ST2 Pu 14 PDF

ST2: CMP Upgrade 2013/14 Page 1
Subject ST2
CMP Upgrade 2013/14
CMP Upgrade
This CMP Upgrade lists the most significant changes to the Core Reading and the
ActEd material since last year so that you can manually amend your 2013 study
material to make it suitable for study for the 2014 exams. Alternatively, you can buy a
full replacement set of up-to-date Course Notes at a significantly reduced price if you
have previously bought the full price Course Notes in this subject. Please see our 2014
Student Brochure for more details.
This CMP Upgrade contains:
all changes to the Syllabus objectives and the most significant changes to Core
Reading.
significant changes to the ActEd Course Notes, Series X Assignments and

Question and Answer Bank that will make them suitable for study for the 2014
exams.
The Actuarial Education Company IFE: 2014 Examinations

Page 2 ST2: CMP Upgrade 2013/14
1 Changes to the Syllabus objectives

The last bullet point of Syllabus Objective (b) has been updated so that it now reads:
(b) Describe the main types of life insurance products in terms of:
the needs of consumers versus the objectives of the insurer
the benefits, guarantees, and options that may be provided
the main types of products issued
the purpose and risks of the products for the insurer
the purpose and risks of the products for the insured
The products under this syllabus objective may provide benefits of the following
types:
single, or periodic, payments from the date of death
single, or periodic, payments on survival to a specified point in time
periodic payments on continued survival
and the products may be written on the following bases:

single or regular premium
without-profits non-linked
unit-linked
index-linked
with-profits
single, joint, or group life basis
with or without options and guarantees.
IFE: 2014 Examinations The Actuarial Education Company

The last three bullet points of Syllabus Objective (e) have been updated so that it now
reads:
(e) Describe the effect of the general business environment, including the impact on
level of risk to the insurer, in terms of:
propensity of consumers to purchase products
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.
The fourteenth bullet point of Syllabus Objective (f) has been updated so that it now
reads:
(f) Discuss 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
withdrawals
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.

Syllabus Objective (i) has been updated (eg the sub bullet points on the use of models
have been deleted) so that it now reads:
(i) Describe the use of actuarial models, including stochastic models and Monte
Carlo simulation, for decision making purposes in life insurance in terms of:
the objectives and basic features of a life insurance model
choosing between formula and cashflow approaches
choosing between stochastic and deterministic approaches
the differences between traditional and financial economic approaches
the use of sensitivity analysis or the assessment of variances
the uses of models
The fourth bullet point of Syllabus Objective (o) has been updated so that it now reads:
(o) Describe how supervisory reserves may be determined for a life insurance
company in terms of:
the principles of setting supervisory reserves
the reasons why the assumptions used may be different from those used
in pricing
the calculation of non-unit reserves
allowing for future bonuses on conventional with-profits contracts
the use of sensitivity analysis
the interplay between the strength of the supervisory reserves and the
level of solvency capital required.

2 Changes to the Core Reading and ActEd Course Notes

Chapter 1
Page 9
The first paragraph of Core Reading has been replaced by the following two
paragraphs:
An endowment is a contract to pay a benefit on survival to a known date and

hence operates as a savings vehicle, for example to provide a lump sum on
retirement, or a means of repaying the capital on an interest-only loan.
The contract may also provide a significant benefit on the death of the life
insured before that date and, in this case, operates also as a vehicle for
providing protection for dependants and is known as an endowment assurance.
The first paragraph of ActEd text has been deleted.
Page 10
The last six words have been deleted from the first paragraph of ActEd text so that it
now reads:
A without-profits endowment assurance offers a guaranteed amount of money (the sum

assured) at the end of the contract in exchange for a single premium at the start of the
contract or a series of regular premiums throughout the contract. If the policyholder
dies before the contract term ends then usually the same sum assured is paid on death.
However, the contract could be structured with a sum assured paid on death different
from that paid at maturity.
Page 13
The last bullet point of Core Reading has been updated to read:
No death benefit (ie a pure endowment contract). Here there will be a

longevity risk, the significance of which will increase with duration in
force.

