Regular readers of this blog might remember a previous post of mine wondering about the role of the Appointed Actuary (AA) in life insurance. Since that post, the Actuaries Institute has formed a taskforce, of which I am a member. We had an insights session this week, in which we outlined our preliminary recommendations for change. Members can watch the video of the discussion here.
I’m summarising the major recommendations here, for readers to comment. The commentary is my own, and is not necessarily the view of all members of the taskforce.
A positive statement of the role of the Appointed Actuary
The role of the Appointed Actuary in life insurance is largely defined by a list of tasks, rather than a purpose. We have come up with a draft purpose statement, which may help make it clear to stakeholders why the AA exists.
The purpose of the role of the Appointed Actuary is to ensure that Board and senior management of a life insurer has ready access to, and make appropriate use of, professional actuarial advice with respect to the key financial management aspects of the life insurer.
The Appointed Actuary must as a minimum:
- Be responsible for advising the Board, Board Committees and senior management on the sound financial management of the life insurer, including product pricing and design, financial risk and capital adequacy management, liability best estimate assumptions and measurement , and the sound financial operation of the life insurer;
- Have the necessary authority and reporting lines to the Board, board committees and
senior management to ensure the advice is considered;
- Be resourced with staff who possess appropriate experience; and
- Have access to all relevant aspects of the life insurer.
The Appointed Actuary should be first line, not second line of defence
While the role of the Appointed Actuary is to advise, in my view, the Appointed Actuary adds most value when this advice is first line (recommending action) rather than second line (review of somebody else’s action). All other recommendations flow from this one.
Remove second and third line of defence requirements
A number of requirements of the Life AA are second or third line, which, following on from the recommendation for first line of defence, suggest they should be removed. These include such items as:
- Review of risk management framework
- Review of surrender value compliance
Financial Condition Report (FCR) Requirements should be less detailed
Many of the detailed requirements for an FCR are in the Professional Standard, rather than APRA’s Prudential requirements, but in some cases, requiring all of the in the document can lead to a more compliance focused document than a document that covers the biggest issues facing a life insurer.
AA should have access to decision makers and/or report to the CEO
One concern that has been expressed by a number of stakeholders is that Life AA’s have reduced in seniority and/or influence in the nearly twenty years since the role was redefined for the Life Insurance Act in 1995. This recommendation is to reiterate the need for the AA to have appropriate access, without necessarily requiring a specific reporting line (although that is certainly one way to achieve the access, as can be seen from APRA’s recent new requirement for the CRO to report to the CEO).
Include temporary delegation framework
The Appointed Actuary role, as currently defined, has a key person risk, as it cannot be delegated, without a formal resignation from one Appointed Actuary and appointment of another. The task force is recommending a more workable delegation framework, as well as removal of some of the less value adding requirements for Appointed Actuary advice (such as for all changes to reinsurance arrangements).
A review of PS200
As noted above, some of the more detailed requirements of the Appointed Actuary arise because of the Professional Standard (PS200) rather than the regulations. The taskforce recommends a full review of this standard.
There were some excellent comments at the Insights session earlier this week, as well as subsequently to the taskforce by email. If you have any comments on these recommendations, you can also comment here.
The taskforce is writing a report with recommendations to the Council of the Actuaries Institute for their December meeting. Next steps will follow from that.