Lloyd’s Annual Actuarial Seminar Lloyd’s 12/12/2016

Chair:

Lydia Rhodes

Speakers:

Joe Dainty

Ann Muldoon

Hazel Beveridge

Jerome Kirk

Anna Bordon

Lloyd's Footer here - 2016

2 2 2

Agenda

© Lloyd’s

Target Operating Model - TOM

Joe Dainty: (Head of Operations - Lloyd’s)

TAS Framework Review

Ann Muldoon and Hazel Beveridge (FRC)

Jerome Kirk (PWC/ on behalf of the Institute Working Party)

Emerging Risks and Research

Anna Bordon (Emerging Risks Executive - Lloyd’s)

TOM Joe Dainty – Head of Operations (Lloyd’s)

© Lloyd’s

02 London Market TOM - Overview October 2016

TOM

Version 1.0 13.10.16

‘London Matters’ highlighted the threat to London's position as the undisputed global centre for commercial (re)insurance

The London Market is the largest global centre for commercial and specialty risk and is in a great position of strength

An inflexible business servicing model that is inefficient and slow to change, reducing London’s competitiveness

Ongoing investment in making the market more accessible and efficient

Increasing retention of risk in high growth developing markets

Continued strong brand with financial strength ratings reaffirmed, outlook

revised to positive

Higher acquisition costs make London a more expensive market to deal with

than its competitors

Continued focus on our collective vision and goals

However, the world is changing which is challenging London’s position

These challenges are recognised by the market and there is acceptance of the need to change

6 LONDON MARKET TARGET OPERATING MODEL

London Market Group Representing the insurance and reinsurance market in London

Telling the London Market story

Making London an easier place to do

business

Creating a better business environment

Building a diverse, dynamic workforce

Providing our buyers with a clear case for coming to London to

purchase our products and services

Making the London

Market highly accessible, efficient and relevant to

the needs of our customers

Working with government,

parliamentary parties and the civil service to ensure they better understand

the position of the market and its place in

the UK economy

Developing a better

understanding of where the skills shortages are and helping the market

address them

London Market Group response Driving growth and modernisation across the London Market

7 LONDON MARKET TARGET OPERATING MODEL

Describe connection of future technology and processes; incorporating innovation Reshape and refine the

TOM

Provide the market with a roadmap of what will be delivered, when and how much will it cost

Agreement on end goal of the programme

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3

4

Realising the LM TOM vision and mission Benefits of the Blueprint

8 LONDON MARKET TARGET OPERATING MODEL

Blueprint overview From Placement to Accounting and Settlement

9 LONDON MARKET TARGET OPERATING MODEL

Blueprint overview Cost Benefit and Time

2016

2017

2018

2016

Phase 2

Phase 2

02 Thank You

TOM

TAS Framework Review Hazel Beveridge – FRC

Jerome Kirk – PWC (on behalf of the institute working party)

© Lloyd’s

Lloyds Actuarial Seminar Technical Actuarial Standards

Framework Review

Ann Muldoon

Hazel Beveridge

Jerome Kirk

12 December 2016

What we will cover

1

Role of the IFoA and the FRC

Current TAS Framework

Revised TAS Framework

• Framework

• TAS 100

• Specific TAS

Reliability Objective

“Users for whom a piece of actuarial

information was created should be

able to place a high degree of

reliance on the information’s

relevance, transparency of

assumptions, completeness and

comprehensibility, including the

communication of any uncertainty

inherent in the information.”

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Actuaries’ Code

Ethical Standards (APSs)

Educations and examinations

CPD

Practising certificates

Member support

Role of IFoA and FRC

2

IFoA

Generic TASs

Specific TASs

FRC

Professional oversight

Discipline

(excluding public interest)

Public interest disciplinary

cases

Scope & Authority

TAS D TAS R TAS M

Specific TASs

(Pensions, Insurance, Funeral Plans,

Transformations)

Other material

Answers to FAQs

Significant Considerations

Current Technical Standards

Framework

Apply to Reserved Work and

areas of actuarial work specified

in the Specific TASs

3

Apply to areas of actuarial work

specified in the Specific TASs

TAS 100

TASs 200, 300 etc

(Pensions, Insurance, Funeral Plan Trusts,

Other)

SORPs (IFoA)

Revised Framework November 2014 consultation

Applies to all technical

actuarial work

Framework for FRC Actuarial

Standards

Risk

assessment

process

Guidance

4

Apply to areas of technical

actuarial work specified in the

Specific TASs

Benefits of Revised Framework

Users Practitioners

Minimum standard for all technical

actuarial work

Simpler framework – maximum of 2

TASs apply instead of 5

Higher bar for high public interest

work

Shorter – Clear and Concise:

TAS 100: 4 pages

Generic TASs: 30 pages

Standards “future-proofed” for new

areas of work

Principles-based => judgement

rather than a “tick-box”

5

Framework for FRC Actuarial

Standards

Purpose and Content

Reliability Objective:

Users for whom a piece of actuarial information was created should be able

to place a high degree of reliance on the information’s relevance,

transparency of assumptions, completeness and comprehensibility,

including the communication of any uncertainty inherent in the information.

