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THE REGULATORY ROLE OF THE ACTUARY

THE REGULATORY ROLE OF THE ACTUARY. Chris Daykin UK Government Actuary. EARLY REGULATION. New York and Massachusetts prior controls on premiums and reserves 1870 Life Assurance Act (UK) freedom with publicity actuarial reporting requirement. WHAT SKILLS CAN ACTUARIES BRING?.

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THE REGULATORY ROLE OF THE ACTUARY

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  1. THE REGULATORY ROLE OF THE ACTUARY Chris Daykin UK Government Actuary

  2. EARLY REGULATION • New York and Massachusetts • prior controls on premiums and reserves • 1870 Life Assurance Act (UK) • freedom with publicity • actuarial reporting requirement

  3. WHAT SKILLS CAN ACTUARIES BRING? • data management and analysis • scientific rating techniques • scientific reserving techniques • reinsurance pricing and evaluation • asset/liability management • overall financial management

  4. WHY ACTUARIES? • formal training • mathematics and statistics • mathematical modelling skills • understanding of insurance • assets as well as liabilities • professional structure

  5. THE REGULATORY SPECTRUM • prior approval of products and premiums • systematic notification of new products • actuarial responsibility for liabilities • asset adequacy opinion • Appointed Actuary • future financial condition reporting (DFA)

  6. THE APPOINTED ACTUARY KEY FEATURES • continuous appointment • assets and liabilities • continual financial monitoring • professional control • responsibility to supervisor

  7. DUTIES OF THE APPOINTED ACTUARY • valuation of assets and liabilities • report to the directors on the results • determination of surplus or deficit • advice on surplus distribution • continual financial monitoring • expense disclosure • financial condition report

  8. THE APPOINTED ACTUARY IN THE UK • FIA or FFA and over the age of 30 • must hold practising certificate • appointment notified to FSA • consultation with previous AA • current FSA proposals to split the role - actuarial function advising the Board - actuary concerned with discretion

  9. CURRENT PROFESSIONAL REQUIREMENTS • direct access to the Board • requirement to monitor continually • report on surplus distribution • reasonable expectations of policyholders • whistle-blowing responsibility

  10. CONTINUOUS MONITORING OF FINANCIAL POSITION • product design and marketing • premium rates and options • current investments and continuing policy • derivative exposures • current and future level of expenses • reinsurance arrangements

  11. DYNAMIC FINANCIAL ANALYSIS (STRESS-TESTING) • realistic future cash-flows • impact of regulatory requirements • alternative scenarios • use of stochastic modelling • identification of risks • risk management strategies

  12. WHISTLE-BLOWING • professional responsibility • underpinned by legislation • interests of policyholders • responsibility to company • responsibility to regulator • need for protection or indemnity?

  13. ACTUARIAL ROLES IN GENERAL INSURANCE • pricing and reserving • determination of loss provisions • determination of other provisions • design or testing of reinsurance programme • determining reinsurance bad debt provision • dynamic financial analysis

  14. REGULATORY ROLES IN GENERAL INSURANCE • Appointed Actuary (as for life insurance) • certification of loss reserves (provisions) • determination of liabilities • certification of premium adequacy • DFA or financial condition reporting • evaluation of capital requirements

  15. CANADA • appointed actuary (life and non-life) • realistic valuation methods • provisions for adverse deviations • risk-based capital (MCCSR) • dynamic capital adequacy testing (DFA)

  16. USA - LIFE • asset adequacy opinion • cash-flow testing • risk-based capital • movement towards appointed actuary • role of NAIC and State Commissioners

  17. USA - P & C • loss reserve certification • risk-cased capital • movement towards appointed actuary • dynamic financial analysis • separate actuarial professional body (CAS)

  18. ACTUARIAL ROLES IN COMPLEMENTARY PENSIONS • scheme design • level of contributions • funding and solvency management • asset/liability management • pricing of individual options • bulk transfers

  19. REGULATORY ROLE OF ACTUARY IN DB PENSIONS • regular valuation of assets and liabilities • determination of contribution rate • certification of funding position • advice on investment strategy • whistle-blowing

  20. REGULATORY ROLE OF ACTUARY IN DC PENSIONS • determination of contribution rate • certification of reserves for guarantees • determination of annuity rate • similar roles to life insurance • advice on investment strategy • whistle-blowing

  21. ACTUARIES IN SUPERVISORY OFFICE • understanding of actuarial issues • effective monitoring of technical provisions • monitoring of financial strength • interface with actuarial profession • support for appointed/valuation actuary • counterbalance to concentration of power

  22. GOVERNMENT ACTUARY’S DEPARTMENT • independent source of actuarial advice • carries weight with the industry • good interface with actuarial profession • easier to recruit and retain actuaries • available for all areas of government

  23. ROLE OF PROFESSION • initial education • qualification standards • continuing professional development • standards of practice • interface with regulatory bodies • disciplinary framework

  24. LOOKING FORWARD • challenges of more open markets • international accounting standards • DFA and financial condition reporting • increased role for actuaries • importance of professional associations • increasing internationalisation

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