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November 2016
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Actuarial Services
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The Requirements of the Actuarial
Function
Highlights
The CBI has now
published guidance for
(re)insurance
undertakings for the
Head of Actuarial
Function role. This
builds on the
requirements for the
Domestic Actuarial
Regime published by
the CBI in advance of
Solvency II becoming
effective.
Together, these
documents provide
detailed information on
the Actuarial Function
framework in operation
for all locally regulated
(re)insurance entities in
Ireland from 1 January
2016 onwards.
Companies will need to
take the necessary
measures to
incorporate these new
requirements and
guidelines with
immediate effect.
The Solvency II Directive was transposed into Irish law in November 2015,
effective from 1 January 2016. In advance of Solvency II becoming effective, the
Central Bank of Ireland (CBI) published the ‘Domestic Actuarial Regime and
Related Governance Requirements Under Solvency II’ (the ‘Requirements’).
These Requirements apply from 1 January 2016 and form an important part of
the new local regulatory regime for life and non-life (re)insurance entities in
Ireland.
Under the new Domestic Actuarial Regime, the role of the Head of Actuarial
Function (HoAF) has replaced the Appointed Actuary (AA) and Signing Actuary
(SA) roles, which previously operated in the domestic regulatory framework. The
HoAF is responsible for producing an annual Actuarial Opinion on Technical
Provisions (AOTPs) to be delivered to the CBI along with the SII annual
quantitative reporting templates (QRTs). In addition, the HoAF must present an
Actuarial Report on Technical Provisons (ARTPs) to the Board.
The Requirements also state that firms must appoint a Reviewing Actuary (RA) to
review their TPs and the related AOTPs and ARTPs. The frequency of review is
dictated by each firm’s PRISM rating. High Impact firms will be subject to a
review at least every 2 years (every 3 and 5 years respectively for Medium High
and Medium Low PRISM rated firms).
The CBI has also now finalised guidance for (re)insurance undertakings on the
Head of Actuarial Function role (the ‘Guidance’), which provides detailed
guidance to undertakings on elements of the Actuarial Function other than TPs;
(i) the Opinion on the Underwriting Policy; (ii) the Opinion on Reinsurance
Arrangements; and (iii) the contribution to the Risk Management System
(including the Opinion on the ORSA).
Firms’ readiness to meet the various requirements and related guidelines will
depend primarily on the strength of the governance and controls over the
production of Solvency II results, as well as the capacity of Solvency II systems to
produce all relevant information needed for the various opinions and reports on a
timely basis. Companies may choose to outsource some elements of the Actuarial
Function where they do not feel they have the relevant expertise in-house or
where they wish to avail of an external viewpoint.
Head of Actuarial Function
This role must be held by one individual who must be preapproved by the CBI through its Fitness and Probity (F&P)
regime.
The HoAF will be responsible for:
 the AOTPs and ARTPs;
 An opinion on the overall underwriting policy;
 An opinion on the adequacy of reinsurance
arrangements; and
 Contribution to the Risk Management System, i.e.
input to the review of the SCR calculation and an
actuarial opinion on the ORSA process.
Outsourcing of the HoAF role is permitted except for
High Impact firms.
Individuals who previously held the roles of Chief
Actuary or Signing Actuary do not automatically
transition to the HoAF. An “In-Situ” process allows
individuals who were previously performing the role of
HoAF not to have to apply for approval for the HoAF role
through the F&P regime.
The HoAF must be a member of a recognised actuarial
association with a minimum of 5 years’ actuarial
experience.
The Requirements do not impose restrictions on the
HoAF fulfilling other roles such as the role of CRO, but
firms now have an opportunity to clearly define duties
and responsibilities of roles held.
At this stage, firms should already have submitted the
relevant documentation to the CBI and have a HoAF in
place.
CBI has provided information on
 Required experience for the HoAF, including
depth and breadth of experience and ability to
influence decision making
 Minimum competencies required
 Information to be provided to the CBI in order
to satisfy the requirements of the “in-situ”
HoAF process
Actuarial Opinion on Technical
Provisions
The AOTPs contains the HoAF’s opinion on the reliability
and adequacy of the TPs calculation. This includes the
data, assumptions, methodology and models along with
identification of and commentary on any known material
limitations and recommendations. The Requirements
include a template format for the AOTPs, including any
qualifications considered necessary by the HoAF.
