.
· the overall security of benefits
including risks which can, and cannot be mitigated through the use of insurance products

3.2 Understand the factors that need to be considered when providing information to meet accounting standards
· Purpose of accounting standards.
· Disclosure requirements.
· Calculations of cost of benefit provision.

3.3 Identify the main factors to consider when setting appropriate terms and consent requirements in respect of the
options provided to member of benefit arrangements, taking into account the risk and reward for all stakeholders

3.4 Identify the factors to consider when setting the investment strategy of a benefit provider and how projection
models may be used to develop appropriate strategies.

4 Models, valuations and setting assumptions [30%]

Principles of using actuarial models and setting assumptions, their use in valuing benefits and contributions, and the
impacts on stakeholders.
4.1 Use relevant actuarial models for decision-making purposes
· Objectives of and requirements for building a model for the financial management of the provision of benefits.
· Basic features of a model for projecting income and outgo.
· Use these models for setting contributions, targeting benefit levels and assessing the return on assets.
· How sensitivity analysis of the results of the models can be used.

4.2 Use the principles underlying the determination of the funding method, valuation method and assumptions to
value benefits and contributions
· Types of information that may be available to help determine the assumptions and methods.
· Requirements for prudence.
· Objectives of stakeholders

4.3 Determine values for assets, past and future benefits and future contribution requirements and perform
calculations using he main methods
· Data requirements.
· Reasons why assumptions and methods used may differ
· Extent to which values should reflect investment/risk management strategy.
· How to place values on guarantees and options.
· Sensitivity analysis and reasonableness checking.

4.4 Use relevant principles to determine discontinuance terms for benefits

· Rights and expectations of beneficiaries.
· Availability and selection of a method of provision of discontinuance benefits.
· Level of available assets.

5 Monitoring experience and the Actuarial Control Cycle [10%]

Explore how experience can be monitored and analysed in a quantifiable manner.
5.1 Identify the sources of surplus/deficit for a benefit provider and the factors that affect the application of this
surplus/deficit.
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 SP5 IFoA Syllabus Objectives

1 The economic, regulatory and legislative framework for investment management [10%]
Explore the environment in which investment management takes place, including various global financial markets,
different macroeconomic, regulatory, legislative and taxation environments and what influences these markets.
1.1 Understand the influences on commercial and economic environment
· central banks.
· main investor classes.
· government policy.

1.2 Understand the legislative and regulatory framework for investment management and the securities industry and
its impact on:
· corporate governance.
· role of the listings authority.
· environmental, social and governance factors.
· ethical issues.
· competition and fair trading controls.
· monopolies regulators.
· investment restrictions in investment agreements.
· provision of financial services.
· institutional investment practices.
· development of international accounting standards.

2 Specialist investment products [15%]

Explore a range of investment products or asset classes, their characteristics and suitability for agiven investor.
2.1 Understand the characteristics of the following specialist financial instruments:
· Financial instruments available for short-term lending and borrowing
· Corporate debt and credit derivatives
· Swaps and swaptions
· Private debt
· Asset-backed securities, securitisation
· Venture capital
· Hedge funds
· Currency
· Infrastructure
· Commodities
· Insurance-linked securities
· Structured products
· New ways of investing in old asset classes.

2.2 Understand the main types and features of derivative contracts and their uses
· how they are traded.
· their payoffs.
· how they can be used by an investment manager.

3 Valuing investments [10%]

How to value various types of investments across various situations using different methods.
3.1 Understand and apply the key principles of fundamental analysis of equities and bonds
· factors affecting equity prices.
· credit analysis of bonds.
· role of credit rating agencies.

3.2 Determine the value of individual investments in different situations, including:

· fixed income analytics and valuation (including interest rate swaps and futures).
· arbitrage pricing and the concept of hedging.
· empirical characteristics of asset prices.
· fixed income option pricing.
· evaluating a securitisation.
· evaluating a credit derivative.

