Exam F3RET

F3RET – Pension Risk Management is an exam of the retirement benefits track of the Canadian Institute of Actuaries' Fellowship (FCIA) pathway.

About the exam

The aim of this exam is for candidates to develop the following skills:

1. Understand the main principles and techniques of enterprise risk management (ERM) and investment risk management that are relevant to retirement benefits.

2. Apply these principles and techniques within the context of pension plans.

3. Evaluate and propose recommendations related to the risk management of pension plans.

4. Evaluate hypothetical scenarios, including using judgment to assess the implications of possible actions.

Exams are administered as an open-book, four-hour exam requiring analysis in the context of a problem and submission of written responses to specific questions. Candidates will complete the exam through the CIA’s learning management system. The ranges of weights (expressed in parentheses) attached to the examination topics further below apply to most of exams administered. Candidates should also recognize that questions often cover multiple learning objectives, including communication.

Learning Objectives

Principal terms (0%)

1. Define principal terms used in ERM. (A1)

ERM concept, framework, and process (15%)

1. Apply the concept of ERM. (D3)
2. Describe and understand the framework for risk management and control. (C2)
3. Describe the perspectives of credit-rating agencies. (B2)
4. Reflect data issues in general and special considerations with respect to ERM. (C3)
5. Demonstrate how to determine and articulate: (C3)
   • a. Risk appetite.
   • b. Risk identification.
   • c. Risk assessment.
   • d. Risk monitoring.
   • e. Risk limits.
   • f. Risk mitigation.
   • g. Risk capacity.
   • h. Risk tolerances.
   • i. Desired risk profile.
   • j. Risk objectives.
   • k. Risk reporting.
6. Assess the implications of financial and other risks and opportunities for strategic planning. (C4)
7. Describe the risk management control cycle, including the relevance of external influences and emerging risks. (C2)
8. Utilize methods to identify risks and their causes and implications. (D4)

Risk categories and risk identification (15%)

1. Explain what is meant by risk and uncertainty, including different definitions and concepts of risk. (B2)
2. Describe risk taxonomy, including an awareness of how individual risks might be categorized in different ways. (B1)
3. Describe common risks faced by pension plans insurers, including: (B2)
   • a. Interest rate risk.
   • b. Credit risk.
   • c. Market risk.
   • d. Liquidity risk.
   • e. Mortality risk.
   • f. Operational risk.
   • g. ESG and climate-related risks.
   • h. Foreign-exchange risk.
   • i. Regulatory risk.
   • j. Political risk.
   • k. Demographic risk.
   • l. Strategic risk.
   • m. Asset/liability duration mismatch risk.
4. Analyze the relationship between systemic risk vs. non-systemic and specific risk vs. concentration of risk.

Investment risk management (25%)

1. Identify and assess the sources of investment risk applicable to retirement fund assets. (C3)
2. Evaluate the interaction of plan investments with plan design, valuation, accounting, and funding. (C5)
3. Evaluate the interaction and relationship between plan investments and valuation assumptions/methods. (C5)
4. Evaluate how factors including cash-flow requirements, various plan designs, and various economic environments affect setting investment strategy. (B5)
5. Apply and evaluate strategies and techniques for asset/liability management. (D5)
6. Provide advice and analysis to plan sponsors regarding the mitigation of pension plan risks. (D6)
7. Given a context, interpret a statement of investment policy and evaluate if changes are required. (C5)
8. Given a context, interpret a statement of funding policy and evaluate if changes are required. (C5)

Risk management and financial economics (10%)

1. Compare and analyze the interests of plan sponsors, employees, shareholders, taxpayers, and other stakeholders related to the financial management of a retirement plan. (C4)
2. Analyze how the retirement plan’s financial and design risks integrate with the sponsor’s risk management strategy. (C4)
3. Analyze how the retirement plan integrates with the sponsor’s overall financial position. (C4)
4. Understand and apply the principles of financial economics with respect to pension plan investing. (C3)
5. Provide advice and analysis to stakeholders regarding the economic assumptions used in the valuation of their retirement plans. (B6)
6. Provide advice and analysis to various stakeholders regarding the mitigation of pension plan risks. (B6)

Mathematics of financial risks (10%)

1. Understand how predictive analytics are used in retirement applications. (C3)
2. Understand and analyze properties of financial time series. (C4)
3. Understand and analyze stochastic models. (C4)
4. Analyze stochastic modelling from a regulatory requirement perspective. (C4)
5. Calculate and describe the concept of duration, convexity, and immunization. (B4)
6. Understand and apply plausible adverse scenarios. (C3)

Pension plan de-risking (25%)

1. Design and construct replication portfolios using available assets or products to defray risk. (C6)
2. Apply immunization strategies using duration and convexity. (C3)
3. Identify, evaluate, and manage longevity risk. (B5)
4. Analyze, evaluate, and construct glide paths in order to de-risk a pension plan. (C6)
5. Analyze, evaluate, and create margins in assumptions in order to de-risk a pension plan. (C6)
6. Evaluate and apply change in plan provisions in order to de-risk a pension plan. (C6)
7. Consider, assess, and design target-benefit pension plans and shared risk pension plans. (C6)
8. Apply the process relative to annuity purchases: (D5)
   • a. Annuities buy-ins versus buyouts.
   • b. Legal requirements.
   • c. Contribution requirements.
   • d. Transfers in kind.
   • e. Legal contract reviews.
   • f. Coordination among annuity providers.
   • g. Conversion from annuity buy-in to buyout.
   • h. Discharge of liabilities under applicable legislation.
9. Describe how Assuris protection can be optimized. (B2)
   • a. Calculate and consider the impact of ancillary benefits (e.g., indexation, survivor benefits, etc.). (C4)
10. Apply legislative requirements to plan provisions allowing annuity purchases. (C4)

Source Material

Source Material

• FCIA Syllabus – Retirement benefits track (CIA - 2024)
  • Exam F3RET (pp. 12–14)