The opinion must consider separately the best estimate
liabilities (BEL), the risk margin and recoverables from
reinsurance and Special Purpose Vehicles (SPVs).
The scope of the opinion includes all classes of business
written and reported in the annual QRTs and is required
at the SII line of business level. The HoAF must submit
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the AOTPs to the CBI at the same time as the annual
QRTs.
The opinion is required to consider compliance against
all relevant SII requirements. Firms’ readiness will be
determined by the robustness of the control framework
that has been established. The quality of documentation
concerning expert judgements and known limitations will
also influence how onerous the provision of the opinion
will be.
The majority of firms operate a 31 December year-end
and will produce their first AOTPs in 2017 based on their
year-end 2016 results.
Actuarial Report on Technical
Provisions
The ARTPs is an annual requirement and must be
presented to the Board in full within 2 months of
submission of the AOTPs, and at least in summary form
at the same time as the AOTPs.
The ARTPs describes the steps undertaken by the HoAF
in reaching their opinion. It can be combined with the
Actuarial Function Report (AFR). Firms will be aiming to
harmonise their reporting as much as possible so as to
minimise duplication of effort and pressure on resources.
Information to be included in the ARTPs includes:
Technical information, e.g. the appropriateness of
segmentation and risk margin methodologies;
Governance, e.g. the means of assessment of the
reliability and adequacy of the TPs;
Commercial, i.e. the firm’s current strategy and
operating environment;
Assumptions, i.e. the appropriateness of key
assumptions;
Data, including any material unresolved data issues and
limitations and their impact on the TPs;
Risks and Uncertainties, i.e. key risks and
uncertainties associated with the TPs.
The ARTPs will provide Boards with relevant and timely
information to achieve an adequate understanding of the
TPs. We expect the CBI to have high expectations
regarding Board review and knowledge of the ARTPs. It
is important that insurers consider the needs of the
Board in this process.
Peer Review
Role of the Reviewing Actuary (RA)
All firms rated as High, Medium High and Medium Low
Impact will be required to engage an external RA to
conduct a peer review of the TPs. High Impact SII firms
must conduct a peer review at least every 2 years (3 and 5
years for Medium High and Medium Low impact firms
respectively).
The RA cannot be an employee of the firm or an
employee of a firm to which the HoAF role or TPs
calculation has been outsourced. The RA may be from
the external audit firm. The RA is not a PCF and is not
subject to formal CBI F&P approval.
underwriting, reinsurance and risk management
colleagues.
While the RA for Medium High and Medium Low firms
can be from the same group, we expect the RA to be
external to the group in most cases. This will facilitate
Boards in demonstrating independence while also
providing access to information on best practice and
benchmarking across the market.
The HoAF must be objective and free from influence of
other functions or the Board when providing these
opinions. Particularly where the HoAF is internal to the
company, potential conflicts of interest will need to be
identified and carefully managed. In particular, any
overlap with the risk management function will need to
be considered.
Contents of the Peer Review Report
The prescribed contents of the Peer Review Report have
some similarities to those specified under existing nonlife reserving requirements with commentary required
around the assumptions, methodologies and
uncertainties inherent in the calculation of TPs. The RA
will be required to assess the reasonableness of the
HoAF’s conclusions in respect of TPs.
There are additional peer review requirements for High
and Medium High Impact firms, including a review of all
lines of business which are deemed to have a significant
impact on the firm’s TPs as well as assessment of
sensitivities and expert judgements.
Other Requirements under the
Domestic Actuarial Regime
Firms must establish a written reserving policy which
includes an overview of the reserving process including
information on key roles, responsibilities and controls.
High Impact non-life insurers and reinsurers must also
establish a reserving committee which is required to
include senior staff with input into the reserving process,
at least one independent Non-Executive Director, the
member of the executive committee responsible for
claims, the HoAF, the Head of Underwriting and the
Head of Finance.
This committee’s responsibilities must include overseeing
the governance of the setting of TPs and the firm’s
compliance with the reserving policy.
It may be helpful for firms to consider their current
rating and whether they are exposed to a potential switch
to a PRISM rating that would expose them to this
additional requirement.
Additional Guidance for the HoAF
The HoAF is required to provide annual opinions to the
Board on the overall underwriting policy and the
adequacy of reinsurance arrangements, as well as
contributing to the effective implementation of risk
management. These requirements of the Actuarial
Function were introduced under Article 48 of the SII
Directive and the Guidance provides insight to the issues
which the CBI expects to be considered.
