2007 IAA EDUCATION SYLLABUS 1978 PART ONE EXISTING SYLLABUSSUBJECTS

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1 2007 IAA EDUCATION SYLLABUS 1978 PART ONE EXISTING SYLLABUSSUBJECTS Appendix B This version was approved at the Council meeting on 18 April 2007 and replaces the 1998 document. 1. FINANCIAL MATHEMATICS To provide a grounding in the techniques of financial mathematics and their applications. x Deterministic theory of interest rates x Generalised cash-flow models x Introduction to contingent claims analysisasset types and securities markets x Term structure models x Risk neutral valuation, including derivative pricing and deflators x Stochastic calculus for finance x Stochastic theory of interest x Dynamic portfolio management x Introductory applications to insurance and other financial liabilities x Interest, yield and other financial calculations x Investment risk, introduction to stochastic interest and discount x Market models - e.g. term structure of interest rates and cash flow models Core Reading (Subject A1 - Subject 102) Mathematics of Finance J J McCutcheon and W F Scott 2. PROBABILITY AND MATHEMATICAL STATISTICS To provide a grounding in probability and mathematical statistics. x Concepts of probability x Random variables and their characteristics x Methods and properties of estimation x Correlation and regression analysis x Hypothesis testing and confidence intervals x Data analysis Mathematical Statistics John E Freund, Prentice Hall, International Editions

2 2 Subject C1 Core Reading/Subject 101 Core Reading 3. ECONOMICS To provide a grounding in the fundamental concepts of both microeconomics and macroeconomics. x Microeconomics x Macroeconomics Core Reading for Subject 107 There are many suitable textbooks at an introductory undergraduate level although most will have a fairly strong national bias. Economics Begg, Fischer and Dornbusch, published by McGraw-Hill, would be suitable for the UK. 4. ACCOUNTING To provide the ability to interpret the accounts and financial statement of companies. x Basic principles of accounting - including the role of accounting standards x The role of accounting standards x Different types of business entity x Basic structure of company accounts x Interpretation and limitation of company accounts Accounting texts tend to be too detailed and country specific, although the very introductory parts of standard accounting courses may be suitable. Other suitable texts are likely to be written for general management studies rather than for accountants. On the analysis of accounts, most books written for investment analysts are likely to contain too much industry and country detail. A treatment at a suitable level is provided, for example, in the chapter Analysing Financial Performance in Principles of Corporate Finance, by Brealey and Myers, published by McGraw- Hill.

3 3 Other suitable texts might be the training manual for the Investment Management Certificate of the Institute for Investment Management and Research (IIMR) and the Core Reading for Subject 108,. 5. MODELLING To provide an understanding of the principles of modelling and its applications. x Model structures x Selection process x Calibration x Validation x Scenario setting x Sensitivity testing x Limitations x Computer applications of modelling x Documentation and audit trail Core Reading (Subject 103) Introduction to Actuarial Modelling James C Hickman North American Actuarial Journal (1:3) Current Actuarial Modelling Practice and Related Issues and Questions Angus S Macdonald North American Actuarial Journal (1:3) 6. STATISTICAL METHODS Aims: To provide the skills and expertise in the use of statistical methodsmodels appropriate for the understanding of risk in a range of actuarial work. x Statistical models, such as regression and time series x Survival and multi-state models x Risk models (individual and collective) x Parametric and non parametric analysis of data x Graduation principles and techniques x Estimation of frequency, severity and survival distributions x Credibility theory x Ruin theory x Concepts of stochastic processes

