APRA moves on life/risk actuarial scrutiny
The problems which have impacted the life insurance sector have resulted in the Australian Prudential Regulation Authority (APRA) moving to upgrade and more finely focus the role of the so-called "appointed actuary", including allowing the appointee to scrutinise and second-guess product terms and pricing.
APRA has issued a discussion paper reviewing the future of the Appointed Actuary role and has made clear that it has become too compliance-focused, making it difficult to both recruit and retain people willing to take on the role.
It said that appointed actuaries had been in place within the life insurance and general insurance sectors for some time but feedback from actuaries and APRA's own observations suggested the role "has become increasingly compliance focused".
"In particular, stakeholders have told APRA that this has limited the ability of the appointed actuary to provide strategic advice to the board and senior management. This issue has been particularly acute in the life insurance sector," the APRA discussion paper said.
It said that the regulator had observed the increased turnover of appointed actuaries within life insurers and difficulties in recruiting into appointed actuary roles in recent years and "is concerned that these trends are driven by the demanding nature and compliance focus of the role".
From a life/risk adviser point of view, the APRA discussion paper makes clear that the regulator wants to see the appointed actuary given a greater capacity to provide strategic advice to insurance company boards, including with respect to product design and change.
It said that, with life companies, it was being proposed that subject to materiality considerations, actuarial advice be obtained in respect of the following areas:
- The methodology for determining the capital base, prescribed capital amount and policy liabilities;
- In respect of participating business and business with discretionary participation features, changes to the investment strategy, including asset-liability management;
- Pricing for new products and changes in products;
- Changes to the reinsurance strategy, new reinsurance arrangements or changes to existing reinsurance contracts; and
- Any other matter required under the prudential standards and Life Act.
Commenting on the discussion paper, APRA Member, Geoff Summerhayes, said the proposals provided the necessary flexibility for the appointed actuary to reduce the heavy compliance focus of the role and increase the capacity for appointed actuaries to be a strategic adviser to the board.
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