For the most part these requirements would be
considered “new” to the HoAF and would not have been
explicitly required under the old SA or AA roles. The
Guidance in respect of each of the three areas is extensive
and will require the HoAF to consult with actuarial,
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Since the Board is the primary audience, opinions and
related matters must be clear and concise, with
understandable explanations of technical models and
concepts. A high level of interaction between the HoAF
and the Board will be required to ensure that the HoAF’s
opinions are clearly understood and that any
recommendations made are discussed, challenged and
implemented where necessary.
Opinion on Underwriting Policy:
The Guidance requires that all material lines of business
and underwriting and pricing policies and processes
should be taken into account by the HoAF. The following
issues should be considered:
 Comparison of actual profitability with expected;
 Consistency of the underwriting policy with the
reinsurance arrangements and TPs;
 Consistency of product pricing, the underwriting policy
and the risk appetite statement;
 Consistency of the underwriting policy with the
assumptions underlying the business plan;
 Principal risk factors influencing profitability;
 Degree of variability surrounding the expected
profitability;
 Exposure to cross-subsidies, anti-selection or
concentrations of risk;
 Monitoring and reporting of product profitability;
 Appropriateness, completeness and accuracy of data
and appropriateness of methods and models.
Opinion on Reinsurance Arrangements:
The Guidance provides detail on areas to be considered
by the HoAF. Input from other business functions will be
required.
The HoAF is expected to identify known issues and
material concerns to the Board for consideration. In
particular, the HoAF should consider whether alternative
reinsurance structures would be more appropriate to
meet the company’s needs.
Other key issues that may need to be considered as part
of the opinion include:
 Consistency of the reinsurance programme with the
risk appetite and profile, with the availability of
additional capital, and with underwriting policy and
TPs;
 Level of credit risk introduced through the reinsurance
programme;
 Any material known issues relating to treatment of
reinsurance in an internal model;
 Assessment of how the reinsurance coverage would
respond under a number of stressed scenarios.
Contribution to the Risk Management System
The Guidance covers the calculation of capital
requirements as well as the actuarial opinion on the
ORSA process.
The HoAF perspective on the SCR is expected to cover:
 their perspective on the areas of the SCR calculation
that are within their areas of expertise;
 review of the risk management function’s assessment
of the appropriateness of the standard formula or
internal model;
 consistency of SCR calculations with other
parameters, e.g. underwriting, reinsurance, TPs.
Opinion on the ORSA process
At a high level, the Guidance sets out the following
expectations for the HoAF’s opinion on the ORSA:
 Assessment of the range of risks considered in the
ORSA;
 Assessment of the appropriateness of the range of
stress and scenario tests included in the ORSA;
 Comment on the appropriateness of any business plans
used as the base case in the ORSA.
Comprehensive framework requiring resources and attention….
The Domestic Actuarial Regime and Related Governance Requirements under Solvency II, combined with the Guidance
now made available by the Central Bank of Ireland on the Head of Actuarial Function role, will provide comprehensive
and timely assurance for Boards on the compliance of technical provisions with the requirements of Solvency II.
The Requirements and Guidance also provide a valuable framework for the consideration by the Head of Actuarial
Function of underwriting policy, adequacy of reinsurance and the implementation of the risk management system.
The depth of the opinions to be provided suggests that the Head of Actuarial Function will be a central role in insurance
undertakings in the Solvency II regime in Ireland. The requirement for a regular peer review of the technical provisions
and the related AOTPs and ARTPs by a “fit and proper” Reviewing Actuary provides additional assurance and challenge
in relation to the work of the Head of Actuarial Function on technical provisions.
Undertakings and Boards would be advised to recognise the value of the opinions to be provided by ensuring that the
Head of Actuarial Function has the resources required to fully discharge these responsibilities, and is provided with a
regular opportunity to address the Board on all of the matters concerned. Boards should also ensure that they are
equipped to understand and challenge the work of the Head of Actuarial Function.
Your PwC contacts
Ronan Mulligan
Non-Life Actuarial Director
[email protected]
01 792 7505
Aoife Martin
Principal Consultant
[email protected]
01 792 6869
Niall Naughton
Principal Consultant
[email protected]
01 792 6314
David Walsh
Principal Consultant
[email protected]
01 792 8983
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the
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