4 Monitoring and managing investment risks [10%]

Methods to monitor and manage the various risks that arise in investment products, including ways to control
exposure to risk and the use of mean-variance portfolio theory
4.1 Understand methods by which an institution can monitor and control its exposure to risks, including:
· Asset/liability mismatching risk
· Market risk
· Credit risk (including counterparty risk)
· Operational risk
· Liquidity risk
· Relative performance risk
· Sustainability risk

4.2 Apply the principles of mean-variance portfolio theory to investment scenarios with particular reference to
· opportunity set
· efficient frontier
· indifference curves
· the optimum portfolio

5 Investor characteristics, including behavioural finance and taxation [10%]

Explore the various types of investor, what their objectives and motivation might be including the influence of
behavioural finance and taxation on their motivations.
5.1 Understand the key findings of behavioural finance and how these might apply to different types of investor

5.2 Identify the main steps involved in financial planning.

5.3 Understand the typical ways in which investment returns are taxed and the effect of the taxation basis on investor
behaviour.

6 Appropriate investment strategies [15%]

Use of relevant actuarial techniques to determine an investment strategy that could be appropriate for a particular
type of investor, taking into account their objectives and constraints.
6.1 Propose how actuarial techniques may be used to develop an appropriate investment strategy, including:
· asset pricing models.
· asset/liability modelling.
· liability hedging.
· dynamic liability benchmarks.
7 Portfolio management and risk control [15%]
Explore different styles of portfolio management, their objectives and how they could be applied to solve investor
requirements.
7.1 Understand the principal portfolio management techniques
· active management ‘styles’ (value, growth, momentum, rotational).
· equity portfolio management techniques.
· bond portfolio management techniques.

7.2 Understand how, why and when an institutional investor may make use of:
· financial futures and options, including over-the-counter contracts.
· interest rate and currency and inflation swaps.
· forward foreign exchange contracts for currency hedging.

7.3 Understand the use of multifactor models in practical investment management and risk control.

7.4 Understand why making significant changes to the investment allocation of a substantial portfolio could be
problematic

7.5 Understand transition management and related asset allocation techniques (including overlay strategies) to
realign portfolios

7.6 Understand the roles and responsibilities of the custodian.

7.7 Assess portfolio construction considering value at risk, tracking error and risk budgets.

7.8 Understand measurement, comparison and attribution of risk.

8 Analysing portfolio performance [15%]

Understand and apply relevant techniques to calculate portfolio performance and compare the results to various
benchmarks.
8.1 Analyse Investment performance and understand the limitations of measurement techniques including:
· portfolio risk and return analysis.
· equity price.
· net present value.
· net asset value.
· return on capital.

8.2 Understand the construction and use of investment indices.

8.2.1 Main indices in the international stock markets.
8.2.2 Problems in constructing indices of unlisted or illiquid assets.
8.2.3 Uses of investment indices.

8.3 Understand investment portfolio performance and the limitations of performance measurement.
8.3.1 Performance of an investment portfolio relative to:
· a published market index
· a benchmark portfolio
· other portfolios, such as a peer group
8.3.2 The contribution of sector selection and individual stock selection.
8.3.4 Risk-adjusted performance measures
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 SP6 IFoA Syllabus Objectives

1 Derivative markets [5%]

Understand how different financial markets for derivatives operate, the main market participants (including their
motives) and how settlement operates.
1.1 Awareness of the basic characteristics of derivatives markets

1.2 Describe the characteristics of exchange traded contracts and Over-The-Counter (OTC) contracts.

1.3 Understand the uses of forwards, future and options by different types of traders: hedgers, speculators and
arbitrageurs.

1.4 Understand of how futures and options markets work.

1.5 Understand the operation of central counterparty clearing houses (CCPs) and the related regulatory environment.

2 Derivative types and uses [20%]

Understand the different types of derivative contracts and their uses within different rates of interest, equity and
exchange and understand how OTC contracts can be used to hedge type liability and risk.
2.1 Understand the payoffs of forwards and futures, calls and puts (American and European).