Chapter 2
Page 6
The first paragraph of Core Reading has been amended to read:
A decreasing term assurance (ie the benefit amount reduces periodically during
the policy term) can be used to meet two specific such needs. First, it can be
used to repay the balance outstanding under a repayment loan and, secondly, it
can be used to provide an income for a family with children until such time as
the children can fend for themselves.
Page 9
A new paragraph of Core Reading has been added after the examples box as follows:
Initial capital strain can also arise for regular premium policies due to high initial
expenses, such as underwriting costs and initial commission.
Chapter 4
Page 20
The second paragraph of Core Reading has been amended to read:
Unit-linked contracts tend to be designed in a flexible manner so as to allow the

policyholder to vary premiums and benefits over his or her lifetime. However,
increases in minimum guaranteed death benefits are likely to be made subject to
satisfactory evidence of health, so there is a risk to the policyholder that such
increases are declined or made subject to special terms.
The following paragraph of Core Reading and paragraph of ActEd text have been added
at the bottom of the page:
Unit-linked contract charges may be variable at the discretion of the insurance

company, so there is a risk to the policyholder that these are increased.
As we saw in Section 1.3, the insurer is exposed to the risk of high inflation on its
expenses and possibly mortality risk too. It may be able to pass these risks on to the
policyholders through higher charges.

Chapter 5
Page 3
The first word has been deleted from the first bullet point so that it now reads:
expenses incurred and any commissions paid

The first heading and following paragraph have been amended to read:
Expenses incurred and any commissions paid
We need to deduct all expenses associated with the policy. This will include acquisition
expenses such as any commission payable to financial advisers, and similarly any
renewal commission. It would be both normal and fair to use all of the expenses
incurred in respect of the policy, including its share of the life insurance companys
overheads.
Chapter 7
Page 2
The following question has been added immediately after Question 7.1:
Question 7.1A
A policyholder has made the following comment:
My premium has gone up by 2%, so of course my sum assured should go up by 2%

too. I dont see how this is a bonus.
How would you respond?
The solution to this question is:
If the policyholder had paid 2% more from outset then the sum assured would have
been 2% higher. So one way of thinking about the bonus is that the policyholder gets
2% more in benefits without having paid 2% more on his or her past premiums.

Page 16
The first paragraph has been amended to read:
There is less scope for deferral of profit with this method.
Chapter 8
Page 4
The first bullet point has been amended to read:
persistency risk, and consequent financial losses including the

possibility of compensation
Persistency is defined in the Glossary:
In a life insurance company, persistency is used to refer to the rate of

retention of policies that is experienced by the company. If a company
has poor persistency, this indicates a high level of lapses and/or
surrenders.
So the persistency risk mentioned in the Core Reading above is the risk that the
policyholder lapses or surrenders early, ie it is the same as withdrawal risk.
The final two paragraphs have been amended to read:
Changes in the propensity of consumers to purchase particular products (for a

variety of reasons) lead to new business risk for the insurer as they can result in
new business volume or mix being different from that assumed.
These risks are fully discussed in Chapter 11.
Page 5
Insurance intermediaries are salespeople who must act independently of any

particular life insurance company (although they can be owned by one). Their
aim is to find the contract that best meets, in terms of benefits and premiums,
the needs and situation of their clients. They may be remunerated, via
commission payments, by the companies whose products they sell, or they may
alternatively receive a fee from their clients.

Section 2.3
The second paragraph has been amended to read:
It will usually be the salesperson who initiates a sale, making use of client lists
or purchased leads. However, once he or she has built up a rapport with a
particular client, it will then often be the latter who initiates further sales.
The last paragraph has been amended to read:
Of course, lists of clients have to be acquired in the first place. This might be achieved,
for example, through press advertising, personal contacts, or by purchasing a list from a
marketing company (who might, for example, provide a list of, say, 5,000 people who
have moved house in the last 12 months).
Page 8
The following paragraph has been added at the end of the page:
Some direct marketing is now being performed using other forms of social
media, such as Twitter and Facebook.
Page 11
The first paragraph after the question has been amended to read:
Different products will suit different methods of sale. For example, the dynamics
of selling via the telephone, press advertisements or the internet mean that the
products sold in this way will almost inevitably be quite simple. This confirms the
answer to the previous question, but we wanted you to think about it for yourself first.
The following paragraph has been added at the end of the page:
An insurance company using more than one distribution channel may therefore
sell different versions of the same product, varying by channel.
Page 12
The last paragraph of Core Reading has been amended (by deleting the reference to
withdrawals) to read:
The level of underwriting will then be reflected in the demographic assumptions

used for pricing. The class selection mentioned above will also affect these
assumptions.
Chapter 9

