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© IFE: 2021 Examinations
The Actuarial Education Company
CP1:
Acronyms – Parts 3 and 4
Health warning relating to acronyms
Please be very careful about using acronyms when answering exam questions. Whilst they are
useful for remembering lists and structuring an answer, the examiners are expecting application
of the material to the specifics of the question. Simply remembering and regurgitating acronyms
will not result in a pass.
Investment and risk characteristics of assets
Security (default risk)
Economic situations in which cash is
attractive
Yield (real or nominal, expected return)
General economic uncertainty
Spread (volatility of market values)
Recession expected
Term
Interest rates expected to rise
Expenses or Exchange rate
Depreciation of domestic currency expected
Marketability
Tax
Characteristics of investors
Characteristics of a prime property
Comparable properties for rent reviews /
valuation
Age, condition and flexibility of use
Tax position
Location
Regulation on investor
Lease structure
Assets already held
Income / cashflow considerations
Tastes (liabilities, education, fashion)
Other assets and other investors
Risk appetite
Size
Tenant quality
Theories of the yield curve
Liquidity preference
General reasons for holding cash
Protect monetary values
Opportunities (to take advantage of)
Inflation risk premium
Market segmentation
Expectations
Uncertain liabilities
Recently received cashflow
Short-term liabilities
The Actuarial Education Company
© IFE: 2021 Examinations
CP1:
Main difficulties of overseas investment
Regulatory influences on assets held
Mismatching domestic liabilities
Types of assets that a provider can invest in
Taxation (may not be able to recover
withholding taxes paid)
Extent to which mismatching is allowed
Volatility of currency
Hold certain assets, eg government bonds
Other, more practical problems with
overseas investment
Single counterparty maximum exposure
Custodian needed
Additional admin required
Amount of any one asset used to
demonstrate solvency may be restricted
Time delays
Mismatching reserve
Expenses incurred / expertise needed
Regulation poor
Political instability
Currency matching requirement
Custodianship of assets
Factors affecting investment strategy
Accounting regulations
Information harder to obtain (and less of it)
Language difficulties
Size of the assets (absolute / relative)
Liquidity problems
Accrual of liabilities in the future
Accounting differences
Diversification
Restrictions on foreign ownership /
repatriation problems
Currency of the liabilities
Uncertainty of the liabilities
Ways of valuing assets
Tax treatment of the assets / investor
Smoothed market value
Environmental / social / governance issues
Historic book value
Risk appetite
Adjusted book value
Market value
Institution’s objectives
Nature of the liabilities
Fair value
Voluntary and legal restrictions
Arbitrage value
Existing portfolio
Discounted cashflow
Solvency requirements
Stochastic modelling
Term of the liabilities
Other funds’ strategies (competition)
Return (expected long-term)
© IFE: 2021 Examinations
The Actuarial Education Company