SOA - Examination and Other Requirement Details

Spring 2007 Basic Education Catalog

Examination and Other Requirement Details

Individual Life and Annuities Company/Sponsor Perspective (CSP) Exam Spring 2007

This examination consists of six hours of written–answer questions. A read–through time will be given prior to the start of the exam, 15 minutes in the morning session and 15 minutes in the afternoon session. This course is administered as Individual Life and Annuities U.S.–Company/Sponsor Perspective (CSP–IU) and Individual Life and Annuities Canada–Company/Sponsor Perspective (CSP–IC), each of which has its own reading list and national concentration. Candidates will write one of these exam.

Learning Objectives:

1. TOPIC:  Financial Reporting
   The candidate will understand the preparation of financial statements and reports of U.S. life insurance companies and be able to analyze the data in them.
   
   Learning Outcomes:
   The candidate will be able to:
   
   
   1. Prepare the basic financial statements for a life insurance company under U.S. GAAP, U.S Statutory and U.S. Tax methods and regulations.
   2. Describe the structure of the U.S. Annual Statement and explain the purpose of its statements, key exhibits and schedules.
   3. Describe how to compute the taxable income of a life insurance company
   4. Explain fair value accounting principles
       
   5. Explain the appropriate accounting treatments for:
      1. Separate Accounts
      2. Embedded options (FAS 133)
      3. Derivatives
      4. Secondary guarantees (AG 38, SOP 03–1)
      5. Internal Replacements (SOP 05–1)  
       
   6. Describe international accounting standards
      
      

2. TOPIC:  Principles of Valuation
   The candidate will be able to understand and apply valuation principles of individual life insurance and annuity products issued by U.S. life insurance companies.

   
   

   Learning Outcomes:
   The candidate will be able to:

   
   

   1. Describe, compare, and contrast valuation methods under the following standards:

      1. U.S. statutory

      2. U.S. GAAP

      3. U.S. tax

      4. Canadian valuation system

      5. Fair value accounting

       
   
   
   1. Select appropriate valuation assumptions under the following standards:
      

      1. U.S. statutory

      2. U.S. GAAP

      3. U.S. tax

      4. Fair value accounting

       
   
   
   1. Compute liabilities under U.S. statutory, U.S. tax, U.S. GAAP, and DAC assets under U.S. GAAP for the following products:
      

      1. Traditional life insurance

      2. Term life insurance

      3. Universal life insurance

      4. Universal life insurance with secondary guarantees

      5. Deferred annuity

      6. Payout annuity

      7. Variable annuity with guaranteed minimum death benefits

      8. Variable annuity with guaranteed living benefits

      9. Equity–indexed annuities

      10. Equity–indexed life insurance

      11. Variable life insurance with guaranteed minimum death benefits

      12. Rider
       
   
   
   1. Devise and use reserve audit methods
   2. Describe and calculate Investment Maintenance and Asset Valuation Reserves
   3. Describe concepts underlying SVL II (principle–based reserves)

1. TOPIC:  Reinsurance

   The candidate will be able to evaluate various forms of reinsurance, what the financial impact is of each form, and describe the circumstances that would make each type of reinsurance appropriate.

   
   

   Learning Outcomes:
   The candidate will be able to:

   
   

   1. For traditional and financial reinsurance, explain the consequences and calculate the effect on both ceding and assuming companies with respect to:

      1. risk transfer

      2. cash flow,

      3. financial statements

      4. tax, and

      5. reserve credit requirements

       
   
   
   1. Describe what considerations would be examined to determine the appropriate reinsurance form from the ceding and assuming company perspectives

1. TOPIC:  Financial and Capital Management

   The candidate will be able to explain and apply the basic methods, approaches and tools of financial management in a life insurance company context
   
   Learning Outcomes:
   The candidate will be able to:

   
   
   
   1. Describe and calculate basic performance measures
   2. Perform basic financial analysis by product line and total company
   3. Explain and create a product line “gains by source” analysis
   4. Apply methods of valuation to business and asset acquisitions and sales
   5. Explain and apply the basic methods and approaches of surplus management and earnings management
   6. Describe and apply the methods of capital allocation and investment decision analysis under a financial economics options pricing perspective
   7. Describe how securitization is used within capital management
    

1. Topic:  Financial and Capital Management

   The candidate will understand the Risk Based Capital (RBC) regulatory framework and the principles underlying the determination of Regulatory RBC.
     

