The Appointed Actuary Role: Back to the future

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Background

Responsibilities of the Appointed Actuary (AA) role have expanded in recent years with an increased focus on compliance activities, reducing capacity for the AA to be involved in the provision of strategic advice to the Board and senior management.

In response to these observations, APRA commenced a review of the AA role and associated Prudential Standards in June 2016. In June 2018, following consultation with the industry, APRA released Prudential Standard CPS 320 Actuarial and Related Matters (CPS 320), Prudential Practice Guide CPG 320 Actuarial and Related Matters (CPG 320) and Prudential Standard GPS 340 Valuation of Policy Liabilities (GPS 340). CPS 320 and GPS 340 will come into effect from 1 July 2019. 

The new standards and associated guidance are intended to facilitate:

Clarification of the AA role, with increased seniority and strategic focus.

 

 

Reduced compliance obligations of the AA role, with increased flexibility in the    provision of actuarial advice.

 

 

Streamlining and increased harmonisation of requirements across the Life,            General and Health practice areas.

 

The key changes proposed by APRA are set out below:

Purpose statement for the AA role

APRA CPS 320 includes a clear purpose statement for the AA role:

“The purpose of the Appointed Actuary role is to ensure that the board and senior management have unfettered access to expert and impartial actuarial advice and review…
The Appointed Actuary must have the necessary authority, seniority and support to contribute to the debate of strategic issues at a senior management level and provide advice that is considered seriously by the Board…”

Source: APRA CPS 320, Page 1

Actuarial advice framework (AAF)

Insurers will be required to develop a Board approved framework for the provision of actuarial advice. The framework will include advice relating to the valuation of insurance liabilities, determination of capital requirements and other actuarial matters. 

The AAF sets out when actuarial advice is required and when this advice must be provided by the AA. The AAF is supported by:

  • A materiality policy.
  • A delegation framework.
  • Fit and proper requirements.
  • An approach to managing conflicts of interest.

The AAF is intended to reduce the need for the AA to provide advice relating to non-material matters, increasing capacity of the AA to be involved in strategic discussions.

Figure 1: An illustration of how APRA expects the AAF to operate.


Source: APRA CPG 320, Page 7

Dual hatting of the AA and CRO role is not permitted[1]. Separation of these roles is intended to ensure appropriate review and challenge by the second line (CRO and Risk function) of first line Actuarial responsibilities.

“The AAF presents an opportunity for the Board and senior management to reacquaint themselves with the breadth of advice provided by the AA and to put together a process to ensure the best use of the AA’s time, and the capacity of the actuarial team, on matters most important to the financial security and strategic direction of the company. This opportunity will rely on a willingness to make genuine change (where need be) to current processes.” - SCOR Global Life Australia AA, James Hickey

Reporting requirements

Life and General insurers will be required to produce a technically focused Actuarial Valuation Report (AVR), similar in nature to the Insurance Liabilities Valuation Report currently produced by General insurers on an annual basis. While the Board does not need to consider the AVR in full, a summary of key results must be included in the Financial Condition Report (FCR).

The AA will be required to report annually on any concerns relating to the operation and effectiveness of the AAF in the FCR.

“Given the recent disruption in the insurance sector caused by investigations, inquiries and the Royal Commission it has never been more timely for the profession to embrace the spirit of the AA reforms. These changes present a great opportunity for actuaries to reaffirm their important roles in creating and maintaining sound financial institutions that enjoy public confidence.” - Actuaries Institute CEO, Elayne Grace

Actuaries Institute led initiatives

In October 2017, a cross-practice Working Group was established to consider implications of changes to the Role of the Appointed Actuary. Some of the initiatives under the mandate of this Working Group are:

  • Changes to Actuaries Institute Professional Standards and Guidance to reflect the new requirements and promote consistency across practice areas.
  • Education of Institute members, company directors and industry bodies.

[1] Unless a specific exemption is granted by APRA.

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About the authors

Meera Sardana

Meera Sardana is a Fellow of the Institute of Actuaries of Australia. She is a Senior Manager in Ernst & Young’s Actuarial Services practice, with over 7 years of experience providing consulting advice to Australian life insurers and reinsurers. She is currently the Secretary of the Actuaries Institute Role of the Appointed Actuary Working Group.

Nicole Andrianopoulos

Nicole is a Consultant in EY’s Actuarial Services practice, working in life insurance and wealth management. She joined EY at the start of 2017, after completing a Bachelor of Actuarial Studies with a Bachelor of Science (Statistics) at Macquarie University. She is currently studying to complete her actuarial qualification.

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