2.2 Understand forward and futures pricing.

2.3 Understand how derivatives can be used for various types of hedges.

2.4 Understand different types of derivative contracts and their uses, including:
· Stock options
· Currency options
· Index options
· Options on futures
· Warrants
· Convertibles property derivatives

2.5 Understand the different types of interest rates and interest rate derivatives, including:
· Treasury rates
· Reference interest rates
· Overnight index swap rates
· Repo rates
· Zero rates
· Forward rates
· Forward rate agreements
· Interest rate futures
· Treasury bond futures
· Interest rate swaps
· European swap options (swaptions)
· Caps and caplets
· Floors and floorlets
· Bermudan swaptions.

2.6 Understand the following exotic equity and foreign exchange derivatives:
· Quanto options
· Chooser options
· Barrier options
· Binary options
· Lookback options
· Asian options
· Exchange options
· Basket options.

2.7 Understand structured securities and OTC contracts, and how they can be used to hedge certain types
of liability
· Separate Trading of Registered Interest and Principal of Securities (STRIPS)
· Interest rate swaps
· Interest rate swaptions
· Index-linked bonds
· Inflation swaps
· Limited Price Indexation (LPI) swaps
· LPI bonds.

2.8 Understand how structured securities and OTC contracts can be used to hedge non-economic risks such as
longevity.

2.9 Understand credit derivatives, including Credit Default Swaps (CDSs)

· Collateralised Debt Obligations (CDOs)
· Nth to default baskets
· Total return swaps.
2.9.1 Understand the relationship between CDSs and corporate bonds, as shown by their relative credit spreads.
2.9.2 Understand the uses of credit derivatives.

3 Derivative pricing and valuation methods, including interest rate models [50%]
Explore, in detail, how derivatives are priced, the factors which should be taken into consideration and models used to
determine them, including an understanding on how these models affect the outcome.
3.1 Understand the factors that affect option prices, including
· Stock price
· Strike price
· Term to expiry
· Volatility
· Risk-free rate
· Dividends.

3.2 Use the binomial model to determine derivative prices and hedging strategies, including
· sample paths.
· filtrations.
· the Binomial Representation Theorem.
· conditional expectations.
· previsible process.
· self-financing portfolio strategies.
· replicating strategies.
· pricing under the martingale measure.

3.3 Use the Black-Scholes model to determine derivative prices and hedging strategies, including
· Brownian motion
· Itô calculus
· Itô’s Lemma
· statement of the Cameron–Martin–Girsanov Theorem
· the concept of the Radon–Nikodym derivative
· change of measure
· statements of the Martingale Representation Theorem
· continuous-time portfolio strategies
· self-financing portfolios in continuous time
· the Black–Scholes model
· construction of replicating strategies using the martingale approach
· the Black–Scholes formula for non-dividend-paying stocks

3.4 Use more complicated applications of the Black–Scholes model to determine derivative prices
including:
3.4.1 Adapt the martingale approach to price of foreign exchange options and options on stock indices
paying dividends continuously
3.4.2 Understand the derivation of the Black–Scholes–Merton partial differential equation.
3.4.3 Understand the role of the market price of risk in the transfer between the real-world and the risk-
neutral probability measures.
3.4.4 Understand the role of the volatility parameter in the valuation of options, including:
· calculation of implied volatility from option prices.
· estimation of volatility from historical time series or other market indices (e.g. the VIX index).
· the ‘smile’ effect and volatility surfaces.
3.4.5 Understand approaches to value options on discrete dividend-paying securities.

3.5 Use alternative numerical methods to determine derivative prices and hedging strategies, including:
3.5.1 Numerical methods to determine equity and foreign exchange derivative prices and hedging
strategies:
· Binomial and trinomial trees
· Monte Carlo techniques
· Finite difference methods.
3.5.2 Different methods to determine prices of American options, including Monte Carlo simulation using
the least squares (Longstaff–Schwartz) approach.