   Learning Outcomes:
   The candidate will be able to:

   
   

   1. Describe the US Risk Based Capital (RBC) regulatory framework and the principles underlying the determination of Regulatory RBC

   2. Compute RBC for a life insurance company, including:

      1. Identification of significant risk components

      2. Identification of specialized product RBC requirements

      3. Interpreting results from a regulatory perspective
       

1. TOPIC: Financial and Capital Management
   The candidate will understand the principles underlying the determination of Economic Capital.
   
   Learning Outcome:
   The candidate will be able to:

   
   
   1. explain and apply the concepts, approaches and methods for determining Economic Capital
    

1. TOPIC:  Embedded Value, and Value Creation

   The candidate will understand embedded value, and value creation conceptual frameworks
   
   Learning Outcomes:
   The candidate will be able to:
   
   
   1. Explain and apply the methods and principles of embedded value
   2. Describe and apply the principles of how insurance companies create value from a financial economics perspective
    

1. TOPIC:  Model Office and Asset/Liability Modeling

   The candidate will be able to integrate data from various sources into model office and asset/liability models
   
   

   Learning Outcomes:
   The candidate will be able to:

   
   
   1. For an ALM model:
      1. Select appropriate assumptions and scenarios
      2. Model dynamic behavior of both assets and liabilities
      3. Model and explain various strategies, including hedging
      4. Analyze and evaluate results
      5. Recommend appropriate strategies
         
          
       
   2. Apply a model office process and make appropriate recommendations.
   3. Analyze and explain actual vs. projected differences
       
   
   
   1. Explain limitations of models and possible sources of error
      1. Quality of data
      2. Granularity of the model
       
    

1. TOPIC:  Risk Management and Mitigation

   The candidate will understand the sources of risk faced by the enterprise and evaluate the mitigation thereof.
   
   Learning Outcomes:
   The candidate will be able to:
   
   
   1. Identify, categorize and evaluate potential sources of risk in products including but not limited to mortality, morbidity and lapse.
   2. Identify, categorize and evaluate potential sources of risk in investments including but not limited to credit risk, liquidity and asset–liability matching.
   3. Describe and evaluate the other risks an insurance company faces including operational, marketplace and expense risks.
   4. Describe how risks (e.g. product, investments and operational) and opportunities interact and how they influence firm strategy.
   5. Describe and apply methods of risk mitigation and hedging and to understand the limitations of such methods.
   6. Evaluate methods for measuring and controlling equity–based exposure associated with embedded options.
   7. Describe the roles of rating agencies, analysts and regulators together with their methods and impact on insurance companies.
    

1. TOPIC:  Professional Considerations

   The candidate will understand the professional standards addressing financial reporting and valuation.

   Learning Outcomes:
   The candidate will be able to:

   
   
   1. Explain the role and responsibilities of the appointed/valuation actuary.
   2. Identify and apply relevant professional actuarial qualification standards.
   3. Identify and apply actuarial standards of practice relevant to financial reporting and valuation .
   4. Explain the actuary’s professional responsibilities to stakeholders including obligations under Sarbanes-Oxley
    

U.S. Textbooks for Individual Life and Annuities CSP Exam

Life, Health & Annuity Reinsurance, Tiller, J.E., Tiller, D.F., Third Edition, 2005, ACTEX, Chapters 4–6, 10–12, 14

