Actuarial Tracks Presentation - Actuarial Association of UCSB
European Actuarial Standards - MENU – HOME (EN) promote high quality actuarial practice. 13...
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European Actuarial
Standards
Cypriot Actuaries Seminar
Nicosia – 9 March 2016
David Martin, Chairperson
of AAE Standards, Freedoms and
Professionalism Committee
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Professionalism in Actuarial Work
IAA, AAE and the
Cyprus Association
Code of Conduct
– Integrity
– Competence and Care
– Compliance
– Impartiality
– Effective
Communication
Important Issues
– Conflicts of Interest
– Whistleblowing
– Contingency Fees
– Peer review
– CPD
– Discipline
– Which standards to
use?
Governance of
International Work
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Membership criteria
– Full Member Association (33)
• Code of Conduct / disciplinary process
• Minimum education standards (Core Syllabus)
• Due process if standards are promulgated
• Ability to sign the Mutual Recognition Agreement*
* AAE only
Membership of the IAA & AAE
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International Standard Setting
What is an Actuarial Standard?
IAA strategy for ISAPs and International
Actuarial Notes, and Due Process
–The role of ISAPs, and activity to date
European perspective and the AAE
–The role of ESAPs and activity to date
Actuarial Standards in Cyprus
Discussion
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What is an actuarial standard?
A set of statements of behaviour expected of
actuaries
Minimum standards on
• methodology to be employed
• approach to be used in setting
assumptions
• reporting
To achieve greater consistency of approach
To increase the confidence of clients and the
public
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What is a model standard?
Upholds the Principle of Subsidiarity
Does not – of itself – apply to an
actuary unless the local actuarial
standard setter adopts it (with or without
amendment)
Is recommended for
adoption/adaptation by local actuarial
standard setters
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Pros and Cons of standards
Cons
– Compliance is a disadvantage for the individual
actuary as compared to an expert with no
compliance burden
– Developing a standard is costly
Pros
– Ensuring high quality and reliability of the
actuarial work to its users
– Trust and confidence of users of actuarial
services
– Acknowledgment of serving the public
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Who is an actuary?
An individual member of one of the member
associations of the IAA/AAE
– I.e. actuaries are subject to the code of conduct
of the member association they belong to
– I.e. actuaries are subject to the disciplinary
measures of the member association they
belong to
Non-compliance with a compulsory standard is a
violation of the code of conduct of an IAA/AAE
member association
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IAA and ISAPs
The IAA
IAA strategy for ISAPs
ISAPs versus IANs
Due Process for ISAPs
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The IAA’s strategy for standards
Establish, maintain and promote common
standards of actuarial education and
common principles of professional conduct.
Promote the development and issuance of
actuarial standards in the jurisdictions of all
Full Member Associations, and the global
convergence of actuarial standards.
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ISAPs and IANs
International Standards of Actuarial Practice
(ISAPs) are intended to serve as model
standards for use by standard-setters around
the world.
International Actuarial Notes (IANs) are
educational documents on an actuarial subject
that has been adopted by the IAA in order to
advance the understanding of the subject in
question. A set of IANs will often be developed
in support of an ISAP.
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Objectives for ISAPs
ISAPs widely accepted as a basis for
convergence by local standard-setters
ISAPs recognised by the parties who rely
on actuarial standards such IASB, IAIS,
IOSCO and the local regulators and audit
firms.
ISAPs widely seen as contributing to the
public good.
ISAPs promote high quality actuarial
practice.
