The Reserve Bank has released a number of recommendations in a comprehensive review of the Appointed Actuary role.
Appointed Actuaries have a critical legislated role in 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.
The review, conducted by the Reserve Bank’s Industry Insights and Thematics team, was launched 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.
Appointed Actuaries all had good practices in place to keep their knowledge up to date and the Financial Condition Reports they prepare are highly valued by insurers, the report notes.
Key findings include 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.
“Many of the recommendations highlighted are good practice that can be implemented by insurers and appointed actuaries with little additional resource and in many respects emphasise matters that we think should already be practised, such as implementing processes to follow up on recommendations made by Appointed Actuaries in their Financial Condition Report,” Mr Bascand says.
“The report also recommends the Appointed Actuary considers policyholder interests and communicates these when relevant in providing advice.”
Recommendations identified in the report for strengthening the Reserve Bank’s oversight role have been accepted by the Bank, Mr Bascand says.
“The report also identified the need for increased engagement between the Reserve Bank and Appointed Actuaries. We have taken this on board and regular, one-on-one meetings will be held between the Reserve Bank and the Appointed Actuary of Designated insurers, without the insurer’s management or board members present. At the end of their employment, Appointed Actuaries will also be expected to attend an exit interview with the Reserve Bank to facilitate open, free and frank confidential discussions.
“We have outlined our expectations in a policy note which will be followed up with formal guidance. A number of recommended improvements require legislative change and we will be consulting on these during the re-launch of the Insurance (Prudential Supervision) Act 2010 (IPSA) review which was put on hold in line with the regulatory relief offered by the Reserve Bank in response to the COVID-19 pandemic.”
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
- guidance around the Reserve Bank’s expectations of the Appointed Actuary role, including explicit expectations regarding their independence and impartiality
Background editor’s notes:
- At the time of the review there were 55 actuaries holding the role of the Appointed Actuary at 87 licensed insurers. The majority of Appointed Actuaries only have the one role under IPSA. Some of the Appointed Actuaries may have additional roles in other jurisdictions.
- Fifteen insurers were selected to participate in the thematic review out of 87 licensed insurers. The insurers were chosen as representing a range of industry factors, including, but not limited to: insurer size, branch or locally incorporated insurers, the predominant type of insurance and whether the Appointed Actuary is an employee or external consultant.