GC IM Presentation vs Final 01
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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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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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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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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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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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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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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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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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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
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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Senior Governing Body
Management
Solvency
Actuary
Actuarial Position
External
Auditor
Reviewing
Actuary
Chief
Financial
Officer
MODEL B
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Senior Governing Body
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
Senior Governing Body
MODEL D
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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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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
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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