Page 6
The first bullet point has been amended to read:
Some principle related to policyholders reasonable expectations acting

unfavourably to the insurer for example, the flexibility it would like to
adopt in declaring differing levels of bonus across with-profits policies
may be constrained.
Page 12
The regulatory environment can also affect the choice of assets through
their relationship with the investment assumptions used to value the
liabilities. A particular asset selection may allow a company to use a
higher investment assumption and thereby reduce the value of the
liabilities and increase the free assets. Typically, however, such
distributions will not enable the company to maximise the expected
investment return.
Page 15
The second bullet point has been amended to read:
Tax payable on investment income / gains less some or all of the

operating expenses of the company.
Page 21
As such, professional guidance should not unduly restrict the actions of

actuaries and may even provide protection against pressure from proprietors to
agree to courses of action that may not be in the best interests of policyholders.

Page 24
The final bullet point has been amended to read:
tax payable on investment income / gains less some or all of the operating
expenses of the company.
Chapter 11
Page 8
The following two paragraphs have been added at the end of the page:
Equally, the actions of competitors can have adverse implications for new
business volumes.
So a companys new business volumes are likely to fall if it does not follow any of the
decisions in the list above but its competitors do.
Page 13
The paragraph of Core Reading has been amended to read:
As discussed in Chapter 9, the legal, regulatory and taxation regimes can pose
risks to the extent that such environments and rules are changed adversely,
whether as they apply to policyholders, or insurers, or both.
Chapter 17
Page 7
Consideration will need to be given to the acceptability of the level of risk

associated with a proposed contract design. The level of risk that may be
acceptable will depend upon the companys ability or willingness either to
absorb risk internally or to reinsure or hedge it.

Chapter 21
Page 2
In 1990 the Groupe Consultatif des Associations dActuaires des Pays des
Communauts Europennes proposed the following set of principles.
Page 8
The final paragraph of Core Reading has been replaced by the following two
paragraphs:
The implementation of such principles within a country will depend on the

requirements of its insurance supervisory authority and possibly also
professional guidance from its actuarial association. Indeed, in some countries
(including those in the European Union) there has been movement towards a
supervisory regime under which the basic reserves are calculated on a best
estimate basis, with additional risk margins held. However, the majority of the
above principles remain relevant.
Knowledge of how the principles are implemented in practice in any particular

country is not required for this subject, but will be covered (from the UK
perspective) in the related Specialist Applications subject.
Page 13
A net premium valuation does not result in the capitalisation of basis differences
mentioned above for the gross premium method.
Page 15
The last paragraph of Core Reading has been amended to read:
In other countries, it is standard practice to calculate premiums using

assumptions that broadly reflect expected future experience, with the risks to the
company being allowed for mainly through the risk discount rate. If the
supervisory regime in that country requires prudence in reserving assumptions
then it would not, in that case, be appropriate for the same assumptions to be
used both for pricing and for reserving.

The following paragraph of Core Reading has been added at the bottom of the page:
However, as noted in Section 1, some regimes have been moving towards the
use of best estimate assumptions in reserves. In that case, the underlying basis
could be the same for both pricing and reserving, but additional allowances for
risk would be needed for each.
Page 16
If the assumptions used for reserving need to be prudent estimates of future

experience, ie expected values but with margins for adverse future experience,
then sensitivity analysis can be used to determine these margins.
Sensitivity analysis could also be used to assess the need for and extent of any
additional risk margins, global reserves or capital requirements that may need to
be set up to cover potential future adverse experience.
Chapter22
Page 5
The sixth bullet point has been amended to read:
take account of surrender values offered by competitors (and possibly

also auction values, where available)
Page 13
The third paragraph has been amended to read:
The most complex component of the method is obtaining the necessary historic
information to build up earned asset shares or to determine suitable parameters
if a formula is used.

