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Use of Actuaries in Non-Life Reserving

Baker Tilly Insurance Conference

25 May 2012

Darren Viñales

Actuary

Financial Services Commission

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Requirement to use an actuary

Actuaries have a reserved role in Life insurance (Appointed Actuary)

But not in Non-Life - there is no requirement in Gibraltar legislation / regulations for an insurer to engage an actuary

In the early stages of development in Gibraltar‟s insurance sector very few Non-Life insurers ever engaged an actuary

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Reserving - Guidance on use of Actuaries

The FSC‟s Insurance Guidance Note No.6, titled “Systems Of Control Over General Business Claims Provisions”, refers to “the use of actuaries with general insurance experience if the class of business warrants it” when setting claims reserves

The larger and more complex the business, the more likely it is that actuaries will get involved

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FSC requirements to use an actuary

The FSC may require a Non-Life insurer to engage an actuary to review claims outstanding

As part of its requirements at the time of licensing

At the time of requesting a plan for the restoration of a sound financial position

If certain grounds are met. Will typically be based on scrutiny of financial statements or findings from a risk assessment

Powers would be used as a last resort

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Best practice when using external actuaries

Perform all of the usual steps when outsourcing any activity

Where results are to be used for financial statements and supervisory returns, insurers should obtain a formal actuarial report

There is no fixed format for such a formal report, as it is not reserved work in Gibraltar, but actuaries are typically subject to requirements from their professional bodies.

In any case any report should be fit for purpose

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What professional standards should be met?

On 1 April 2011 an „overseas decision tree‟ came into effect, published by the UK Actuarial Profession

The tree suggests that UK actuaries would typically be steered towards meeting BAS standards when carrying out reserve reviews

But the overseas decision tree is only guidance – compliance is not mandatory.

The FSC may require certain standards, such as those set by BAS, to be met if it is using its powers

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Overseas decision tree – part 1

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Overseas decision tree – part 2

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Is it a requirement to book ‘Best estimate’

Even where an actuarial review is obtained, senior management remains responsible for choosing an appropriate claims reserve

A company may book higher or lower reserves than the actuary‟s best estimate. It is outside the FSC‟s remit to require claims reserves to be set at higher (or lower) levels

Choice of reserving level will reflect the risk appetite of the insurer

FSC does have powers to set capital add-ons, and it may base these on a number of factors including actuarial opinions

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Best practice if not booking best estimate

Reserves should be “sufficient to cover any liabilities … as far as can reasonably be foreseen”

The FSC would expect a suitably detailed reconciliation of any differences between actuarial opinions and the company‟s choice of reserves

It would also expect an analysis of the risks of adopting the chosen approach

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Wrap up

Non-life insurers have no requirement under legislation to obtain actuarial advice, but it would often be expected by the FSC, especially for reserving.

Reports should be fit for purpose, and UK Actuaries are encouraged to meet BAS Standards

Booking best estimate is not required, or necessarily appropriate, but any difference of opinion should be explained

FSC may impose additional capital requirements and may partly base these on actuarial opinions

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Use of Actuaries in Non-Life Reserving

Baker Tilly Insurance Conference

25 May 2012

Darren Viñales

Actuary

Financial Services Commission