Actuarium

SOA CFE SDMCorporate Finance & ERM — Strategic Decision Making

Fellowship (FSA)
5 hours·≈8–10 case-based written-answer questions·≈450 study hours

Syllabus learning objectives

Official syllabus

Paraphrased from the SOA syllabus so the study-plan builder and practice sets track the topics you will actually be examined on. Weights are the official topic ranges.

Corporate finance & valuation

30%
  • Value a company or project using DCF, WACC, APV and multiples.
  • Evaluate capital structure choices and their effect on cost of capital and ratings.
  • Apply real-options thinking to strategic flexibility.
  • Assess M&A transactions: synergies, deal structure and value creation.

Strategy & decision analysis

25%
  • Apply strategic frameworks (Porter, resource-based view, scenario planning) to insurers and financial firms.
  • Structure decisions with decision trees, expected value and value of information.
  • Incorporate risk appetite and stakeholder objectives into strategic recommendations.
  • Recognise behavioural biases in executive decision-making.

ERM in strategy: capital, risk appetite, performance

25%
  • Link economic capital and risk appetite to strategic planning and product mix.
  • Evaluate risk-adjusted performance (RAROC, EVA) across business units.
  • Design stress and scenario tests that inform strategic choices.
  • Assess emerging and strategic risks and their governance.

Financial reporting, ratings & communication

20%
  • Interpret insurer financial statements and key metrics for strategic analysis.
  • Explain rating-agency capital models and their influence on strategy.
  • Communicate technical recommendations to boards and investors.
  • Assess the strategic implications of accounting regime changes (IFRS 17, LDTI).

Overview

SDM is the capstone exam of the CFE track: a long case study on which candidates must make and defend strategic, financial and risk decisions as a senior executive would.

Duration
5 hours
Questions
≈8–10 case-based written-answer questions
Style
Computer-based written answer with extensive case study
Credit
CFE track FSA requirement
Passing
≈ 60–65% of points

Syllabus map

Corporate finance & valuation
30%
Interest Theory and Time Value of MoneyForecasting Premium, Loss, and Profitability
Strategy & decision analysis
25%
ERM in strategy: capital, risk appetite, performance
25%
Risk Measures and CapitalStress Testing and Emerging Risk
Financial reporting, ratings & communication
20%
P&C Financial Reporting and Schedule P

Key formulas

WACC   =EVrE+DVrD(1−τ)\;=\dfrac{E}{V}r_E+\dfrac{D}{V}r_D(1-\tau)

CAPM   rE=rf+β (E[rm]−rf)\;r_E=r_f+\beta\,(E[r_m]-r_f)

Levered beta   βL=βU[1+(1−τ)DE]\;\beta_L=\beta_U\left[1+(1-\tau)\dfrac{D}{E}\right]

RAROC   =Risk-adjusted returnEconomic capital\;=\dfrac{\text{Risk-adjusted return}}{\text{Economic capital}}; EVA =NOPAT−WACC×Capital=\text{NOPAT}-\text{WACC}\times\text{Capital}

EVPI   =Eθ[max⁡au(a,θ)]−max⁡aEθ[u(a,θ)]\;=E_\theta\big[\max_a u(a,\theta)\big]-\max_a E_\theta[u(a,\theta)]

Study strategy

  1. Read the case study weeks in advance; know its business units, financials and risk appetite by heart.

  2. Every recommendation needs: the decision, quantified support, risks and mitigants, and stakeholder impact.

  3. Show your reasoning as a decision tree or table when uncertainty is involved.

Common traps

  • Forgetting to tax-adjust the cost of debt.

  • Recommending growth that breaches the case company's stated risk appetite.

  • Using book value weights in WACC when market values are given.

← SOA GH DP
Ask the tutor