Consultation on Guidance for (Re)Insurance undertakings on the Head of Actuarial Function Role (CP 103) Presentation to Society of Actuaries in Ireland 20 June 2016

Objective of Meeting A discussion amongst the audience to help inform the Society’s response to the consultation Safeguarding Stability, Protecting Consumers2

Agenda Safeguarding Stability, Protecting Consumers3 Development of the Guidance Overview of the content Introduction Reinsurance Underwriting Risk Management & ORSA

Background Safeguarding Stability, Protecting Consumers4 European Union (Insurance and Reinsurance) Regulations 2015 Commission Delegated Regulation 2015/35 EIOPA Guidelines Domestic Actuarial Regime and Related Governance Requirements under Solvency II

Development of Guidance Drew on: – Explanatory Text from EIOPA Guidelines – Considered consultation feedback from DAR – Informal interactions with Society – Extensive interactions between policy, insurance and legal areas of the Central Bank – Feedback from senior management within the Central Bank Safeguarding Stability, Protecting Consumers5

6 Objectives of the Guidance Aimed at Undertakings Intended to assist Areas that could be considered Not fully comprehensive Expected to evolve Enhance the work of the AF Introduction

Extent of HoAF input Different perspective Ensure Board is fully informed Appropriate enquiries Identify significant deficiencies/areas for improvement Indicate material limitations and reliance on others Safeguarding Stability, Protecting Consumers7 Introduction

Underwriting Opinion Safeguarding Stability, Protecting Consumers8 to express an opinion on the overall underwriting policy sufficiency of the premiums…cover future claims and expenses, …[considering] the underlying risks.…options and guarantees …reinsurance contracts …; effect of inflation, legal risk, change in the composition of the undertaking's portfolio, and of premium adjustment systems anti-selection Level 1Level 2

Underwriting Opinion Safeguarding Stability, Protecting Consumers9 sufficiency of the premiums…cover future claims and expenses, …[considering] the underlying risks.…options and guarantees …reinsurance contracts …; effect of inflation, legal risk, change in the composition of the undertaking's portfolio, and of premium adjustment systems Anti-selection Interaction and consistency between product pricing, underwriting policy, acceptance of risks, reinsurance, TPs, risk appetite, business plan Sensitivity to different factors and potential variability of profit including external factors, inflation, legal risk, changes in market environment, mix of business and business volumes Appropriateness of methods, models and data used in pricing. Where applicable appropriateness of controls for deviations from technical price. Undertakings ability to monitor profits, deviations in experience from assumptions, ability to re-price when necessary. Level 2Proposed Guidance

Reinsurance Opinion to express an opinion on the adequacy of reinsurance arrangements the undertaking's risk profile and underwriting policy reinsurance providers taking into account their credit standing the expected cover under stress scenarios in relation to the underwriting policy the calculation of the amounts recoverable from reinsurance contracts and SPVs Safeguarding Stability, Protecting Consumers10 Level 1Level 2

Reinsurance Opinion Safeguarding Stability, Protecting Consumers11 reinsurance providers taking into account their credit standing the expected cover under stress scenarios in relation to the underwriting policy the calculation of the amounts recoverable from reinsurance contracts and SPVs interrelationships between the underwriting policy, the reinsurance arrangements and the technical provisions based on substance rather than form Effectiveness in managing volatility of own funds, and historic gross to net results Impact on capital relief, including non SCR scenarios Consistency with risk appetite Liquidity issues, credit and concentration risk Intra-group arrangements Match with underlying business, including basis risk and suitability of proxies Possible alternative strategies, stress testing and performance of alternative structures under stress tests Level 2Proposed Guidance the undertaking's risk profile and underwriting policy

Contribution to Risk Management to contribute to the effective implementation of …risk management…in particular…the [SCR & MCR] and … the [ORSA] An actuarial opinion to the Board on each ORSA process The range of risks and adequacy of the stress scenarios the appropriateness of the financial projections continuously complying with the requirements regarding the TPs and potential risks arising from the uncertainties Safeguarding Stability, Protecting Consumers12 Level 1Domestic Actuarial Regime

Calculation of Capital Requirements in particular with respect to the risk modelling underlying the calculation of the capital requirements Perspective on elements within HoAF’s areas of expertise, e.g. TPs, pricing, data, actual v expected Review assessment of appropriateness of the SCR; identify material limitations; materiality of deviations from assumptions; comment on improvements required Consistency with underwriting policy, TPs and reinsurance programme Safeguarding Stability, Protecting Consumers13 Level 1 Proposed Guidance

Opinion on the ORSA in particular… with respect to the assessment referred to in regulation 47 Range of risks, extent of stresses and projection timeline Suitability of the method to project the SCR; Suitability of method used to determine the overall solvency needs Is business plan suitable if used; feasibility of management actions Safeguarding Stability, Protecting Consumers14 Level 1 Proposed Guidance

Summary No need to do work of other functions, but highlight any limitations in that work Work done should be proportionate to nature, scale and complexity Onus on undertaking to provide relevant documentation Can rely on work of others Importance of the actuarial function Guidance provides insight into Central Bank expectations Safeguarding Stability, Protecting Consumers15

Discussion