Chapter22
Section 4.5
The headings Prudent basis and Realistic basis have been deleted.
The assumptions used would likely be those implicit in the pricing of a new
contract issued at the alteration date to provide the benefits before alteration and
the benefits after alteration. The basis may be prudent (with margins) or realistic
(without margins).
The two paragraphs of Core Reading under the heading Realistic basis have been
deleted.
Chapter 24
Page 5
A guaranteed annuity rate corresponds to a call option on the bonds that would
be necessary to ensure the guarantee was met, ie at an exercise price which
generates the required fixed rate of return. Alternatively it can be mirrored by an
option to swap floating rate returns at the option date for fixed rate returns
sufficient to meet the guaranteed annuity option (a swaption).
Page 9
The second paragraph of Core Reading and the ActEd paragraph that follows it have
been amended to read:
The company will need to make assumptions about future rates of exercising
options, which would take into account expected policyholder behaviour and
the size of the guaranteed amount relative to the alternative benefit (eg asset
share).

So, for example, a guaranteed surrender value on a unit-linked policy is more likely to
be taken when the guaranteed amount is greater than the alternative benefit based on the
value of the units. Similarly, a with-profits policy is more likely to be surrendered if the
guaranteed amount is greater than an alternative benefit based on the asset share.
However, it would be quite simplistic to assume a policy would always be surrendered
in these situations. Policyholders might value the maturity benefits more highly or
expect the guarantee to become even more valuable at a later date.
Chapter 26
Page 2
The second paragraph has been deleted.
Page 12
Point (b) has been updated as follows:
(b) the cost of obtaining reinsurance the reinsurer naturally incorporates an

expense and profit loading in its reinsurance terms, and the ceding
company incurs administrative expenses.
Page 15
The first paragraph has been updated as follows:
The cedant retains liability to the policyholder for the benefits even if the
reinsurer becomes insolvent and cannot meet claim payments as they become
due. This is an example of what is known as a counterparty risk (or credit risk).
The first paragraph of ActEd text has been deleted.
Section 3.2
The heading has been amended to read:
A large, established and financially strong mutual life insurance

company mainly transacting with-profits business

As the company has healthy free assets it will be able to absorb a fairly high
level of mortality risk and will probably be able to finance new business from its
own resources.
The company may seek some catastrophe cover.
The last paragraph of ActEd text has been deleted.
Section 3.3
The last paragraph of Core Reading has been amended to read (in particular the
reference to assumption swaps has been deleted):
Proprietary companies will face scrutiny from the stock market on measures
such as return on capital employed. Reinsurance can be used to reduce the
capital employed, creating leverage, and so increasing the firms own return on
capital. This can be achieved by stop loss reinsurance or the different types of
financial reinsurance. Reinsurance can also help to smooth profit emergence.
The last paragraph of ActEd text has been deleted.
Chapter 27
Page 10
The second bullet point has been amended to read:
underwriting manuals prepared internally or by the major reinsurance

companies.
Page 18
Certain policy options may be available where the policyholder can increase
and/or extend the length of cover without evidence of health. The increased
anti-selection risk may be allowed for by an increase in overall product charges
compared to a corresponding policy without the options.

