Appointed Actuary – a cross practice discussion

Appointed Actuary? Not a robot

A robot or an Appointed Actuary?

I’ve blogged about the role of the Appointed Actuary before – here and here. My own view has been that we need to positively define the role of the Appointed Actuary, and that, at least in life insurance, it should be closer to the first line of defence (ie managing the business) than second or third line.

As I noted in this blog previously, the Actuaries Institute set up a task force (of which I was a member) to make recommendations about the role. Our report can be found here. The major recommendations, summarised at the end of this post, include a positive statement about the role, as a key part of managing the major risks of an insurer.

This has now been submitted to APRA, and as part of the response, the Institute set up an Insights session this week, to talk more broadly about the role of the Appointed Actuary in life insurance, general insurance and health insurance. Chaired by President, Estelle Pearson, the session featured Ian Laughlin from APRA, and Hoa Bui (representing Life insurance) Brett Ward (representing General insurance) and Jamie Reid (representing Health insurance).

Ian Laughlin talked about the reason APRA raised concerns in the first place, which was largely about the high turnover of Appointed Actuaries at the same time as major profit issues in life insurance (he quoted the statistic of 64% turnover of Life AAs over three years).

He said that APRA is actively considering change, particularly for life insurance. The likely first step would be a discussion paper. He concluded by saying that APRA is looking for a good strong robust life and general insurance industry, and to have the actuaries play a strong role in that outcome.

Actuaries Institute view on the AA role

Estelle Pearson outlined the Actuaries Institute’s draft statement on the AA role (designed to cover all three sectors):

The purpose of the Appointed Actuary (AA) role is to give expert and objective advice to the Board and senior management regarding the most important aspects of the current and future financial condition of the insurer and to provide their expert insights on risk.  The AA role is a role required by the respective health, general and life insurance laws and subject to Board appointment. The statutory AA role ensures that the Boards and senior management of all insurance companies receive a minimum level of actuarial advice.

Reflecting the different natures of the business and risks written, the scope and activities of the statutory AA role can vary considerably across health, general and life insurance sectors.  The Life Appointed Actuaries task force report provided our views on the current scope and activities for the Life AA role.  The insurer must make arrangements to enable the AA to undertake the role including the provision of access to information and people and reporting lines to the Board and Board Committees.

The Actuaries Institute believes the designation of the AA role as 1st or 2nd line of defence limits the effectiveness and value of the AA role and would advocate that the individual circumstances or particular nature of the insurer is instead taken into account.

Panel Discussion

And then representatives from the three sectors (life, general and health) spoke, pointing out that the industry challenges were quite different in each sector.

  • In life insurance, Hoa Bui pointed out the wide range of tasks the AA is required to perform, some of which are quite detailed and not required in other industries (eg review of expense and other apportionments).
  • In general insurance, Brett Ward talked about how at his company, the AA is considered second line, and, as owner of the ICAAP process, is key to management and integration of risk in the organisation.
  • In health insurance, Jamie Reid talked about the requirement at health insurers for them to talk to the AA if there are “notifiable circumstances” – a list which is included in the legislation, but is not exhaustive. AAs can then decide whether they should provide advice to the company. Health AAs are now generally consulted before decisions are made, in case they have relevant advice.
 The discussion from the floor was wide-ranging and covered questions such as:
  • Do young actuaries today aspire to be AAs (often not in life insurance, suggested Hoa Bui)
  • Is the issue about how well actuaries communicate – should the profession do more to train actuaries in this area?
  • In particular, how do we train actuaries to provide the highlights, rather than everything, in their presentations?
  • Is the issue with the role, or with the actuaries performing the role?
  • What role has the Institute played, in particular, in professional standards?

The final question to the panel as a whole was what should happen as a result of this panel discussion. Two themes emerged from the panel:

  • having cross practice panels like this is immensely valuable, and we should do more of it
  • the key is improving the role, and the performance of the role so that it becomes a desirable role.

The Institute will be looking for comment on its draft statement of the AA role – I encourage all my readers to comment here and/or to the Institute.

 My own view

I support the Institute’s task force’s recommendations, which I have outlined below. They are all important, particularly the first one (defining the AA role) and the last one, that the Institute should promote and support the role.

  • Define the AA role, including as specialist insurance risk adviser.
  • AA to advise on the pricing and reinsurance frameworks with specific pricing advice from suitably qualified actuaries (AA in very material cases).
  • Policy liabilities, statutory capital and ICAAP – advice on assumptions before used and advice on ICAAP before it is approved / adopted.
  • Financial Condition Report (FCR) requirements should be less detailed and more strategic with now redundant requirements omitted. A comprehensive review of PS200 is required.
  • Include temporary delegation framework and consideration of multiple roles.
  • Retain special participating business provisions and whistleblowing. Make some changes to expense apportionment advice requirements.
  • Institute to review the knowledge base, training and CPD for life insurance actuaries, and consider particular needs of life AAs.
  • Institute promotion of actuaries in Life Insurance and the AA role to ensure this practice area is seen as remaining attractive.

I believe passionately that actuaries can add enormously to the strategic thinking of a company. But to make that happen, actuaries need to be great communicators, and the company needs to value their advice. In cases where companies don’t currently value their actuarial advice that much, the AA needs to not only be a great communicator, but also a great sales person, in order to increase their influence at the company, and have enough resource to provide great advice. Everything the Institute can do to support that objective will be useful, which includes discussion on best practice communication (as in this week’s panel discussion), training, and discussions with companies themselves.