Insurance TAS Post-Implementation Review Yorkshire Actuarial Society Natasha Regan & John Instance 9 September 2013 Financial Reporting Council

Agenda Introduction – the FRC Actuaries and the public interest Actuarial framework and TAS scope review Questions for discussion Survey results Financial Reporting Council 2

Introduction - the FRC What is the FRC – the UK's independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. What does it do – sets the framework of codes and standards for the accounting, auditing, actuarial and investor communities – oversees the conduct of the professionals involved. 3 Financial Reporting Council

Actuaries and the public interest Actuarial work and the public interest – Risk mitigation and reporting – Advice for decision making Importance of the technical quality of actuarial work The reliability objective of the TASs: 4 Financial Reporting Council

Actuarial Framework and TAS Scope Review Insurance TAS applies to specified work from 1 October 2011 FRC seeking feedback from practitioners and users – Publish results in December 2013 Results feed in to a review of the TASs to be carried out in 2014 – we will develop and seek views on proposals to restructure the TASs so that we have: high level principles which are recognised as applicable across all professional actuarial work; and more narrowly focused specific standards where there is a need for additional requirements in the public interest beyond the high level principles and the requirements of the IFoA and the statutory regulators. 5 Financial Reporting Council

Questions for discussion What is actuarial work? What obligations should actuaries have in relation to product quality and fairness? 6 Financial Reporting Council

Survey - The impact of the TASs Yorkshire Actuarial Society Results – 3 rd September Financial Reporting Council

Respondents fields of work 8 Financial Reporting Council

How would you describe the main focus of your work? Financial Reporting Council 9

What proportion of your work do you estimate is covered by the TASs? 10 Non actuarial risk identification and management Reviewing technical actuarial papers (which are normally covered by the TASs but my review isnt) Running the financial side of a psychotherapy business Financial Reporting Council

The scope of the Insurance TAS Wouldn't want it to be any wider. Just covered what broadly was being done anyway. 11 Financial Reporting Council

Clarity of TASs On a scale of 1 to 5, the TASs are : The root principles of TAS are sound but the way the standards are expressed is, in places, unclear. The whole TAS documentation structure is horrible – it does not conform to TAS-R! The difference between component reports and aggregate reports. The definition of what is actuarial work 1 – Very Clear 23 – Clear when familiar 45 – Not at all clear Average rating Financial Reporting Council

Process change due to TAS M It was just tweaks to existing processes and peer review. The main difficulty is encouraging others to sign up to the TAS M principles. Main difficulties were in re-visiting documentation for legacy models and re- creating testing to demonstrate as fit for purpose. 13 Financial Reporting Council

Effect of TASs on reports There is a push to shorten reports, so TAS has not been helpful in that respect and we find ourselves being criticised for it by non-Actuarial colleagues. I am not convinced that the extra information is actually being read by those for whom the reports are prepared. 14 Financial Reporting Council

Is it helpful to have a separate Transformations TAS? Some of With Profit items cause unnecessary extra burden where there is already substantial governance 15 Financial Reporting Council

Wider issues Are there wider issues (eg - Product quality, fairness) that you consider we should include in our review of the TASs? Yes – 2 No – 25 Actuaries are not always the best placed to assess product quality or fairness (although they sometimes think they are), so TASs should be kept solely to the core areas of actuarial expertise For the moment the workload of TAS is very onerous, so to extend it now would be difficult to manage 16 Financial Reporting Council

Users awareness of TASs 17 Financial Reporting Council

Implementation of TASs 18 Financial Reporting Council

Ongoing cost of TAS compliance 19 Reports are generally longer (need to consider if over-complying) and additional documentation (although this has been a beneficial step-change, in my view) The costs are a little larger, but that is mainly because TAS is not fully taken seriously in my view. If it was then the costs would be significantly greater. Financial Reporting Council

Support on the introduction of the TASs 20 Financial Reporting Council More guidance on how to interpret and apply proportionality. Regular training and reminders to members, including examples of good and bad TAS practice - particularly with respect to reports.

Forthcoming review of the TASs 21 Bring the "scope of actuarial standards" piece into a concise page in each TAS The situation with aggregate and component reports needs to be significantly clarified. Financial Reporting Council

Further comments / questions TASs could be very powerful in improving standards of work and documentation. However, lack of engagement on TAS with users of information means the value is not understood. In particular, the disparity between information produced by different professions (eg actuaries and accountants) The whole approach to TAS should be looked at and a new standard produced that focus more on the real areas of risk / concern I support principle based approach and less prescription, encouraging the actuary to think about what the "right" thing is - don't back down ! 22 Financial Reporting Council

Questions and Discussion Contact details – John Instance (Life): – Natasha Regan (GI): – Robert Inglis (Pensions): 23 Financial Reporting Council