3.6 Calculate the price of interest rate derivatives, including the use of the Black model.
3.6.1 Know how to determine:
· The yield curve, zero rates, forward rates and bond prices
· The relationship between forward rates and futures rates
· The value of interest rate swaps.
3.6.2 Understand the relationship between swap quotes and swap zero rates.
3.6.3 Apply the Black model to price and value:
· Bond options
· Caps and floors
· European swaptions.
3.6.4 Evaluate the assumptions underlying Black’s model.

3.7 Understand models of the term structure of interest rates including:

3.7.1 Difference between equilibrium and no-arbitrage models.
3.7.2 Hull and White model for the term structure of interest rates.
3.7.3 Differences between the Hull and White model and the Vasicek and Cox–Ingersoll–Ross models.
3.7.4 Use of the risk-neutral approach to pricing, understand and apply relevant numerical techniques
to value an interest rate derivative, including:
3.7.5 Valuation methods for an interest rate derivative using an appropriate forward measure and zero-
coupon bond
3.7.6 Role of the market price of risk and changes of numeraire in the dynamics of term structure models.
3.7.7 Interest rate models in a multifactor setting.
3.7.8 Characteristics of the Heath, Jarrow and Morton (HJM) and Brace Gatarek Musiela (BGM) Model.
3.7.9 Use of the BGM Model to price caps and swaptions.
3.7.10 Use of Black’s model in the calibration of the BGM Model, and problems with this approach.

3.8 Use different approaches to price property swaps.

3.9 Understand the pricing of credit derivatives including:

3.9.1 Pricing a credit default swap.
3.9.2 The role of correlation in pricing credit derivatives.

4 Management of derivatives [25%]

Methods used by both investors in derivatives and providers of derivatives to manage the risks which come with these
instruments.
4.1 Understand how derivatives are used by investors.
4.1.1 How derivatives help investors meet their objectives.
4.1.2 How derivatives change in the risk profile of a portfolio.
4.1.3 Practical issues and limitations arising from derivative use.
4.1.4 Compare alternative strategies.

4.2 Understand how to hedge derivatives.

4.2.1 Calculate the partial derivatives (the Greeks).
4.2.2 Use of the Greeks in hedging individual derivatives and portfolios of derivatives.
4.2.3 How option prices and Greeks change in relation to underlying variables.
4.2.4 Manage portfolios of derivatives using scenario analysis.
4.2.5 Risk management characteristics of a given derivative, including exotic contracts.
4.2.6 Hedging of interest rate derivatives with respect to underlying parameters (the Greeks).
4.2.7 Delta hedging techniques in relation to credit default swaps.

4.3 Understand what is meant by basis risk and its impact on hedging strategies.

4.4 Understand the risks that arise in the use of derivatives and how to manage them, including.
4.4.1 Market risk, credit (or counterparty) risk and liquidity risk.
4.4.2 Risks that affect the use of derivatives and how these risks may be handled.
4.4.3 Possible methods for establishing Value-at-Risk (on a portfolio).
4.4.4 Weaknesses of the Value-at-Risk measure.
4.4.5 Use and limitations of credit ratings.
4.4.6 Simple techniques for measuring and managing credit (or counterparty) risk on derivatives,
including:
· International Swaps and Derivatives Association (ISDA) agreements.
· collateral management.
4.4.7 Risks that arise in the use of specific types of derivative.

4.5 Understand how special purpose vehicles can be used as part of a mechanism for risk transfer,
including the role of a credit enhancement agency.
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 SP7 IFoA Syllabus Objectives

1 General insurance products and general business environment [20%]

Understand the main features of general insurance markets and both insurance and reinsurance products, along with
consideration of customer needs and risks posed to the insurers. Understand the implications of key aspects of the
general business environment on general insurance companies.
1.1 The main types and features of general insurance markets and products considering:
· the needs of customers.
· the financial and other risks for the general insurer including their capital requirements and possible effect on
solvency.

1.2 The main types of reinsurance products for general insurers and the purposes for which they may be used.

1.3 Implications of the general business environment on general insurers in terms of:
· Marketing strategies.
· Fiscal regimes.
· Inflation and other economic factors.
· Legal, political and social factors.
· Climate and environmental factors.
· Professional guidance.
· Technological change.