Chapter 29
Page 6
Point (c) has been amended to read:
(c) the extent to which the appropriate investments referred to above may be
departed from in order to maximise the overall return will depend, inter
alia, on the extent of the company's free assets and the companys
appetite for risk.
The final two paragraphs have been amended to read:
This states the fundamental approach towards balancing risk and return. The aim is to
maximise return subject to an acceptable level of risk. The level of risk a company can
take on, given its risk appetite, will depend on the financial resources of the company
ie its free assets. We consider below how holding more free assets enables a life
company to pursue a riskier strategy.
Although the insurer may decide to mismatch deliberately as a means of seeking

a higher expected investment return, the actuary should still make an
assessment of the asset-liability position in order to understand the risks being
run, including assessment of the adequacy of free assets to support the
mismatch.
Page 8
The second, third and fourth bullet points have been amended to read:
Guaranteed in terms of an index of prices, earnings or similar this

consists of benefits whose amount is directly linked to such an index.
Discretionary this consists of any benefit payments that are at the

discretion of the life insurance company, so in particular the future bonus
payments under with-profits contracts, and surrender values where these are
not guaranteed. The level of discretion will depend upon the bonus distribution
method used.
Investment-linked this consists of benefits where the amount is

determined directly by the value of the investments underlying the
contracts, so in particular the benefits under unit-linked contracts (or
benefits linked directly to a specified investment index).

Page 13
A suitable match would be securities that are linked to the same index in which
the guarantee is denominated, if available, ideally chosen to match also the
expected term of the liability outgo. In their absence, a substitute would be
assets that are expected to provide a real return.
Page 14
The last paragraph has been amended to read:
The benefits are guaranteed in the sense that their value can be determined at
any time in accordance with a definite formula based on the value of a specified
fund of assets (or investment index). Clearly the company could avoid any
investment matching problems by investing in the same assets as used to
determine the benefits.
Page 21
The following paragraph has been added immediately after Figure 2:
So, the projection of future solvency is an important component of this model.

The assessment of the supervisory solvency position, including dynamic
solvency testing, was also described in Section 3 of Chapter 16 and in Chapters
20 and 21.
Chapter 30
Page 11
The second paragraph of Core Reading has been replaced by the following two
paragraphs:
The role of the actuary in managing a life insurers risks should therefore be a
regular programme of advising the directors of the nature and size of the risks
faced. Particular attention will need to be given to those risks that are the most
material and/or the most sensitive to change. Risks should be controlled by
analysing and explaining their nature, costing them as far as possible, and
agreeing on management strategies for them.

In the case of sensitive risks, the actuary should model a range of long-term
scenarios to show the impact of variations to future experience, and
management strategies should be designed to protect against those risks that
the insurer is able to (and chooses to) control.
The final paragraph of Core Reading has been amended to read:
Once risk management strategies have been agreed, they should be documented
and implemented. Where the strategies consist of objective rules and
procedures, these should then be monitored on an ongoing basis. Strong
governance and controls are vital.
The following five paragraphs have been added at the end of this section:
One approach to managing risks is Enterprise Risk Management. You may have come
across this already in Subject CA1 or Subject ST9.
Enterprise Risk Management (ERM) is a risk management framework which

considers the risks of the enterprise as a whole, rather than considering
individual risks in isolation. This allows the concentration of risk arising from a
variety of sources within an enterprise to be appreciated, and for the diversifying
effects of risks to be allowed for. This is the holistic, integrated approach to risk
management.
So, by looking at the insurer as a whole, the management will be able to see the overall
level of risk that they are exposed to. The overall level of risk will be lower if the
insurer is well diversified, eg by writing business in many different countries. One
benefit of greater diversification is that the insurer will need to hold less capital against
its risks.
Another element of ERM is the recognition that value can be added to a business
through educated risk-taking, with a strong risk management framework that
better allows companies to identify and assess strategic opportunities.
For example, the longevity risk on annuities offsets, to some extent, the mortality risk
on term assurances. So it may be beneficial for an insurer writing lots of annuities to
take on extra mortality risk by selling more term assurances.