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Objectives of standards
ISAPs are established to promote high quality
actuarial practice globally
– To help serve the public interest by benefiting
users of actuarial work, regulators, and
participants and beneficiaries of financial
products and services
– To benefit actuarial associations and individual
actuaries by enhancing the credibility of the
actuarial profession
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Dual role of ISAPs
1. To serve as model standards for use
by standard-setters around the world
2. To serve as standards for use on
assignments where the terms of
engagement specify that the work is
to be carried out in accordance with
these ISAPs
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Due process for ISAPs
Clear governance structure
and a high level of
transparency
Input is sought at every stage
from all stakeholders
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Standard setters and ISAPs
The IAA encourages relevant FMAs to consider
taking one of the following courses of action:
• adopting the ISAP as a standard
• customizing the ISAP while ensuring it is substantially consistent
with the ISAP;
• endorsing the ISAP by declaring that the ISAP is appropriate for use
in certain clearly defined circumstances;
• modifying existing standards to obtain substantial
consistency with the ISAP; or
• confirming that existing standards are already
substantially consistent with the ISAP
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ISAPs in place and underway
Approved
Glossary
ISAP 1 General
ISAP 2 Social
Security
ISAP 3 – IAS 19
In process
ISAP 1A – Governance of
Models
ISAP 4 – Insurance Contracts
IFRS
ISAPs 5 and 6 – ERM
Task Force chair - USA
ISAPs 7 … – BCR* & ICS*
Task Force chair - UK
*Basic Capital Requirement and Insurance Capital
Standard, in process of development by IAIS
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ISAPs already adopted 1/3
ISAP 1 General Actuarial Practice
–18 November 2012
–Reformatted and Glossary
separated on 13 October 2013
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ISAP 1 (already adopted) – Content
Acceptance of
assignment
Knowledge of
circumstances
Reliance
Materiality
Data quality
Process management
Assumptions and
methods
Responsibility for them
Peer review
Documentation
Reporting
Deviation from
guidance
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ISAPs already adopted 2/3
ISAP 2 Financial Analysis of Social
Security Programs
–13 October 2013
Glossary of Defined Terms Used in
ISAPs
–13 October 2013
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ISAPs already adopted 3/3
ISAP 3 Actuarial Practice under IAS
19 Employee Benefits
–11 April 2015
Glossary of Defined Terms Used in
ISAPs
–11 April 2015
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ISAPs published ED phase1/2
ISAP [1A] Governance of Models
–Final SOI was ratified by Council in
October 2015
–The relevant task force will soon be
working on responses to the ED
(comment period ends at the end of
March, 2016)
–Expected completion: ~ 2017
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ISAPs in “published ED” phase 2/2
– Final SOIs were ratified by Council in September
2014
ISAP 5 Insurer Enterprise Risk Models
– The relevant task force will be working on responses
to the ED (comment period ends at the end of
March, 2016)
– Expected completion: ~ 2017
ISAP 6 ERM Programs and IAIS Insurance Core
Principles
– The relevant task force is working on drafting an ED
– Expected completion: ~ 2018
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ISAPs in ED-drafting phase 1/2
ISAP 4 Actuarial Practice in relation
to IFRS X Insurance Contracts
–Final SOI was ratified by Council
in September 2014
–The relevant task force is working
on drafting the ED
–Expected completion: ~ 2019
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ISAPs in ED-drafting phase 2/2
ISAP 7 “Current estimates” and other
matters in relation to the IAIS capital
standards
–Final SOIs was ratified by Council in
November 2014
–The relevant task force is working on
drafting an ED (partly jointly with the
ISAP 4 task force)
–Expected completion: ~ 2018
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Usage by standards-setters
& associations
Survey by IAA Professionalism
Committee included in
Accreditation Committee annual
questionnaire to associations
Here in Nicosia, AAE is
considering an ESAP
questionnaire
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Summary of responses to ISAP 1 by FMAs 2014
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Summary of responses to ISAP 2 by FMAs 2014
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Actuarial Standards in Europe
ISAPs and ESAPs
The European Regulatory Scene
– European Commission
– EIOPA
– Solvency II
AAE Standards Project Team (SPT)
Purpose and Process of ESAPs
ESAP1 – in place
ESAP2 – in place
ESAP3 – Consultation comments being considered
Other ESAPs under consideration
Actuaries and Solvency II
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Actuarial Standards
for Solvency II
Is there a specifically European
context for standards?
Yes…Solvency II
Solvency II is an EU level set of laws and regulations
…which creates an overarching regulatory framework
for insurance companies regulated in EU countries
EIOPA is an EU level regulator which sets guidelines
for national regulators
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What is the AAE doing
about standards?
Standards Project Team established in
October 2010
in October 2011 the GC/AAE approved
– purpose of standards and criteria to adopt
standards
– report on due process for the development of
standards
– work plan for standards development 2011-
2015
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AAE standard-setting
Purpose and Process
The overriding purpose should be to serve the public
interest by ensuring that the users of actuarial services
benefit from a high quality of actuarial work.
