APN 108-Transfer of long-term business of licenced insurer -Role of independent actuary

Question 1

Describe the consideration of the independent actuary before accepting appointment? (4)

Answer 1

• Consider where he/she has relevant practical knowledge and experience (including knowledge of roles and responsibilities of the actuarial function)

• In the case of a composite insurer writing both life and non-life business the independent actuary will need to understand the relevance of non-life business to security of life insurance policyholders

• Disclose to all parties direct or indirect interest he/she may have with either insurer.

• Independent actuary needs to ensure appropriate safeguards to ensure independence where he/she has done work for either party previously

Question 2

Describe the contents that would ussually be required to be included in the independents actuaries brief regarding appoint through the PA vs. parties involved in the transaction? (8)

Answer 2

If appointed by the prudential authority the independent actuary should request for a brief which should include the terms and reference of the appointment. In this case:
• View of desirability of the transaction e.g. financial soundness and implications on policyholders
• Address at least specific issues contained in the brief
• Termination of duties prior completion would require reasons

If appointed by one or more parties to the proposed scheme (and not PA) a brief should be requested from the appointing parties:
• Primary accountabilities must be clearly stated in the brief
• Address at least specific issues contained in the brief
• Establish if PA want to draw attention to any specific issues
• Ensure brief include provisions ensuring not denied access to material information
• Termination should be reported to the PA

Question 3

Outline the involvement of the independent actuary in transaction? (7)

Answer 3

• Actively seek terms and provisions of the proposed scheme to determine if there are any reservations

• The independent actuary should communicate with the HAFs of all insurers involved and consider their reports regarding financial soundness of the proposed scheme

• Attend a meeting with policyholders arranged by management

• Independent specialist advice needs to be evaluated for completeness and the independent actuary needs to understand the implications of his/her view and report

• Consultation with the previous HAF may be required

• Operational plans of the insurer should be considered

• Consider whether the tax position impact has been considered

Question 4

List various sources of information that may be considered in evaluation of the proposed scheme? (12)

Answer 4

o Memorandum and articles of association, latest annual financial statements and regulatory returns
o Reports submitted by the HAF to board of directors
o Latest ORSA report
o Polices for managing risk ALM, credit, investment, underwriting and reinsurance
o Reports on policyholder reasonable expectations
o Bases used as illustration for future benefits
o Composition of a portfolio of assets to be transferred and appropriateness relative to liabilities
o Reports evaluating alternative schemes
o Proposed schemes involving transfer of business, any reports regarding the transferee to absorb the business transferred
o Correspondence with an regulatory authority
o Reinsurance, sale or amalgamation agreements
o Proposed communication with the policyholders

Question 5

List the contents of the independent actuaries report? (15)

Answer 5

o Name of independent actuary and who is bearing costs
o Qualifications
o Direct or indirect interest with any parties
o Scope of the report
o Purpose of the proposed scheme
o Summary of terms of the proposed scheme
o Information documents and reports considered (any info not provided)
o Effect on financial soundness
o Tax consequences and effect on policyholder benefits
o Security of policyholder benefits
o Effect on rights of policyholders to participate in profits and compensation provided
o Safeguards preventing adverse impact from determination of bonuses, surrender values and discretionary charges after proposed scheme
o Impact on investment management, new business strategy, administration, expense levels and valuation bases
o Impact on proprietary rights of policyholder of mutual and compensation provided
o Impact on reasonable benefit expectations and whether it is equitable to all policyholder generations