Life Insurance Products and Finance, Atkinson, D., Dallas, J., 2000, SOA, Chapters 14–16
Real Options, Trigeorgis, L., 1996, MIT Press, Chapters 1 (exclude 1.3), 2, 4 (4.1–4.5 only), 5 (5.1, 5.2, 5.5 only)

U.S.GAAP For Life Insurers, Herget, T., Second Edition, 2006, SOA, Chapters 1–9, 13 (exclude 13.7), 14, 18 (exclude 18.4), 19
Valuation of Life Insurance Liabilities, Lombardi, L.J., Fourth Edition, 2006, ACTEX, Chapters 1, 2, 4–12, 15, 16

U.S Textbooks for individual life and annuities CSP exam  that may be available as study notes. Check this page for updates.

Life and Accident and Health Insurance Accounting, IASA, Fourth Edition, Chapters 8(pp.12–16 only), 12 (pp.1–15 and 32–33 only):  ILA–C800–07

Insurance Industry Mergers and Acquisitions, Toole, J., Herget., T. 2005, SOA, Chapters 4(4.1–4.6 only):  ILA–C106–07

The New Corporate Finance: Where Theory Meets Practice, Chew, D., Third Edition, 2001, Irwin/McGraw Hill, Chapters 29 and 31: ILA–C108–07 and ILA–C115–07

U.S. Tax Reserves for Life Insurers, Robbins, E.L., Bush, R.N., 2006, SOA, Chapters 2, 7:  ILA–C802–07

Textbooks for individual life and annuities CSP exam–Cananda

Canadian Insurance Taxation, PriceWaterhouseCoopers, Second Edition, 2000, Butterworths Canada LTD, Chapters 1, 2, 7–10, 27, Background only. Chapters 3–6, 11, 28, 31

Life, Health & Annuity Reinsurance, Tiller, J.E., Tiller, D.F., Third Edition, 2005, ACTEX, Chapters 4–6, 11

Life Insurance Products and Finance, Atkinson, D., Dallas, J., 2000, SOA, Chapters 14–16

Real Options, Trigeorgis, L., 1996, MIT Press, Chapters 1 (exclude 1.3), 2, 4 (4.1–4.5 only), 5 (5.1, 5.2, 5.5 only)

Valuation of Life Insurance Liabilities, Lombardi, L.J., Fourth Edition, 2006, ACTEX, Chapters 1, 16

Textbooks for individual life and annuities CSP exam–Canada that may be available as study notes. Check this page for updates

Insurance Industry Mergers and Acquisitions, Toole, J., Herget., T. 2005, SOA, Chapters 4(4.1–4.6 only):  ILA–C106–07

The New Corporate Finance: Where Theory Meets Practice, Chew, D., Third Edition, 2001,  Irwin/McGraw Hill, Chapters 29 and 31:  ILA–C108–07 and ILA–C115-07

Individual Life and Annuities CSP Online Readings–U.S.

The Online readings listed below are part of the required Course of Reading for this Exam.  These readings are articles that are available online from the SOA, CCA, CIA, AAA and the ASB.

