Groupe Consultatif
Actuariel Européen
Role of the Actuarial Function
(working document)
7 December 2005
Brussels, Belgium
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Prepared by:
Aisling Kennedy (Ireland)
Jiri Fialka (Czech Republic)
Karel Goossens (Belgium)
Ad Kok (the Netherlands)
1
“Insurers should
be required to
have actuarial
expertise”
2
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Role of the Actuarial Function

The Actuarial Function

The Solvency Actuary

The Competencies of the Solvency Actuary

The Position of the Solvency Actuary

The Report of the Solvency Actuary
3
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Role of the Actuarial Function

The Actuarial Function

The Solvency Actuary

The Competencies of the Solvency Actuary

The Position of the Solvency Actuary

The Report of the Solvency Actuary
4
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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 in
statistics 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
Market
factors
Internal &
External risk
Forecasting
Stress testing
Stochastic Modeling
ALM
Reinsurance
Pricing
Premium
Risk
measurement
Solvency
Methodology
Reserving
Claims
Assumptions
Past adequacy
Profit testing
P&L Sources
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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
Please note current
country specific
preferences
• 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 company’s financial position

Reviewing Actuary
– Provides second view on the financial position – current and
forward looking
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Role of the Actuarial Function

The Actuarial Function

The Solvency Actuary

The Competencies of the Solvency Actuary

The Position of the Solvency Actuary

The Report of the Solvency Actuary
9
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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 the
financial 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 company’s
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 Solvency
Actuary, the Board and the Supervisor; the Supervisor’s relationship
with the other two parties may be determined by legislation or there
may be a three party contract between the insurer, the Supervisor and
the Solvency Actuary
Solvency Actuary maintains a good relationship and (in)formal contacts
with external Auditor; the external Auditor may be relying on the
Solvency Actuary’s report

Possible ‘whistle blower’ responsibility to Supervisor

Public Role / Disclosure requirements
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Role of the Actuarial Function

The Actuarial Function

The Solvency Actuary

The Competencies of the Solvency Actuary

The Position of the Solvency Actuary

The Report of the Solvency Actuary
12
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Possible ‘whistle blower’ responsibility

Possible whistleblowing role - if set down in
regulation or contract with Supervisor

In any circumstances in which the current or future
solvency of the insurer is in danger
– The Solvency Actuary reports to the Board
– The Solvency Actuary advises the Board that in the event
that the Board does not act to mitigate the relevant
circumstances, he will have to notify the Supervisor
– If the Board does not act, the Solvency Actuary must notify
the Supervisor, at the same time advising the Board that he
is doing so
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Public Role

Is there a further role for the Solvency Actuary in
relation 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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Role of the Actuarial Function

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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Actuarial Position I

It is envisaged that there would be both:
– a Solvency Actuary, and
– a Reviewing Actuary

Please note current
country specific
preferences
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 this
could give rise to concerns as to the independence of the
Reviewing Actuary.

Some companies may choose to fulfil both roles externally.
However, not by the same person and the two external actuaries
should not be connected
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MODEL A
Actuarial Position
Senior Governing Body
Management
Chief
Solvency
Actuary
Financial
Officer
External
Auditor
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MODEL B
Actuarial Position
Senior Governing Body
Management
Chief
Reviewing
Actuary
Solvency
Actuary
Financial
Officer
External
Auditor
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MODEL C
Actuarial Position
Senior Governing Body
Management
Reviewing
Actuary
Chief
Financial
Solvency
Actuary
Officer
External
Auditor
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MODEL D
Actuarial Position
Senior Governing Body
Management
Reviewing
Actuary
Chief
Financial
Solvency
Actuary
Officer
External
Auditor
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Role of the Actuarial Function

The Actuarial Function

The Solvency Actuary

The Competencies of the Solvency Actuary

The Position of the Solvency Actuary

The Report of the Solvency Actuary
23
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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 previous
reporting 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 hoc
coverage of risk development, annually
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‘Statutory’ Financial Reporting II

To discuss with external Auditor before finalisation

To separately report in writing to
Senior 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) solvency
requirements

Independent report by the Solvency Actuary

Based on generally accepted actuarial principles

Stating Personal opinion
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26
‘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
Policyholder’s behaviour / reasonable expectations
Scenario testing & analysis
‘What if’ analysis
Distinguish between short term / long term
Back testing experience
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29
‘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 on
compulsory 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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‘Solvency’ Financial Reporting VI
Supervisor
Report of the
Solvency
Actuary
Board of
Directors
External
Auditor
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Position Groupe Consultatif
Groupe Consultatif is ready, willing, prepared and
organised to develop proposals in close cooperation
with Directorate Internal Market for a framework for
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The Actuarial Function
The Solvency Actuary
The Competencies of an Actuary
The Position of the Actuary
The Report of the Actuary
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