1.4 The key features of the Lloyd’s market.

2 Risk, uncertainty and regulation [15%]

Understand the major areas of risk and uncertainty in relation to reserving and capital modelling within general
insurance companies as well as the regulatory framework for general insurers.
2.1 The major areas of risk and uncertainty for general insurers with respect to reserving and capital modelling, in
particular those that may threaten profitability or solvency.

2.2 The regulatory framework for general insurers, including the purpose of regulation and methods of regulation.

3 Reserving [30%]
Understand reserving methods, bases and issues, including the evaluation of reserving results and analysis and
communication of uncertainty in reserving.
3.1 The reasons for calculating general insurance reserves.

3.2 Understand and analyse the issues that can affect reserving work using triangulations and how to manage them.

3.3 Appropriate reserving bases for general insurance business including:

· Different reasons for calculating reserves.
· Appropriate assumptions in each case.
· When to calculate reserves at class level, at individual policy level or at claim event level.
· Why assumptions may differ from a rating exercise.
· Allowance for future inflation.
· Whether or not to discount for investment income.
· Approach for additional unexpired risk reserve.
· Communication of the reserving basis.
3.4 Stochastic reserving processes including:.
· Uses of stochastic reserving methods.
· Likely sources of reserving uncertainty.
· Types of stochastic reserving methods:
· Analytic methods
· Simulation-based methods.
· Mack’s model and the ODP model
· Applying bootstrapping to these two models.
· issues, advantages and disadvantages of each of the models.
· Aggregate the results of stochastic reserving across multiple lines of business, and methods of correlation.

3.5 Reserving result analyses.

3.5.1 Factors to consider in assessing the reasonableness of the results of a reserving exercise.
3.5.2 Typical diagnostics commonly used to assess the reasonableness of the results of a reserving.
exercise.
3.5.3 Factors to consider in assessing the reasonableness of changes in results of a reserving exercise
over time.
3.5.4 Analysis of experience in the context of a reserving exercise.
3.5.5 How alternative results of reserving exercises can arise and professional issues in resolving them.

3.6 Uncertainty and its communication in reserving.

3.6.1 ‘Best estimate’ reserve.
3.6.2 Approaches to estimating ranges of reserves:
· Stochastic models
· Scenario tests
· Use of alternative sets of assumptions.
3.6.3 Issues to consider when communicating reserve ranges and uncertainties.

4 Capital modelling [17.5%]

Understand capital modelling techniques, parameterisation issues, and methods for assessing different risk types,
including considerations relevant to undertaking a capital modelling exercise.
4.1 Capital modelling and application of relevant capital modelling techniques for general insurers.
· Approaches to capital modelling:
· Deterministic models
· Stochastic models.
· Issues with parameterisation of capital models:
· Developing assumptions
· Validation.
· Approaches to assessment of capital requirements for the following risk types:
· Insurance risk
· Market risk
· Credit risk
· Operational risk
· Liquidity risk
· Group risk.

4.2 The importance of diversification in capital modelling.

4.3 Practical considerations of undertaking capital modelling.

5 Data, investigations, reinsurance and investment [17.5%]

Understand the use of data and key actuarial investigations in reserving and capital modelling. Understand
reinsurance programmes including purchasing decisions and reserving. Understand investment and asset-liability
management and methods and principles of accounting as applicable to a general insurer.
5.1 Data in reserving and capital modelling:
· Types of data that are used.
· Main uses of data.
· Requirements for a good information system.
· Possible causes of data errors.
· Effects of inadequate data.

5.2 The major actuarial investigations and analyses of experience undertaken with regard to reserving and capital
modelling for general insurers.

5.3 Factors that influence the choice of an appropriate reinsurance programme for a general insurer.

5.4 Appropriateness of alternative reinsurance structures for a general insurer.

5.5 The impact of capital management on reinsurance purchasing decisions.

5.6 The main approaches to reserving for outwards reinsurance and when to apply them
· Gross less net
· Application of standard techniques to reinsurance data
· Use of appropriate factors
· Application of detailed contract terms.