4 4 x Simulation methods Actuarial Mathematics Bowers et al Casualty Actuarial Society textbooks for their examinations 3 and 4 Subject C2 Core Reading/Subject 104 and 106 Core Reading 7. ACTUARIAL MATHEMATICS To provide the skills and expertise in the application of the mathematics of contingent payments to common problems in actuarial practicethat are of particular relevance to actuaries working in life insurance, pensions, health care and general insurance. x Nature of the events giving rise to a contingency x Typical solutions offered by insurance, social insurance, other financial services, or risk management e.g. products, schemes, contacts or transactions that will provide payments or benefits on future financial events in relation to: x The risk profile and aims of the parties involved x The concepts of risk avoidance, risk transfer and risk retention x The level and form of cash flows to be provided x Any options or guarantees that may be included x The method of financing the cash flows to be provided x The choice of assets when benefits are funded x The charges that will be levied x The capital requirements x Actuarial methods for evaluating the prospective cost of solutions, e.g.: x Pricing of insurance contracts x Financing methods for other products or plans x Financial effects of other risk management solutions x Actuarial methods for monitoring the results and maintaining financial stability, such as: x Actuarial mathematics as applied to life insurance, pensions, health care and general insurance x Types of products and plans - individual, group and social insurance arrangements x Pricing or financing methods of products and plans x Reserving x Financial Reporting x Reinsuring x Profitability analysis x Financial condition analysis x Reinsurance

5 5 Life Insurance Mathematics Gerber Actuarial Mathematics (Part A) Bowers et al Core Reading for Subjects 104 and 105 Casualty Actuarial Society textbooks for their examinations 5 and 6 Actuarial Practice of General Insurance Hart, Buchanan and Howe, Institute of Actuaries of Australia Subject G Core Reading - Subject 303, 403 Core Reading. 8. INVESTMENT AND ASSET ANALYSISMANAGEMENT To develop the ability to apply actuarial principles to the valuation, appraisal, selection and management of investments and to liaise with other investment professionals. x The objectives of institutional and individual investors x Types of investment (bonds, shares, property and derivatives) x Regulation and taxation of investments x Valuation of investments x Portfolio selection - incorporating assessment of relative value x Performance measurement x Portfolio management x Management of investments with respect to liabilities using techniques such as immunisation, asset-liability management and liability driven investment. Most investment textbooks are either too theoretical or too practical, not mathematical enough and country specific. There are however several US textbooks which contain some material which would be appropriate. These include: Investments Sharpe, W F (1978) published by Prentice Hall, New Jersey Modern Portfolio Theory and Investment Analysis (5th edition) Elton, E J and Gruber, M J (1995) published by Wiley Radcliffe Parts of the textbook currently being prepared by the Society of Actuaries

6 6 Panjer H H (ed.)(1998) Financial Economics : with Applications to Investments, Insurance and Pensions might also be suitable. Options, Futures and Other Derivatives (3rd edition) Hull, J C (1997) published by Prentice Hall International The relevant parts of Core Reading for Subjects 1-2, 109 and PRINCIPLES OF ACTUARIAL RISK MANAGEMENT To develop the ability to apply the principles of actuarial planning and control needed for the identification and quantification operation and management of risks for the operation of risk related programs on a sound financial basislines. x The general operating environment of the enterprise x Assessment of risks; risk types and risk measures x Product ddesign and development of products and/or services x Pricing of products and services and assumptions underlying the pricing x Reserving and valuation of liabilities x Management of risks and methods of reducing risk exposure, such as reinsurance x Asset and liabilitymanagement of the relationships between assets and liabilities x Monitoring the experience and exposure to risk x Solvency of the provider and profitability of the enterprise and the management of capital x Principles of regulation of financial institutions x Calculation and distribution of profit (surplus) Core reading Subjects 302, 303, F, G, H Actuarial Control Cycle Institute of Actuaries of Australia Pensions - see Annotated Reading List for Pensions General Insurance - Actuarial Practice of General Insurance Hart, Buchanan and Howe, IoAA 10. PROFESSIONALISM

7 7 To develop awareness of the meaning of professionalism, issues and the importance of professionalism in the work of an actuary and the professionalism issues that may arise in the course of that work. x Characteristics and standards of a profession including the need for: x Specialised skill and education x Ongoing training and development x High quality of advice x Exercise of independent judgement x Objectivity, integrity and accountability x Code of conduct and practice standards x Discipline process x Practice standards set by actuarial bodies and other stakeholders x Regulatory roles of actuaries ÄThe regulatory roles of actuaries x The professional role of the actuary x Analysis and resolution of ethical issues x Identifying and managing conflicts, miuse of or undue influence on advice x Nature of advice x The public interest Professionalism Course: Participants Course Notes Professional Ethics Course: Handouts Society of Actuaries Code of Conduct - relevant actuarial body