• ASOP 7 “Analysis of Life, Health, or Property/Casualty Insurer Cash Flows”, June 2002 
• ASOP 10  “Methods and Assumptions for Use in Life Insurance Company
  Financial Statements Prepared in Accordance with GAAP”, March 2000 
• ASOP 11 “Financial Statement Treatment of Reinsurance Transactions Involving Life or Health Insurance”, June 2005 
• ASOP 21 “Responding to or Assisting Auditors or Examiners in Connection with Financial Statements for All Practice Areas”, September 2004 
• ASOP 22 “Statements of Opinion Based on Asset Adequacy Analysis by Actuaries for Life or Health Insurers”, September 2001 
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• ASOP 23 “Data Quality”, December 2004 
• ASOP 41 “Actuarial Communications”, March 2002 
• SOA, ERM Specialty Guide, May 2006 
• “An Approach to Fair Valuation of Insurance Liabilities Using the Firm’s Cost of Capital”, NAAJ April 2002
• “Fair Value of Liabilities: The Financial Economics Perspective”, NAAJ January 2002
• “AICPA Releases SOP 05–1:  Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications for Exchanges of Insurance Contracts”, Financial Reporter, March 2006   
• “SVL II–Connect the Dots” Financial Reporter, June 05 
• “Actuarial Aspects of SOX 404” Financial Reporter, December 2004 
• “Responsibilities of the Actuary for Communications Sarbanes–Oxley Control:  Effectiveness in Accordance with Actuarial Standards of Practice”,  Financial Reporter, December 2004 
• “Implications of Economic Capital for the Financial Reporting Actuary”, Financial Reporter, September 2006 
• “Standard & Poor’s Enterprise Risk Management Evaluation of Insurers”, Risk Management, March 2006 
• “Strategic Management of Life Insurance Company Surplus” TSA XXXVIII, pp. 105-116 
• Sources of Profit Statements, 1996 Valuation Actuary Symposium 

ILA CSP Online Readings–Canada

The Online readings listed below are part of the required Course of Reading for this Exam. These readings are articles that are available online from the SOA, CCA, CIA, AAA and the ASB.

• CIA Consolidated Standards of Practice–Sections 2100, 2300, 2400, 2500, October 2006 
• CIA Education Note “Calm Implications of AcSB–Section 3855 Financial Instruments ­Recognition and Measurement,” June 2006 
• CIA Education Note “Best Estimates Assumptions for Expenses,” November 2006 
• CIA Education Note “Margins for Adverse Deviations,” November 2006 
• CIA Education Note “Approximations to the Canadian Asset Liability Method,” November 2006 
• CIA Education Note “Selection of Interest Rate Models,” December 2003 
• CIA Education Note “Aggregation and Allocation of Policy Liabilities,” September 2003 
• CIA Education Note “Future Income and Alternative Taxes,” December 2002 
• CIA Education Note “Expected Mortality: Fully Underwritten Canadian Individual Life Insurance Policies,” July 2002 
• CIA Education Note “Valuation of Segregated Fund Investment,”December 2003 
• CIA Education Note “Valuation of Segregated Fund Investment Guarantees,”(revised) October 2005 
• CIA Draft Education Note “Sources of Earnings Determination and Disclosure,” August 2004 
• “CIA Task Force on Segregated Fund Investment Guarantees,” March 2002 (Chapters 1–5) 
• CIA Guidance for the 2005 Valuation of Policy Liabilities of Life Insurers, October 2005 
• CIA Report: “Use of Stochastic Techniques to Value Liabilities under Canadian GAAP,” August 2001 
• CIA Dynamic Capital Adequacy Testing–Life and Property and Casualty, June 1999, (Omit Section IIIB) 
•  “An Approach to Fair Valuation of Insurance Liabilities Using the Firms Cost of Capital,” NAAJ, April 2002
• “Fair Value of Liabilities: The Financial Economics Perspective,” NAAJ, January 2002
• “Standard & Poor’s Enterprise Risk Management Evaluation of Insurer’s,” Risk Management, March 2006 
• SOA ERM Speciality Guide, May 2006 
• “Strategic Management of Life Insurance Company Surplus” TSA XXXVIII, pp. 105-116 
• “Implications of Economic Capital for the Financial Reporting Actuary”, Financial Reporter, September 2006 
• “Actuarial Aspects of SOX 404” Financial Reporter, December 2004  
• “Responsibilities of the Actuary for Communications Sarbanes–Oxley Control:  Effectiveness in Accordance with Actuarial Standards of Practice”,  Financial Reporter, December 2004 

Individual Life and Annuities Study Note Listing

The study notes listed below are part of the required Course of Reading for this exam. These Study Notes are not available electronically and must be ordered by using the
Study Note Information Form  located on the Study Note Information Page. Candidates should be sure to check this site periodically for additional corrections or notices.