Standards should be principles-based
AAE will issue model standards
In general ESAPs will assume existence of ISAPs
AAE member associations will be invited to
– adopt standard (in English or French or translated into own
language)
– adapt standard to take into account local conditions
– adapt an existing standard to cover material of AAE model standard
– certify that the contents are covered by existing standards
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Difference between ISAPs and ESAPs
Most of the underlying principles are the same as
for ISAPs
One of the special principles for ESAPs:
– There should be no conflict or overlap with
ISAPs unless there are specific circumstances in
the EU which justify such differences
Principle of Subsidiarity of the IAA: European
flavour
– EP, EC, ESAs, EIOPA, Solvency II
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Role of actuaries
under Solvency II
Major challenge for the AAE
…and its member associations
The role of the actuary looks set to expand and
develop
…Solvency II is a trigger for this ... and an
opportunity
Widely accepted high quality standards will
assist
– …to provide support for claim of professionalism
– …to raise the credibility of AAE and its members
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Article 48 (2) of the Solvency II Directive
The actuarial function shall be carried out by
persons who have knowledge of actuarial
and financial mathematics, commensurate
with the nature, scale and complexity of the
risks inherent in the business of the
insurance or reinsurance undertaking, and
who are able to demonstrate their relevant
experience with applicable professional and
other standards
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Role of actuaries under Solvency II
Widely accepted high quality ESAPs
will assist
–to provide support for claim of
professionalism
–to raise the credibility of AAE and its
members
within the relevant stakeholders in
Europe
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ESAPs already adopted 1/2
ESAP 1 General Actuarial Practice
–Adopted on 3 October 2014 by
the General Assembly of the AAE
Why ‘duplicate’ ISAP 1?
–...to ensure that ESAPs make a
coherent set without relying on
external model standards
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ESAPs already adopted 2/2
ESAP 2 Actuarial Function
Report under Directive
2009/138/EC
Adopted on 31 January 2016 by
the General Assembly of the
AAE
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ESAP 2 - Purpose
Standard covers reporting – and not the
content of the work
–EIOPA guidelines are more than
sufficient on content
Based on the responsibilities of the
actuarial function in Article 48
–…and the requirement to
prepare an annual report
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ESAP 2 - Content
Reporting on technical provisions
– Conclusions on adequacy and reliability of TPs
– Important Information about TPs
– Disclosure of opening and closing TPs
– Co-ordination of process
– Sufficiency and quality of data
– Methods and models
– Assumptions
– Comparing best estimates against experience
– Sensitivity analysis
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ESAP 2 - Content
Opinions on
–Underwriting policy
–Reinsurance arrangements
Contribution to risk management
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ESAP under development
ESAP 3 Actuarial practice in relation to the ORSA
process under Solvency II
– A Proposal to Develop Standard was discussed in
October 2014 in AAE committees
– A Discussion Paper was debated in March 2015 in
AAE committees
– The ED was consulted on from September 2015
– A revised ED is expected
in September 2016
– A related EAN is being
developed by the Insurance
Committee
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ESAPs under consideration
ESAP 4 on the role of the Actuarial Function in
contributing to the risk management system under
Solvency II
ESAP 5 on independent review by actuaries under
Solvency II
ESAP 6/ESAP 1A on Governance of models and
Actuarial practice in relation to internal models
under Solvency II
ESAP 7 on Actuarial Function Reporting for IORPs
ESAP 8 on Risk Reporting for IORPs
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Proliferation of standards?
At the 2014 Spring meetings of the AAE
the issue was discussed in committees
–7 ISAPs and 8 ESAPs could appear
in a short period of time
–Phased
progress
is needed
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Who sets standards?
The national association?
The national financial regulator(s)?
A separate standard setting body set up by
the association?
A separate standard setting body set up by
the national government?
A mixture of two or more
of the above?
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IAA / AAE criteria for
Associations setting standards
Established process required
Draft standards available to its members and
relevant 3rd parties for comment
Comments on exposure draft duly
considered
Adopted standards properly disseminated by
an authority with powers to do so
Standards published and available to
members
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Standard setting in Cyprus
Who sets your standards?
Does your association have the necessary powers?
Do you have any existing standards in a particular
area?
Will you consider the existing and proposed ISAPs and
ESAPs?
If so, will you adopt them, adapt them (including
translating), amend existing standards and/or declare
substantial consistency?
Are you liaising with your local national financial
regulators about authorized persons and about
standards?
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Your
questions
and your
views………….