5.7 Suitable approaches to reserving for inwards reinsurance.

5.8 Investment and Asset Liability Management (ALM) considering:

· the principles of investment.
· the asset-liability matching requirements of a general insurer.
· how projection models may be used to develop an appropriate investment strategy.

5.9 Methods and principles of accounting specific to a general insurance business and interpret the accounts of a
general insurer.
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 SP8 IFoA Syllabus Objectives

1 General insurance products and general business environment [25%]

Understand the main features of general insurance markets and both insurance and reinsurance products, along with
consideration of customer needs and risks posed to the insurers. Understand the implications of key aspects of the
general business environment on general insurance companies.
1.1 The main types and features of general insurance market and products considering:
· the needs of customers.
· the financial and other risks for the general insurer including their capital requirements and possible effect on
solvency.

1.2 The main types of reinsurance products for general insurers and the purposes for which they may be used.

1.3 Implications of the general business environment on general insurers in terms of:
· Marketing strategies.
· Fiscal regimes.
· Inflation and economic factors.
· Legal, political and social factors.
· Climate and environmental factors.
· Professional guidance.
· Technological change.

2 Data, risks and risk management [25%]

Understand the major areas of risk and uncertainty in relation to pricing within general insurance companies, along
with the use of data in pricing, key actuarial investigations on pricing and the collective risk model.
2.1 The major areas of risk and uncertainty for general insurers with respect to pricing, in particular those that may
threaten profitability or solvency.

2.2 The use of data in pricing:

· Types of data that are used
· Main uses of data
· Requirements for a good information system
· Possible causes of data errors
· Effects of inadequate data.

2.3 The major actuarial investigations and analyses of experience undertaken with regard to pricing for general
insurers.

2.4 The Collective Risk Model and its applications in a general insurance environment including the derivation of the
Aggregate Claim Distribution for the Collective Risk Model and its approximations using stochastic simulation.

3 Rating bases and methodologies [35%]

Understand bases and methodologies used in rating general insurance products, and the main approaches to pricing
general insurance products. Understand generalised linear models, multivariate modelling and machine learning
techniques.
3.1 The components of a general insurance premium.

3.2 The basic methodology used in rating general insurance products.

3.3 The factors to consider when setting rates.

3.4 Appropriate rating bases for general insurance contracts in relation to:
· underwriting considerations
· policy conditions such as self-retention limits
· reinsurance considerations
· expenses
· investment
· capital allocation, return on capital.

3.5 The main approaches to pricing, including the determination of relevant assumptions and practical considerations
for use:
· Burning cost approach
· Frequency/severity approach Original Loss Curves

3.6 Generalised linear models, multivariate modelling and machine learning techniques to pricing

4 Credibility, reinsurance and catastrophe modelling [15%]

Understand credibility theory, the application of credibility models, differences in pricing direct and reinsurance
business, determining reinsurance premiums, and an outline of catastrophe models.
4.1 The fundamental concepts of credibility theory.

4.2 Comparison of the Classical and Bayes credibility models.

4.3 The applications of credibility models to pricing

4.4 The similarities and differences between pricing direct and reinsurance business.

4.5 Appropriate premiums for each of the following types of reinsurance, including their data requirements:
· Proportional reinsurance
· Non-proportional reinsurance
· Property catastrophe reinsurance
· Stop loss.

4.6 The basic structure of a catastrophe model and the key perils that it can be used to model.
 Details of subject being transferred
Learning Objectives of the subjects you wish to transfer Subject Code
 SP9 IFoA Syllabus Objectives

1 Enterprise Risk Management (ERM) concept and framework [15%]

An introduction of the key principles and concepts of ERM, how it is applied in an organisation, and how external and
regulatory risk frameworks can influence an organisation’s approach to ERM.
1.1 Explain the principal terms in Enterprise Risk Management (ERM).