6

Framework: Geographic Scope

Framework for FRC technical actuarial standards:

…….work done in relation to the UK operations of entities,

as well as to any overseas operations which report into

the UK, within the context of UK law or regulation

APS X1 will set out approach for work outside geographic

scope

7

Framework: Definition of technical actuarial

work

Technical actuarial work is work performed for a user:

• where the use of principles and/or techniques of

actuarial science is central and which involves the

exercise of judgement; or

• which the user may reasonably regard as technical

actuarial work by virtue of the manner of its

presentation.

8

TAS 100

Supporting provisions

High-level outcome-focused principles

Judgement Data Assumptions Modelling Communications Documentation

Applies to all technical actuarial work

Based on existing Generic TASs

No guidance within the standard

9

TAS100 – Changes to TAS 100 ED

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• Amended the materiality and proportionality provisions

- TAS 100 guidance

• Amended the compliance statement requirements

- Now only required for reserved work, work in scope of a

Specific TASs and technical actuarial work which is

central to a significant decision by the user

• Amended the data principle

- Replaced the words “sufficient and reliable for the

purpose of that work and subject to sufficient scrutiny”

with “appropriate for the purpose of that work”

TAS100 - Principles

10

Judgement shall be exercised in a reasoned and justifiable manner;

material judgements shall be communicated to users so

that they are able to make informed decisions understanding

the matters relevant to the actuarial information.

Data used in technical actuarial work shall be appropriate for the

purpose of that work so that users can rely on the resulting

actuarial information.

Assumptions used, or proposed for use, in technical actuarial work shall

be appropriate for the purpose of that work so that users can

rely on the resulting actuarial information.

TAS 100 - Principles

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Models used in technical actuarial work shall be fit for the

purpose for which they are used and be subject to

sufficient controls and testing so that users can rely on the

resulting actuarial information.

Communication

s

shall be clear, comprehensive and comprehensible so that

users are able to make informed decisions understanding

the matters relevant to the actuarial information.

Documentation shall contain enough detail for a technically competent

person with no previous knowledge of the technical

actuarial work to understand the matters involved and

assess the judgements made.

Observations : GI Insurance Review Scope of GI Reserving Reports

• JFAR review arising from Risk Perspective

• No SAO reports included

Review of GI Reserving Reports

• Purpose, scope and user

• Reporting and use of component reports

• Reporting of data

• Comparisons of the valuation result with the previous result

• Compliance statement

12

IFoA will be issuing guidance to

complement TAS 100 • Designed to help members

• Not designed to introduce new requirements

• Have done it before for items such as APS X2

• Cross discipline working party to draft guidance

– Will ultimately be issued by the Regulation Board

• Consulted with Practice Boards/others interested parties

• Will also have some accompanying cases studies

– Both generic and practice specific

– Non-exhaustive!!

– Have had input from CALM

13

What can we expect in the guidance

• Final draft status ……..so nothing set in stone!!!

• Expect to cover topics such as:

– Definition of technical actuarial work

– How it ties in with other professional standards / reliability objective

– Materiality & proportionality

– Retention of documents

– Compliance statements

– Transition

– Working in a multi-disciplined team

• Lets take the last point and look at a potential case study……..

14

Possible case study for discussion…..

Actuary working on production of an ORSA

• An actuary helps the risk management function produce a firms ORSA. The actuary does not lead the overall project but is providing a view on both the technical provisions and the future capital requirements.

• The actuary will be responsible for providing commentary that will go into the final report but will not sign the final report.

Discussion points

• How does the actuary comply with the requirements of Technical Actuarial Standards in this context?

• Should the actuary provide a TAS compliant document to the individual who will own the final report?

• Should the actuary insist on having “editorial” rights to the overall document to ensure that their work is not mis-represented in the final report?

• How would these answers change if the actuary was leading the work?

