Appointed actuary thematic review

This report outlines the findings from the Reserve Bank’s thematic review of the Appointed Actuary role and regime published in June 2020.

Appointed Actuaries have a critical legislated role within the insurance industry to measure and report on material risks that can threaten the financial condition and solvency of an insurer. Importantly, the role also entails providing impartial advice to an insurer’s board of directors and senior management to assist with sound decision making. This support can greatly strengthen an insurer’s risk and capital management and lead to the increased security of policyholders.

This review into the Appointed Actuary role and regime is the first review of the role since the enactment of Insurance (Prudential Supervision) Act (IPSA) in 2010 and initial licensing of insurers was completed in September 2013.

The aim of the review was to better understand how the Appointed Actuary role works in practice for insurers, actuaries and the Reserve Bank, and to identify potential areas for improvement to make the role and regime more effective.

“The review concludes the regime and appointed actuary role are largely effective, but improvements can be made across the board – with the actuaries themselves, insurers and at the Reserve Bank. These improvements are important, and we will be working closely with the industry to support necessary changes,” Deputy Governor and General Manager for Financial Stability Geoff Bascand says.

What we did:

The steps outlined below took place from March 2019 to March 2020.

  • 15 insurers were selected to participate in the thematic review out of 87 licensed insurers. The insurers were chosen to represent a range of industry factors, including, but not limited to: insurer size, whether they are a branch of an overseas insurer or locally incorporated, their predominant type of insurance business and whether the Appointed Actuary is an employee or an external consultant.
  • We ran meetings with key stakeholders including professional bodies and other regulators. In addition, we held open industry forums.
  • We conducted a desk-based review of the IPSA section 78 Reports, the Financial Condition Reports and responses to short fact based surveys. A sub-sample of insurers also provided actuarial advice the Appointed Actuary had given for more in-depth analysis.
  • This was followed by onsite interviews with the Appointed Actuary and the key people at each insurer that we expect the Appointed Actuary to interact with regularly.
  • We analysed more than 2,500 responses from interview questions alongside feedback from key stakeholder groups and the desk-based analysis of actuarial reports and documents.

Key findings:

Appointed Actuaries all had good practices in place to keep their knowledge up to date and the Financial Condition Reports they prepared were highly valued by insurers. Many of the Appointed Actuaries also had their most important work regularly peer reviewed.

Key findings included the need for clarity and guidance around the Reserve Bank’s expectations of the Appointed Actuary role, and the risk that the impartiality of the Appointed Actuary could be adversely impacted by factors such as the influence of Senior Management and reporting lines.

Some key areas for improvement identified include:

  • processes for appointments, absences, and reviews to continue with or replace the Appointed Actuary;
  • preparedness for the Appointed Actuary’s involvement in a crisis;
  • identifying and managing conflicts of interest;
  • clarity of delegations;
  • processes for following up recommendations in the Financial Condition Reports;
  • engagement between insurers’ Boards and Appointed Actuaries;
  • engagement between the Reserve Bank and Appointed Actuaries; and
  • guidance around the Reserve Bank’s expectations of the Appointed Actuary role, including explicit expectations regarding their independence and impartiality.

Next steps:

All 15 insurers that participated in the review will receive individual feedback.

The recommendations made in the report to strengthen the Reserve Bank’s oversight role have been accepted by the Reserve Bank.

Due to regulatory relief offered by the Reserve Bank in response to the COVID-19 pandemic, those recommended improvements that require consultation and legislative change will be on hold until the re-launch of the IPSA review.

Confidentiality:

  • The review and information collected and analysed as part of the review is subject to confidentiality provisions under section 135 of IPSA.
  • Public feedback will not disclose information specific to any insurer or actuary.
  • To promote open dialogue with us, we also undertake to be careful and sensitive in dealing with any information given in confidence. This includes private feedback.