Solvency II Actuarial Function in the Preparatory Phase & New Reserving Requirements. Ger Bradley Milliman Breakfast Briefing 23 rd September 2014

Transcription

1 Solvency II Actuarial Function in the Preparatory Phase & New Reserving Requirements Ger Bradley Milliman Breakfast Briefing 23 rd September 2014

2 Actuarial Function in the Preparatory Phase 2

3 Actuarial Function Preparatory Phase High / Medium-high Impact Companies: Establish Actuarial Function in 2014 Actuarial Function must report to the Board in 2014 and 2015 Provide input for annual (YE 2014) and quarterly (Q3 2015) reporting templates Low / Medium-low Impact Companies: Establish Actuarial Function 1st January 2015 Actuarial Function must report to the Board in 2015 Submission of information guidelines do not apply Preparatory phase demonstrate that you are making progress 3

4 Actuarial Function CBI s Guidelines # Guidelines on Preparing for Solvency II System of Governance 35 Tasks of the AF - set out in Article 48 (1) of Solvency II directive - any conflicts must be addressed 36 Coordination of the calculation of Technical Provisions (TPs) - identify any inconsistencies with articles 76 to 85 and propose corrections - explain effect of material changes in data, methodology or assumptions on the TPs 37 Data quality - assess internal and external data against Solvency II data quality standards 38 Underwriting policy & reinsurance arrangements - when providing opinions, must consider interrelations between these and TPs 39 Internal model pre-application - contribute to specification of risks to be covered including dependencies 40 Actuarial reporting to the Board - Report at least annually 4

6 Actuarial Function CBI s Guidelines # Guidelines on Preparing for Solvency II System of Governance 35 Tasks of the AF - set out in Article 48 (1) of Solvency II directive - any conflicts must be addressed 36 Coordination of the calculation of Technical Provisions (TPs) - identify any inconsistencies with articles 76 to 85 and propose corrections - explain effect of material changes in data, methodology or assumptions on the TPs Develop and document appropriate methodology - Ensure assess consistency internal and with external the requirements data against Solvency set out in II the data Solvency quality II standards Directive Ensure appropriate assessment of options and guarantees Develop and document methodology for setting assumptions - Assess when providing the adequacy opinions, of the must TPs consider and propose interrelations corrections between as appropriate these and TPs Explain effect of material changes in data, methodology or assumptions on the amount of technical provisions if already calculated on a Solvency II basis - contribute to specification of risks to be covered including dependencies 37 Data quality 38 Underwriting policy & reinsurance arrangements 39 Internal model pre-application 40 Actuarial reporting to the Board - Report at least annually 6

10 Actuarial Function CBI s Guidelines # Guidelines on Preparing for Solvency II System of Governance 35 Tasks of the AF - set out in Article 48 (1) of Solvency II directive - any conflicts must be addressed 36 Coordination of the calculation of Technical Provisions (TPs) - identify any inconsistencies with articles 76 to 85 and propose corrections - explain effect of material changes in data, methodology or assumptions on the TPs 37 Data quality Include details of all material tasks that have been undertaken by the - actuarial assess internal function and and external their results. data against Solvency II data quality standards Clearly identify any deficiencies and provide recommendations as to how such deficiencies could be remedied - when providing opinions, must consider interrelations between these and TPs Actuarial Association of Europe published a working draft of a European Standard of Actuarial Practice (ESAP) on the Actuarial Function Report under - Solvency contribute II to in specification November 2012, of risks and to revision be covered (ESAP including 2) May dependencies Underwriting policy & reinsurance arrangements 39 Internal model pre-application 40 Actuarial reporting to the Board - Report at least annually 10

11 Actuarial Function Report Sample Table of Contents* 1. Introduction 4. Opinion on Underwriting Policy 2. Executive Summary 3. Technical Provisions - Conclusions on adequacy and reliability of TPs - Important information about Technical Provisions - Disclosure of opening and closing TPs - Co-ordination of process - Sufficiency and quality of data - Methods and models - Assumptions - Comparing best estimates against experience - Sensitivity analysis 5. Opinion on Reinsurance Arrangements 6. Contribution to Risk Management System 7. Summary and Conclusions 8. Appendix * Based on draft ESAP 2 on the Actuarial Function Report under Solvency II 11

12 Structuring the Actuarial and Risk Management Functions 12

13 Sample Current Organisational Structure Board CEO CFO 1st Line of Defence Chief Actuary CRO 2nd Line of Defence 13

14 Sample organisational structure #2 Board AFH responsible for AF + other functions CEO Important to manage conflicts of interest CFO Actuarial Function Holder Risk Management Function Holder Finance Teams 1st Line of Defence Actuarial teams Risk Teams 2nd Line of Defence 14

15 Managing conflicts of interest Clear delineation of responsibilities Oversight Committees External Review Remuneration 15

16 New Reserving Requirements 16

17 New Reserving Requirements Signing Actuary in place for YE 2014 PCF Employee if High Impact Internal Audit Review of Reserve Process every 2 years for High Impact Reserve Review needed every 2 years for High Impact Board shall establish a reserving policy Reserving Committee to be established for High Impact 17

18 New Reserving Requirements If Signing Actuary and Auditor in same firm, company must satisfy itself of separate reporting lines, responsibilities etc. If outsourced, Signing Actuary and Reviewing Actuary must be from separate firms & must be formally reviewed every nine years Board must ensure Signing Actuary acts independently of the company, does not rely on data quality assurances from others 18

19 New Reserving Requirements Actuary must have access to Board, Board Exec Committees, Executive Committees and staff Must be shown all internal reports which may be relevant to company s reserves e.g. Internal Audit Other than High Impact, company shall designate a PCF to oversee the preparation of data, provide a DAS with accompanying report Signing Actuary required to report on their assessment of the quality of data 19

20 New Reserving Requirements Board must determine a margin for uncertainty. Enumerate, justify, quantify and document how sufficient to address uncertainties identified by SA Board must be satisfied the External Auditor has the requisite experience and knowledge. For High Impact must meet with external auditor s actuary on annual basis 20

21 New Reserving Requirements Data Claims Function PCF Data Checks by Actuary - Guidance Content of DAS and Margin Reports? Dear CEO letters & Flight path to SII - Certification 21

22 New Reserving Requirements Impact by Prism Rating and major exemptions for Life Re Task High Medium High Requirements where signing actuary is outsourced Meet with the External Auditor s Actuary on an annual basis Margin for uncertainty report to Board Medium Low Low N Y Y Y Y N N N Life Re Y N N N N Internal Audit of reserving process Y Y Y N N Peer Review Report Y Y Y N Reserving Committee Y N N N N 22