1.2 Describe the concept of ERM.

1.2.1 Define what is meant by ERM.
1.2.2 Describe the role of the following concepts in ERM:
· The holistic approach
· Downside and upside risks
· Measurement of risk
· Unquantifiable risks
· Responses to risk and risk management.
1.2.3 Describe the benefits of ERM.

1.3 Discuss the framework for risk management and control within a company.
1.3.1 Recommend an appropriate framework for an organisation’s ERM.
1.3.2 Propose best practice ERM approaches in compliance and corporate governance.
1.3.3 Discuss governance issues including market conduct, audit and legal risk.
1.3.4 Evaluate an organisation’s risk management culture, including risk awareness, accountabilities, collaboration,
incentive compensation, communication and the problem of bias.

1.4 Demonstrate an understanding of risk frameworks in regulatory environments.

1.4.1 Explain the role of regulators in ERM and effective management of the supervisor relationship.
1.4.2 Describe the Basel Accord and Solvency II frameworks, including their underlying principles and approaches to
risk measurement.
1.4.3 Outline the requirements of Sarbanes–Oxley and other regulatory risk frameworks and their underlying
principles.
1.4.4 Demonstrate an awareness of how different parts of an organisation and different parts of a portfolio may be
subject to different capital adequacy standards.

1.5 Demonstrate an understanding of the perspectives of credit rating agencies.

1.5.1 Describe the role of credit rating agencies in the evaluation of risk management functions, including the risk
management grading criteria used.
1.5.2 Assess the relevance of these criteria.

2 ERM process [10%]

Implementation of an ERM framework across an organisation with consideration of key stakeholders, and both
operational and strategic issues, and reviews past real-life examples.
2.1 Demonstrate an understanding of the relevance of ERM to all stakeholders.
2.1.1 Compare the relevance of risk measurement and management to various stakeholders.
2.1.2 Explain contagion and how it affects different stakeholders.
2.1.3 Explain the risks arising from any misalignment of interests between different groups of stakeholders.

2.2 Demonstrate how to determine and articulate risk appetite, risk capacity, risk tolerances, desired risk profile and
risk objectives.
2.3 Evaluate the elements and structure of a successful risk management function.
2.3.1 Describe the ERM roles and responsibilities of the people within an organisation and how the different groups
should interact.
2.3.2 Recommend a structure for an organisation’s risk management function.

2.4 Assess the implications of financial and other risks and opportunities for strategic planning and the selection of
strategy.

2.5 Demonstrate the application of the risk management control cycle, including the relevance of external influences
and emerging risks, such as climate risk and cyber risk.

2.6 Describe methods for the identification of risks and their causes and implications.

2.7 Discuss important past examples of both good risk management practices and of risk failures, for financial and
non-financial entities, including proposing solutions for how better risk management might have prevented these
failures.

2.8 Propose an ERM process that creates value for an organisation.

3 Risk categories and identification [10%]

How risks can be defined and classified, including any difficulties that may arise.
3.1 Explain what is meant by risk and uncertainty, including different definitions and concepts of risk.

3.2 Demonstrate an understanding of risk categories.

3.2.1 Identify the risks faced by an entity, including market risk, economic risk, interest rate risk, foreign exchange risk,
basis risk, credit risk, counterparty risk, liquidity risk, insurance risk, operational risk, environmental risk, legal risk,
regulatory risk, political risk, agency risk, reputational risk, project risk, strategic risk, demographic risk and moral
hazard.

3.2.2 Analyse the financial and non-financial risk exposure arising from an organisation’s current and emerging risks,
including climate risk and cyber risk, within a given context.
3.2.3 Discuss risk taxonomy, including an awareness of how individual risks might be categorised in different ways.

3.3 Describe the relationship between systematic risk, non-systematic or specific risk and concentration of risk.

4 Risk modelling and aggregation of risks [15%]

How risks can be modelled in practice, and how suitable models can be used as part of the overall ERM process,
including the risks that are introduced by their use.
4.1 Assess the extent to which each of the risks in 3.2.1 can be amenable to quantitative analysis.

