1. Financial Condition Working Party
2000 General Insurance Convention

2. Financial Condition Working Party Members
Philip Archer-Lock
Andrzej Czernuszewicz
Nigel Gillott
Peter Hinton
Shailesh Malde
David Paul
John Ryan
Nylesh Shah
We would like more company representation (not people
with company experience).

3. Actuarial Involvement
Assessment of individual risks
reserving, reinsurance, expenses, pricing, assets, etc
Overall risk coordination role
ALM, DFA, statistical techniques (including correlations), financial understanding etc
How much involvement should the actuarial profession have?

4. Background GIB aim for statutory financial reporting role.
FSA introducing “Financial Condition” report.
No requirement for formal actuarial involvement but must demonstrate appropriate skills.
Identified 2 roles for actuaries
Conventional claims reserving and premium adequacy
Pulling it together.

5. Financial Condition Working Party
2000 General Insurance Convention

6. Insurance Company Risks

7. Risks X ? 
ACTUARIAL ASSESSMENT
RISK

8. Financial Risks

9. Asset Risks Value, Bad debt Modelling volatility Market value 
Reinsurance
Market ?
Valuation
Concentration
ACTUARIAL ASSESSMENT
RISK

10. Liability Risks  Discounting Unexpired Risks Unearned Premiums
Outstanding claims / IBNR
ACTUARIAL ASSESSMENT
RISK

11. Liability Risks 
Mismatch
ACTUARIAL ASSESSMENT
RISK

12. Financial Risks

13. Underwriting Risks Impact on pricing assumptions But varies by class 
Concentration ?
Acceptance
 ?
Growth / new classes
Pricing
ACTUARIAL ASSESSMENT
RISK

14. Exposure Risks ?  ACTUARIAL ASSESSMENT RISK PMLs Reinsurance
Policyholders’ Reasonable Expectations 
Claims frequency / severity
Reinsurance
PMLs
ACTUARIAL ASSESSMENT
RISK

15. Business Risks  Investment Strategy ? Mergers & Acquisitions Expenses
ACTUARIAL ASSESSMENT
RISK

16. Financing Risks  Gearing Debt interest / repayment
Dividend commitments
ACTUARIAL ASSESSMENT
RISK

17. Insurance Company Risks

18. Operational Risks But might come across evidence
But might help with system requirements
Could help assess some procedures X
Management
Technology ?
Administrative
Fraud
ACTUARIAL ASSESSMENT
RISK

19. Operational Risks DFA / Market Analysis X Reputation ?
Data quality / availability 
Planning
ACTUARIAL ASSESSMENT
RISK

20. External Risks Possible future. Some known changes X ? Social ? 
Confiscation / Nationalisation
Political
Taxation ?
Social
? 
Legal / Legislative
ACTUARIAL ASSESSMENT
RISK

21. External Risks X Regulatory  Group structure ? Dependency
ACTUARIAL ASSESSMENT
RISK

22. Financial Condition Working Party
2000 General Insurance Convention

23. Actuarial Involvement
Assessment of individual risks
reserving, reinsurance, expenses, pricing, assets, etc
Overall risk coordination role
ALM, DFA, statistical techniques (including correlations), financial understanding etc
How much involvement should the actuarial profession have?

24. Why companies fail

25. Why companies fail
Contribution of different professionals to risk assessment

26. Why companies fail Profession Actuary Auditor Other No-one
Contribution of different professionals to risk assessment
Profession
Actuary
Auditor
Other
No-one
% Contribution
39%
21%
18%
22%

27. Why companies fail Other data sources available Data relevant to US
Reasons may change over time

28. Why companies fail Profession Actuary Auditor Other No-one
Contribution of different professionals to risk assessment
Profession
Actuary
Auditor
Other
No-one
% Contribution
39%
21%
18%
22%

29. Actuarial involvement
What contribution can actuaries make to
the assessment of the individual risk?
the overall risk coordination role?
Does our training equip us for such work?
Would we need additional training and research to play a useful role?
Are we the best placed profession to help?

30. Financial Condition Working Party
2000 General Insurance Convention

31. Functions of the Working Party
Identify what needs to be done and guidance for conventional actuarial areas.
Identify what needs to be done in the “pulling together” role.
Make sales pitch for the profession to be involved in the latter.
Some actuaries may only be qualified for the former role and some only for the latter.
There are other candidates for the pulling it together role but the Working Party believe in many cases actuaries would be the best candidates.

32. Outline of Report
Areas of Risk directly susceptible to actuarial analysis
Description of risks faced by companies.
Discussion of those susceptible to actuarial techniques.
Contribution of other professionals.
Assessment of such Risks
Details of actuarial techniques available to assess individual risks.
Reporting.
Skills required to carry out role.

33. Outline of Report Risk Co-ordination Role
Extension of investigations required.
Methods for aggregating the different risks.
Risk measures.
Dealing with correlations.
Reporting.
Ways of reducing of risk.
Skills required to carry out role.

34. Outline of the Report Appendices Example of process for Bibliography.
UK motor company with high solvency margin.
Worldwide multi-line company.
Specialist London Market company.
Bibliography.

35. Timetable March Sessional Meeting FSA consultative document.
Is there a requirement for Guidance Note(s).
Ascertain whether there is any resource pressure on the profession.

36. Questions on which we would welcome input
Do you think the concepts are achievable by the profession?
Do you think the approach is sensible?
What are we missing?
Do we need to set up other working parties to deal with specific techniques?
Do we need Guidance Notes?
Are there any specific training needs in this area other than those that would normally be carried out?