15

Specific TASs

Three TASs Pensions, Insurance and Funeral plan

trusts – in future could be others

Scope Work where there is a high degree of risk

to the public interest – identified using

new risk assessment

Provisions Support six TAS 100 principles

Design

principles

Eg risk based, no duplication with other

regulation

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Scope of TAS 200 compared with

current Insurance TAS

Retained New – scope clarified Removed

• Regulatory balance sheets

and financial statements

• Risk modelling for regulatory

capital and ORSA

• Insurance Transformations

• Audit and Assurance

• Pricing frameworks

• Lloyds syndicates

• With-profits discretion

• General Insurance tax

• ORSA risk modelling

• Extension of audit support

• Embedded values

• Pricing of individual contracts

of significant risk to the

insurer

• M&A work

• Commutations

• Lloyds reinsurance to close

• Reviewable rate contracts

Note : All work now subject to TAS 100

17

TAS 200: Feedback on Provisions Overlap of TAS

200 with TAS 100

Incremental value of the core provisions

Provision 9: Core

Best estimate measures, assumptions and

judgements shall be used to derive any estimates

described as “best estimate”, “central estimate” or

other similar terms.

Provision 3: Core

Communications shall include an indication of

reasonably foreseeable circumstances, if any, under

which the technical actuarial work would no

longer be valid.

Other Clarification points

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Timescale

May 2016

TAS Framework Feedback and Specific

TAS consultation

Winter 2016

Publish revised TASs and

Framework

Summer 2017

New TASs come into force

2020?

Post-implementation

review

19

December 2016:

publication (subject to

Board approval)

20

Any final observations or comments?

Emerging Risks and Research Anna Bordon, Executive

12/12/2016

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Contents What is an emerging risk?

Emerging risks management at Lloyd’s

Research output - System food shock

Current and prospective work

Lloyd's 2016

37

© Lloyd’s 37

What is an emerging risk?

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Emerging Risk

Limited quantification

Evolving

Limited knowledge

High impact

High uncertainty

Emerging risk features What makes them worth considering

Lloyd's 2016

54

39

© Lloyd’s 39

Emerging Risks Management

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Emerging risks management

Identification

Horizon scanning

Awareness

Thought leadership

Assessment

Decision-making resources (scenarios)

Integration

For product innovation & exposure management

Evaluation

Judgment of significance

41

Emerging risk team

Lloyd's 2016

RESEARCH INNOVATION SCENARIO & MODEL

• Anticipate risks that have an insurance impact

• Reduce uncertainty – not to predict the future!

• Protect – Provide - Promote

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© Lloyd’s 42

Research output

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System food shock

• The global food system is complex

and interconnected

• Food insecurity is on the rise due to:

• Population growth

• Widespread shifts in consumption

patterns

• What will be the impact of a food

shock on the insurance industry?

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Plausible, but extreme scenario

Vulnerability to acute shocks

DISRUPTION TO FOOD SUPPLY CHAIN

REDUCED FOOD

SUPPLY

SPIKE IN FOOD

PRICES

Substantial knock-on effects for

businesses and societies

Lloyd's Food System Shock - 2016

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Food System Shock Scenario

Combined effect is a global production shock to the world’s staple

food crops

Impacts

10%

MAIZE

11%

SOYBEAN

7%

WHEAT

7%

RICE

fall in global production

Lloyd's Food System Shock - 2016

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Food System Shock Scenario

Production shock results in price spikes

Impacts

x4

SOYBEAN MAIZE

x4

WHEAT

x4 7%

RICE

x5

increase in price versus the average levels experienced during

the 20 years prior to the global food price shock of 2007-08

Lloyd's Food System Shock - 2016

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Food System Shock Scenario

Combination of high food prices and political instability severely

impact financial markets

Impacts

10%

Agricultural stocks

European stock markets

US stock markets 5%

%

Lloyd's Food System Shock - 2016

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Insurance Impacts

► Terrorism and Political Violence

► Political Risk

► Business Interruption

► Marine and Aviation

► Agriculture

► Product Liability and Recall

► Environmental Liability

Where do we see impacts within our sector

Lloyd's Food System Shock - 2016

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© Lloyd’s 50

Current and prospective work

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Work in the pipeline

Stranded assets – the transition to a 2°C world

Marine: emerging risks and model

City infrastructure: design for resilience

Stochastic modelling of liability accumulation risk

Middle east earthquake

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Prospective work

Synthetic biology

Extreme weather in India

Counterfactual risk analysis

Thank you Q&A www.lloyds.com/emergingrisks For further information please contact: anna.bordon@lloyds.com

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