The Appointed Actuary and ICAAP

Risk management for actuaries – is the door about to open?

In a previous post, I wondered whether Appointed Actuaries were moving into a compliance role, partly driven by the new ICAAP requirements from APRA for insurance companies. Well I’m not the only one who has been thinking about the role of Appointed Actuaries.

We had a session at the Actuaries Institute this evening where one of the speakers went further, and wondered whether there was a role for the Appointed Actuary at all with the introduction of ICAAP.

After a presentation from three speakers (Kent Griffin, CFO at TAL, Tim Clark, Chief Actuary at IAG and me) on various aspects of Appointed Actuary roles and ICAAP, Kent Griffin posed three possibilities for the profession going forward:

Should the profession:

  • Be content with the framework [of risk management and actuarial roles] as it is evolving and focus on our traditional competencies, and/or
  • Position the profession as one of a number of professions capable of delivering ICAAP and broader risk management and capital advice, and/or
  • Work further with regulators to look to integrate the role of the CRO and Appointed Actuary, similarly integrating the FCR and ICAAP, as an alternative option.

There was very little support for the third option, with many speakers making the point that the Board’s role and the Appointed Actuary’s role are very different. The Board is responsible for every aspect of the company (and the new capital standards reinforce that this includes ultimate responsibility for capital management) and the Appointed Actuary’s role is to advise the Board in this and many other areas.

Most speakers from the floor thought that we already were position at the second option; the actuarial profession is one of a number of professions capable of delivering ICAAP and broader risk management and capital advice, with many actuaries, appropriately, comfortable with the more traditional competencies.

So is the Appointed Actuary’s influence declining?

A number of speakers, however, made the point that the influence of the Appointed Actuary as a key part of the management team has been gradually reducing (compared with where they have historically been in life insurers, at least, not so much general insurers), with most Appointed Actuaries not part of the main senior management team of the company.

Does this matter for the actuarial profession as a whole? Not necessarily. If the Appointed Actuary role becomes more and more of a compliance role, then there may be many other actuaries involved in the management of the company who are using their actuarial training to manage and advise the company – CFOs, CROs, and senior business managers (such as line of business managers) are actuaries in insurance companies in Australia.

ICAAP and the Appointed Actuary

My own view is that ICAAP continues the gradual push (at least in life insurance) of the Appointed Actuary away from the first line of defense part of a risk management framework, towards the second, or even third lines, and hence more of a compliance focus. But the actuarial skills needed in risk management, capital management and financial management are needed more than ever. So there is an important role for a skilled and insightful actuary advising a Board and management team, whether it is as the Appointed Actuary or not.