Appointed or C-Suite?

Institute President Lindsay Smartt shares some thoughts on the current review of the Appointed Actuary role.

The submission the Institute will make to APRA is of enormous importance for a number of reasons.  APRA will likely place high value on the views which the profession expresses to it.  A significant portion of our membership work in teams supporting or related to the Appointed Actuary (AA) role for life, general and private health insurers, not to mention the AAs themselves.  These reviews are infrequent so it represents an important opportunity to influence for improved outcomes.    

First some housekeeping. 

  1. These are my personal views. The Actuaries Institute submission to APRA will be on behalf of Members and so won’t necessarily coincide with my personal views (though of course it would be pleasing to me if there was alignment).
  1. I am not commenting on the many important components of the AA role and APRA’s discussion paper, rather choosing to focus on one particular aspect.
  1. The APRA AA review, whilst covering both life and general insurance AA roles, had its impetus from issues in the life insurance sector. In this article, I focus on the life insurance AA role. However, I believe my comments are also of relevance to the other sectors.
  1. I make some comments about company structures and actuarial roles which are contrary to some actual structures in place. In no way should this article be interpreted as a comment on the suitability of the structure in any particular company nor should it be taken as a comment on the incumbents in the actuarial roles.  

My motivation in addressing the AA topic in this article is to not only share my own views, but to prompt you into reflecting on this very important topic for our profession and expressing your views.  The Working Group which is drafting the Actuaries Institute submission to APRA is keen to hear Members’ views.  You can contact the Working Group through the Institute or through the relevant practice committee.  The submission is due in less than a month so your contribution should be made soon.  Trang Duncanson, Chief Editor of Actuaries Digital, has published her initial thoughts and included links to some other views.

My own views have developed as I have thought long and hard about this role, the challenges and concerns that have motivated APRA to act and the views expressed by a wide range of stakeholders over considerable time.

APRA has stated aspirations for the role including:

  • necessary seniority and authority;
  • serious board engagement; and
  • contribute strategically at executive level.

A view has been expressed that some or all of the above may not be occurring to the extent expected by APRA, hence the need for the change.

One option, though I am not advocating it, is for APRA to mandate that the AA is a direct report of the CEO.  This was considered by the Life Appointed Actuaries Task Force in framing the Actuaries Institute’s earlier submission to APRA but was not a recommendation.  It was also raised in the discussion at the Insights session on 18 July when APRA presented on their recent Discussion Paper.

Another crucial role, which APRA has relatively recently articulated in prudential standard CPS 220, is the Chief Risk Officer (CRO).  The CRO is the designated head of the risk management function.

Previously all life insurers had a Chief Actuary who typically reported to the CEO.  Of more importance than the formal reporting line was the role the Chief Actuary played.  The Chief Actuary had the necessary seniority, authority, serious board engagement and strategic contribution, that today APRA is requiring.

Over time many or most companies replaced the Chief Actuary title with the AA title.

Subtle though this change has been and minor in terms of replacing the word “Chief” with “Appointed”, I am of the view that this change has been a contributor to the “decline” in seniority / influence from this key actuarial role.  The focus somehow shifted to the listed duties of the AA and hence complying with prudential standards rather than the needed senior, authoritative, strategic contribution at senior executive and board level.

So why not bring back the Chief Actuary title as a response to the requirement in the Life Insurance Act for each company to have an actuary appointed for the purpose of senior, authoritative and strategic contribution?

Some companies decided to either retain the Chief Actuary in the title of their AA or move again to have a Chief Actuary position separate from the AA role.  In fact, the AA might report to the Chief Actuary.

Let’s think about whether this is the desired or best outcome.

Having a Chief Actuary and another person fulfilling the AA role begs the question whether the AA under that model has sufficient seniority / strategic input when there is another more senior actuary (Chief Actuary title) in the structure.  Almost by definition the Chief Actuary under such a model is the senior, authoritative, strategically engaged actuary which is needed in the company and which APRA is requiring (but from the AA).

If we look at the regulatory requirement for senior, authoritative, strategic actuarial influence and executive contribution which APRA require of the AA and recast it using the language of CPS 220 (simply for purposes of an alternative construct) then it might look like this, as an example.

A life company must have a designated actuarial function that, at a minimum: ……

The actuary appointed (section 93 of the Life Insurance Act) by the company, referred to as the Chief Actuary, is responsible for the designated actuarial function.

Under this model it follows that the roles and responsibilities of the AA, either currently or as expressed by APRA in its discussion paper, could be expressed as roles and requirements of the actuarial function without requiring them specifically of the person occupying the role of Chief Actuary.

I believe there are a number of benefits to this setup of the actuarial function and Chief Actuary as a replacement for the AA, providing improved outcomes for companies.

  1. This would provide more likelihood of companies having suitably senior / authoritative appointments to the Chief Actuary position, whether it was a direct report of the CEO or not.

  2. It would enable the most senior / authoritative actuarial role in the company to be the one that executive leadership and Board look to while fulfilling the Life Insurance Act requirements.

  3. It provides a much-needed step change in definition, to help set up the role for future success, in reality as well as in appearance.

  4. It would go a long way to alleviating the widely held view that the volume of (current) AA responsibilities is extreme.

  5. It is a more contemporary outworking of management structures which, while making accountability and responsibility clear (with the Chief Actuary), the roles and requirements are those of the actuarial function and not one individual.

  6. Present concerns with ability to delegate would be addressed.

It is interesting to note that Europe has the concept of the actuarial function.  At least one contributor to the recent Insights discussion on the topic questioned the difference in regulatory construct between the CRO and the AA.

I am strongly of the view that in order to realise the key roles and responsibilities for the Life Insurance Act section 93 Actuary, not only in terms of APRA expectations but most importantly from the company’s and the profession’s perspective, that position should be the Chief Actuary.

Structuring the specification for the regulatory actuarial requirements in terms of a designated actuarial function led by a Chief Actuary is I believe an alternative that should be seriously considered.

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