Page 15
The section under the heading of Systematic risk has been updated as follows:
Actuaries advise the companys decision-making process.
The key role is to analyse, explain and quantify the risks and rewards of various courses
of action.
It is important to model the potential variations in future experience caused by the most
sensitive risks.
Agreed risk management strategies should be documented, implemented, and their

effectiveness monitored continually.
ERM is an integrated approach to risk management that allows managers to understand

concentrations of risk and the benefits of diversification.
Chapter 31
Page 3
The third and fourth bullet points have been replaced by:
monitor any trends in experience

monitor actual compared to expected experience and take corrective
actions as needed
provide management information to aid business decisions
make more informed decisions about pricing and about adequacy of
reserves.
These changes are also made to the equivalent list in the Summary on page 31.
Page 6
The first line of Core Reading has been updated as follows:
The data (both claims and exposed to risk) would ideally be analysed, where
relevant, by

Page 13
The first paragraph of Core Reading has been updated as follows:
Commission is normally excluded from the expenses being analysed on the

basis that its format is known and can be added in later by a formula approach.
Page 18
The last paragraph of Core Reading has been updated as follows:
The expenses analysed elsewhere should exclude large one-off capital costs,
which need to be amortised over the expected useful lifetime of the item
purchased. The amortised cost may then simply be treated as part of the
overheads.
Page 29
The first paragraph of Core Reading has been updated as follows:
The results of analysing the experience, the surplus arising and the change in
the embedded value will be used by the actuary to reassess his or her view of
the future with regard to the company. This may result in changes to the
assumptions or models used for pricing or reserving, or changes to the ways in
which the business and its risks are managed.
Glossary
The following definition has been updated:
Internal unit-linked fund
An internal unit-linked fund consists of a clearly identifiable set of assets, for

example equities, property, fixed-interest securities and deposits. The fund is
divided into a number of equal units consisting of identical sub-sets of the
funds assets and liabilities. Responsibility for unit pricing rests with the
company, subject to any relevant policy conditions.

3 Changes to the Q&A Bank

There have been no significant changes to the Q&A Bank questions or solutions.
However, mark allocations have been amended to more closely reflect the actual exam
marking. In particular, extra marks have been added to key ideas and longer, more
difficult ideas. So the 2014 materials will sometimes give 1 mark for ideas that
previously scored half a mark.
These changes are not listed here. In the Subject ST2 exam, it is always safest to write
down the most important points first and to assume that each valid point you make will
score half a mark.
Any other changes worth noting are listed below:
Q&A Bank Part 4
The fifth bullet point in the solution to Question 4.12 (i) has been changed to:
be competitive (with other companies and possibly auction values) []
Q&A Bank Part 6
The sixth and seventh points under the heading of Interest in the solution to Question
6.3 (i) have been changed to:
The reduction will also be affected by the expectation for inflation. If inflation is
expected to be very high then the company can price on the assumption that benefit
escalation will be at 7.5%. The company will then invest mainly in fixed-interest
stocks, but with a reduction in price compared with an ordinary annuity escalating at
7.5% pa. [1]
Similarly, if inflation is expected to be very low then the company can price on the
assumption that benefit inflation will equal national index inflation. The company will
then invest mainly in index-linked stocks and a reduction in price may be afforded
compared to an ordinary index-linked annuity. [1]
The following point has been added to the first list in the solution to Question 6.5:
11. Regulatory changes such as a strengthening of supervisory solvency rules and

capital requirements. []

The following point has been added to the second list in the solution to Question 6.5:
11 Maintain close links with regulators and strengthen capital position in advance
of any changes.
[]
The solution to Question 6.11 incorrectly showed the maximum number of marks as 8.
This should have said a maximum of 7 marks.

4 Changes to the X assignments

As with the Q&A Bank, we have updated questions and solutions for the changes in the
Core Reading and ActEd text. We have also updated the marking schedules to reflect
the actual exam marking in the same way as the Q&A Bank.
We only accept the current version of assignments for marking, ie those published for
the sessions leading to the 2014 exams. If you wish to submit your script for marking
but have only an old version, then you can order the current assignments free of charge
if you have purchased the same assignments in the same subject the previous year (ie
sessions leading to the 2013 exams), and have purchased marking for the 2014 session.

