General insurance actuaries: a reserved role? 31 st Annual GIRO Convention 12-15 October 2004 Hotel Europe Killarney, Ireland
General insurance actuaries: a reserved role? What are we going to talk about? Background What is the question? Who are the stakeholders? What are the options? So what is the profession doing about it? What are the issues? Next steps
General insurance actuaries: a reserved role? Background “Should actuaries have a formal role in non-life reserving?” The question has been around for ages Indeed it was the subject of a 1998 pamphlet (reissued in 2000) It was also a question in CP04/7 It was also a question in the Morris Review consultation paper
General insurance actuaries: a reserved role? Background CP04/7 stated… …and then asked whether readers agreed with this approach
General insurance actuaries: a reserved role? Background Morris asked… The profession’s response to both papers was, in effect, “…we’re thinking about it” That was fine as a holding position, but the profession now needs to decide what it thinks.
General insurance actuaries: a reserved role? Background Who are the stakeholders? Insurance operations Regulators Insurance consumers GI actuaries/ profession Third parties e.g. S&P, investors
General insurance actuaries: a reserved role? Background And what are the options? An SAO regime? (c.f. Lloyd’s) An actuarial audit role? An actuarial function? (c.f. Life) More actuarial regulation? No change No SAO requirement at Lloyd’s? Anything else?
General insurance actuaries: a reserved role? So what are we doing about it? The profession intends forming and, if appropriate, promoting its view on this It has commissioned this paper, to set out options, issues and potential arguments for and against It intends discussing this issue, using the paper as a framework/stimulant, with the stakeholders and/or their representative bodies The profession will weigh up the views expressed during these discussions and will then decide on its position Key stakeholders are general insurance actuaries themselves: we start discussing the issue now!
General insurance actuaries: a reserved role? What are the issues? Good question… …but before we get stuck into them you may be wondering what you are listening to.. …maybe you aren’t…..anyway, it is Oasis and a song that was originally a B Side to “Wonderwall”… …this song is called “The Masterplan”…
General insurance actuaries: a reserved role? What are the issues?..no, it’s not meant to imply that we have a masterplan for an actuarial reserving role…or indeed that we intend to form one …it merely reflects the questionable musical tastes of the Chairman of the Working Party, and his bizarre approach to putting together presentations… …it also reflects the fact that this presentation will last precisely 5 minutes 20 seconds…. …now on with the real issues….
General insurance actuaries: a reserved role? What are the issues? The paper lists 27 issues The paper then sets out what some might say in respect of each of these issues To ensure balance, it outlines views on each issue at opposite ends of the spectrum (NB the profession does not agree with several of these views, but is keeping an open mind on the overall question) What we want to do now is to identify any issues not already covered in the paper understand the overall view of the general insurance actuarial community To stimulate your thoughts, here are a selection of views that “some might say” (…this is not another Oasis allusion…)
General insurance actuaries: a reserved role? What some might say? “Auditors already opine on the appropriateness of insurers’ reserves. A statutory role for actuaries in non-life reserving would add no value to the existing audit process…” “Having reserves formally reviewed and signed-off by professionals instils confidence in consumers and external bodies (e.g. rating agencies)…” “A genuinely prudential statutory standard for reserving would reduce the potential for the failure of non-life insurers. Actuaries, through their expertise in statistics, would be ideally positioned to set or opine on reserves at particular levels of prudence…” “Reserves themselves are of limited importance in an ICAS environment…”
General insurance actuaries: a reserved role? What some might say? “In many recent cases of insurance insolvency, it can be seen that the reserves had been inadequate for some time. Had these inadequacies been uncovered earlier then remedial action might have been possible, or earlier and less costly closure ensued…” “A statutory SAO provided by a responsible actuary would allow the FSA to reduce the degree of direct supervisory oversight…” “A statutory SAO regime for insurance companies would bring them into line with Lloyd’s operations, and with insurers in many other developed markets…” “Markets thrive because of differences. We should promote the virtues of these differences, rather than try to eliminate them..”
General insurance actuaries: a reserved role? What some might say? “It’s up to the directors, not an actuary, to set the reserves…” “As experts in finance, probability and statistics, actuaries are ideally qualified to opine on insurance reserves…” “Actuaries are experts? But they always get it wrong? Anyway, Fred isn’t an actuary but he has always done our reserving perfectly satisfactorily – why should a reserved role be just for actuaries...?” “A reserved role would become a commoditised product, it would become uneconomic to provide a value-added service and the risk of litigation would increase…” “A reserved role will lead to a shortage of suitably qualified general insurance actuaries…”
General insurance actuaries: a reserved role? What some might say? “Either insurers are already using actuaries in reserving – in which case there is no benefit from making it statutory – or it will add cost…” “The root cause in most recent cases of insurance failure was inappropriate management action, not bad reserving. “Better” reserving would not reduce the number of failures…” “It would be of no value to the regulators…” “Statutory roles increase the potential for adverse publicity, which the profession could do without (c.f. Equitable Life, pensions)…” “Statutory reserving roles for actuaries work well and are considered beneficial elsewhere – why not also in the UK…?”
General insurance actuaries: a reserved role? Next steps Okay, it’s nearly time for you to talk… …well, it will be when this song has finished… …it has a long play out, doesn’t it… …anyway, you all have microphones and we would like to hear your views… …particularly if they are on matters of substance, rather than pointing out minor errors, typos, etc (of which we are aware there are several) … …and if you don’t say anything we must assume that you aren’t bothered one way or another.
General insurance actuaries: a reserved role? Discussion “Take the time to make some sense of what you want to say, then cast your words…” Noel Gallagher (from “The Masterplan”)
General insurance actuaries: a reserved role? Do you believe…. …that better reserving would reduce insurance company failures? …that were actuaries to have a statutory role in non-life reserving it would lead to better reserving? “Take the time to make some sense of what you want to say, then cast your words…”
General insurance actuaries: a reserved role? Do you believe…. …that the ICA supervisory system makes unnecessary a reserved role for actuaries in non-life reserving? …that the formal involvement of actuaries in non-life reserving would improve consumer and investor confidence in non-life insurers? “Take the time to make some sense of what you want to say, then cast your words…”
General insurance actuaries: a reserved role? Do you believe…. …that actuaries currently have the training and skills set appropriate for a statutory role? …that the reputation of the actuarial profession would be enhanced by it assuming such a role? “Take the time to make some sense of what you want to say, then cast your words…”