GC IM Presentation vs Final 01

7/27/2019 GC IM Presentation vs Final 01

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CopyrightGroupe Consultatif

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Role of the Actuarial Function

Groupe Consultatif

Actuariel Europen

7 December 2005

Brussels, Belgium

(wo rk ing docum ent)

Prepared by:

Aisling Kennedy (Ireland)

Jiri Fialka (Czech Republic)

Karel Goossens (Belgium)

Ad Kok (the Netherlands)


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Insurers should

be required tohave actuarial

expertise


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The Actuarial Function

The Solvency Actuary

The Competencies of the Solvency Actuary

The Position of the Solvency Actuary

The Report of the Solvency Actuary


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Skills and Competencies

Financial and prudential analysis and advice on the

management of risks, liabilities and assets

Mathematical and financial skills and training instatistics and risk analysis, used to analyse past

events, assess present risks, and model what could

happen in the future

Platform of defined skill set and competencies


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Range of actuarial roles

Pricing

Premium

Reserving

Claims

Risk

measurement

Solvency

Profit testing

P&L Sources

Reinsurance

Market

factors

Internal &

External risk

Methodology

Assumptions

Past adequacy

ForecastingStress testing

Stochastic Modeling

ALM


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Task and responsibilities include

Pricing Tariffs for insurance companies

Design of policies and systems

Reserving

Technical provisions and liabilities of insurance companies

Equalisation provision for social security system

Profit testing

Profitability and profit sharing policies

Indexation of pension

Risk measurement

Capital adequacy

Asset Liability Modelling



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Introducing the Solvency Actuary

Solvency Actuary

Provides hands on analysis and advice

May direct internal actuarial resources

Advises the senior governing body on

Technical provisions and solvency position at reporting date

Adequacy and sufficiency level of premiums

Adequacy of reinsurance arrangements

Risk management

Takes a forward looking view of the companys financial position

Reviewing Actuary

Provides second view on the financial position current and

forward looking

Please note current

country specific

preferences



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The Solvency Actuary I

To perform an investigation into the financial position of the

insurance company on an annual basis. This covers the whole

financial position (not only technical provisions and related

items) as shown in the balance sheet

Not just an historical investigation but also a forward looking

exercise examining the expected future development of thefinancial position

To report the results of this investigation in writing to the senior

governing body of the insurer

To monitor and report as required on changes to the companys

financial position during the course of the year



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The Solvency Actuary II

Primary client is Board or Senior Governing Body

Secondary client may be Supervisor

There should be a three way relationship between the SolvencyActuary, the Board and the Supervisor; the Supervisors relationshipwith the other two parties may be determined by legislation or theremay be a three party contract between the insurer, the Supervisor andthe Solvency Actuary

Solvency Actuary maintains a good relationship and (in)formal contactswith external Auditor; the external Auditor may be relying on theSolvency Actuarys report

Possible whistle blower responsibility to Supervisor

Public Role / Disclosure requirements



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Possible whistle blower responsibility

Possible whistleblowing role - if set down inregulation or contract with Supervisor

In any circumstances in which the current or futuresolvency of the insurer is in danger

The Solvency Actuary reports to the Board

The Solvency Actuary advises the Board that in the eventthat the Board does not act to mitigate the relevantcircumstances, he will have to notify the Supervisor

If the Board does not act, the Solvency Actuary must notifythe Supervisor, at the same time advising the Board that heis doing so



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Public Role

Is there a further role for the Solvency Actuary inrelation to the public interest?

For example, should the Solvency Actuary be

required to produce a report for policyholders?

Would this be provided for in legislation?



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Actuarial Governance

Actuary Code of conduct

Specified education requirements

Relevant experience

Fully fledged CPD program Peer review arrangements

Disciplinary infrastructure

Solvency Actuary, in addition Independent position



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Independence

Objective view

Free of any material conflict of interest i.e.

Unhindered by other material (commercial) concerns

of the insurance company

To seek conformity with accounting standards

Whistle blower power and protection (indemnity)



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Actuarial Position I

It is envisaged that there would be both:

a Solvency Actuary, and

a Reviewing Actuary

Some companies may choose that the:

Solvency Actuary be an internal appointment

Reviewing Actuary role be an external appointment.

Potentially both roles could be internal appointments, but thiscould give rise to concerns as to the independence of theReviewing Actuary.

Some companies may choose to fulfil both roles externally.However, not by the same person and the two externalactuaries should not be connected

Please note current

country specific

preferences



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Senior Governing Body

Management

Solvency

Actuary

Actuarial Position

External

Auditor

Chief

Financial

Officer

MODEL A


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Management

Solvency

Actuary

Actuarial Position

External

Auditor

Reviewing

Actuary

Chief

Financial

Officer

MODEL B


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Management

Actuarial Position

External

Auditor

Reviewing

Actuary Chief

Financial

OfficerSolvencyActuary

MODEL C


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Management

Solvency

Actuary

Actuarial Position

External

Auditor

Reviewing

ActuaryChief

Financial

Officer


MODEL D


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Statutory Financial Reporting I

Status quo at bookyear end under the prevailing accounting

principles

Development of financial position between current and previousreporting date

Technical provisions and related balance sheet items Risk margins on the provisions

Discounting

To carry out a minimal number of checks, tests w.r.t. possible

adverse deviations check on methodology, check on calculations, retrospective,

backward looking statements, IFRS Liability Adequacy Test, ad hoccoverage of risk development, annually


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Statutory Financial Reporting II

To discuss with external Auditor before finalisation

To separately report in writing toSenior Governing Body

To separately report in writing to Supervisor(when required)


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Solvency Financial Reporting I

Financial and Solvency Position of the company

Compliance with local (additional) solvencyrequirements

Independent report by the Solvency Actuary

Based on generally accepted actuarial principles

Stating Personal opinion

Groupe Consultatif to produce framework


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Solvency Financial Reporting II

Status quo and expected future development (1)

Possible adverse deviations

Prospective, forward looking statements

Risk Audit and Review

Integral coverage of risk development

Continuous monitoring

Controlling the process



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Solvency Financial Reporting III

Status quo and expected future development (2)

Analysis of individual risks and risk management measures Correlations

Effect of diversification

Suggested improvements

Capital adequacy position Analysis of recent development

Projections

Compliance with Solvency II legal requirements

Minimum Capital Requirement Solvency Capital Requirement

Use of Standard formula vs. internal model



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Solvency Financial Reporting IV

Based on Strategy and general policy of company

Economic developments

Risk developments

Portfolio developments

Risk hedging Interdependencies / correlations

Going concern / run off status

Policyholders behaviour / reasonable expectations

Scenario testing & analysis

What if analysis Distinguish between short term / long term

Back testing experience



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Solvency Financial Reporting V

Report will be send to the Board (Senior Governing Body)

Board remains responsible for all company reporting to

Supervisor, external Auditor etc.

Board may decide to send to Supervisor (on a voluntary or oncompulsory basis)

Board may decide to send to external Auditor (on a voluntary

basis)

National Supervisor may require direct access to Report (or

parts of the Report) or may require a separate report from the

Solvency Actuary


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Board of

Directors

Solvency Financial Reporting VI

External

Auditor

Supervisor

Report of theSolvency

Actuary


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Position Groupe Consultatif

Groupe Consultatif is ready, willing, prepared andorganised to develop proposals in close cooperationwith Directorate Internal Market for a framework for

The Actuarial Function The Solvency Actuary

The Competencies of an Actuary

The Position of the Actuary

The Report of the Actuary

GC IM Presentation vs Final 01

Documents

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