5 Other tuition services

In addition to this CMP Upgrade you might find the following services helpful.
5.1 Study material
We offer the following study material in Subject ST2:

Mock Exam
Additional Mock Pack
ASET (ActEd Solutions with Exam Technique) and Mini-ASET
MyTest (coming soon)
Sound Revision
Revision Notes
Flashcards
Online Classroom (coming soon).
For further details on ActEds study materials, please refer to the 2014 Student
Brochure, which is available from the ActEd website at www.ActEd.co.uk.
5.2 Tutorials
We offer the following tutorials in Subject ST2:

a set of Regular Tutorials (lasting three full days)
a Block Tutorial (lasting three full days)
a Revision Day (lasting one full day).
For further details on ActEds tutorials, please refer to our latest Tuition Bulletin, which
is available from the ActEd website at www.ActEd.co.uk.
5.3 Marking
You can have your attempts at any of our assignments or mock exams marked by
ActEd. When marking your scripts, we aim to provide specific advice to improve your
chances of success in the exam and to return your scripts as quickly as possible.
For further details on ActEds marking services, please refer to the 2014 Student
Brochure, which is available from the ActEd website at www.ActEd.co.uk.

6 Feedback on the study material

ActEd is always pleased to get feedback from students about any aspect of our study
programmes. Please let us know if you have any specific comments (eg about certain
sections of the notes or particular questions) or general suggestions about how we can
improve the study material. We will incorporate as many of your suggestions as we can
when we update the course material each year.
If you have any comments on this course please send them by email to ST2@bpp.com
or by fax to 01235 550085.

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ST2: CMP Upgrade 2013/14 Page 1

This CMP Upgrade contains:

significant changes to the ActEd Course Notes, Series X Assignments and

The Actuarial Education Company IFE: 2014 Examinations

1 Changes to the Syllabus objectives

and the products may be written on the following bases:

IFE: 2014 Examinations The Actuarial Education Company

The Actuarial Education Company IFE: 2014 Examinations

IFE: 2014 Examinations The Actuarial Education Company

2 Changes to the Core Reading and ActEd Course Notes

An endowment is a contract to pay a benefit on survival to a known date and

The first paragraph of ActEd text has been deleted.

A without-profits endowment assurance offers a guaranteed amount of money (the sum

No death benefit (ie a pure endowment contract). Here there will be a

The Actuarial Education Company IFE: 2014 Examinations

The first paragraph of Core Reading has been amended to read:

The second paragraph of Core Reading has been amended to read:

Unit-linked contracts tend to be designed in a flexible manner so as to allow the

Unit-linked contract charges may be variable at the discretion of the insurance

IFE: 2014 Examinations The Actuarial Education Company

expenses incurred and any commissions paid

Expenses incurred and any commissions paid

A policyholder has made the following comment:

My premium has gone up by 2%, so of course my sum assured should go up by 2%

How would you respond?

The solution to this question is:

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The first paragraph has been amended to read:

There is less scope for deferral of profit with this method.

The first bullet point has been amended to read:

persistency risk, and consequent financial losses including the

Persistency is defined in the Glossary:

In a life insurance company, persistency is used to refer to the rate of

The final two paragraphs have been amended to read:

Changes in the propensity of consumers to purchase particular products (for a

These risks are fully discussed in Chapter 11.

The first paragraph has been amended to read:

Insurance intermediaries are salespeople who must act independently of any

IFE: 2014 Examinations The Actuarial Education Company

The second paragraph has been amended to read:

The last paragraph has been amended to read:

The level of underwriting will then be reflected in the demographic assumptions

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The first bullet point has been amended to read:

Some principle related to policyholders reasonable expectations acting

The first paragraph of Core Reading has been amended to read:

The second bullet point has been amended to read:

Tax payable on investment income / gains less some or all of the

The second paragraph of Core Reading has been amended to read:

As such, professional guidance should not unduly restrict the actions of

IFE: 2014 Examinations The Actuarial Education Company

The final bullet point has been amended to read:

The paragraph of Core Reading has been amended to read:

The first paragraph has been amended to read:

Consideration will need to be given to the acceptability of the level of risk

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The first paragraph of Core Reading has been amended to read:

The implementation of such principles within a country will depend on the

Knowledge of how the principles are implemented in practice in any particular

The first paragraph of Core Reading has been amended to read:

The last paragraph of Core Reading has been amended to read:

In other countries, it is standard practice to calculate premiums using

IFE: 2014 Examinations The Actuarial Education Company