4.2 Demonstrate an understanding of the use of correlation measures.

4.2.1 Demonstrate enterprise-wide risk aggregation techniques incorporating the use of correlation.
4.2.2 Comment on the relative merits and implications of different correlation measures.

4.3 Discuss the use of scenario analysis and stress testing in the risk measurement process, including the
advantages and disadvantages of each.

4.4 Demonstrate understanding of the use of copulas as part of the process of modelling multivariate risks.
4.4.1 Evaluate different types of copula for a given purpose.
4.4.2 Recommend an appropriate copula for a given situation.
4.5 Explain the importance of the tails of distributions, tail correlations and low frequency/high severity events.

4.6 Demonstrate how extreme value theory can be used to help model risks that have a low probability.

4.7 Demonstrate an understanding of model and parameter risk.

4.8 Discuss the use of models in the overall ERM decision-making process.
4.8.1 Describe the development and use of models for decision-making purposes in ERM.
4.8.2 Explain how the decision-making process takes account of the organisation’s risk appetite and corporate
governance and builds on the results of stochastic modelling, scenario analysis, stress testing and analysis of model
and parameter risk.
4.8.3 Evaluate different types of model for a given purpose.

5 Risk measurement and assessment [15%]

The different methods of assessing risk, building on concepts from earlier topics, and considering the different risk
types.
5.1 Understand common risk measures.
5.1.1 Describe the properties and limitations of the following risk measures:
· Value at Risk (VaR)
· Tail Value at Risk (TVaR)
· Probability of ruin
· Expected shortfall.
5.1.2 Determine risk exposures and tolerances using these measures.

5.2 Describe how to choose a suitable time horizon and risk discount rate.

5.3 Analyse univariate and multivariate financial and insurance data (including asset prices, credit spreads and
defaults, interest rates and insurance losses) using appropriate statistical methods.

5.4 Recommend a specific choice of model based on the results of both quantitative and qualitative analysis of
financial or insurance data.

5.5 Assess different types of market risk.

5.6 Assess credit risk.

5.6.1 Describe what is meant by a credit spread and its components.
5.6.2 Discuss different approaches to modelling credit risk.

5.7 Assess operational, liquidity and insurance risks.

6 Risk management tools and techniques [20%]

Understand how assessed risks can be managed and optimised and considers risk management approaches specific
to different types of risk.
6.1 Demonstrate risk optimisation and responses to risk.
6.1.1 Explain how to optimise an objective, possibly subject to constraints.
6.1.2 Demonstrate risk optimisation and responses to risk using illustrative examples.
6.1.3 Analyse the risk and return trade-offs that result from changes in the organisation’s risk profile.
6.2 Recommend approaches which balance benefits against inherent costs that can be used to manage an
organisation’s overall risk profile.
6.2.1 Describe how to reduce risk by transferring it.
6.2.2 Describe how to reduce risk without transferring it.
6.2.3 Analyse the residual risks and new risks arising following risk mitigation actions.
6.2.4 Explain how an organisation’s ability to manage risk is affected by regulatory, capacity and cost constraints.
6.2.5 Explain how an organisation will choose to accept certain risks and the controls it might adopt for these retained
and residual risks.

6.3 Demonstrate strategies for the management of market risk.

6.3.1 Recommend strategies for the reduction of market risk using financial derivatives.
6.3.2 Demonstrate an awareness of the practical issues related to market risk hedging, including dynamic hedging.

6.4 Demonstrate the use of tools and techniques for identifying and managing credit and counterparty risk.

6.5 Demonstrate possible strategies for the management of operational, liquidity, insurance and other key risks.

7 Capital management [15%]

Understand how risk models can be used to allocate capital across an organisation.
7.1 Demonstrate an understanding of and perform capital calculations.
7.1.1 Describe the concept of economic measures of value and capital and their uses in corporate decision-making
processes.
7.1.2 Evaluate different risk measures and capital assessment approaches.
7.1.3 Demonstrate the ability to develop a capital model for a representative financial firm.

7.2 Propose techniques for allocating capital across an organisation.

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