Prudential Standard GOI 3: Section (14): The Actuarial Function

Question 1

The responsibilities of an insurer’s actuarial function

Answer 1

The insurer’s actuarial function is responsible for expressing an opinion to the board of directors on the reliability and adequacy of the calculations of the insurer’s technical provisions, and minimum and solvency capital requirements,
including on:

• the appropriateness of:
• – the methodologies and
• – underlying models used
• – assumptions made
• the sufficiency and quality of the DATA USED in actuarial calculations
• best estimates and associated assumptions against experience when evaluating technical provisions
• the ACCURACY of the calculations
• the appropriateness of and impact of assumed future management actions and the effect of risk mitigation instruments
• the appropriateness of approximations or judgements used in the calculations due to insufficient data of appropriate quality

Question 2

The actuarial function is responsible for expression an opinion to the board on the appropriateness of 3 policies of the insurer

Answer 2

• Asset-liability Management Policy
• Underwriting Policy
• Reinsurance and Other Forms of Risk Transfer Policy and the adequacy of reinsurance and other forms of risk transfer arrangements.

Question 3

The actuarial function is responsible for evaluating and providing advice to the board of directors and senior management on:

Answer 3

• the insurer’s investment policy
• financial soundness position of the insurer, including the impact of any proposed dividend declaration or payment
• actuarial-related matters in the ORSA such as
• – the economic capital requirements
• – forward-looking projections of the economic and regulatory financial soundness positions, the stress-, sensitivity- and scenario testing and the assumed management actions
• internal controls relevant to actuarial matters
• awarding of a bonus or similar benefit to participating policyholders in accordance with the principles and practises of financial management of the insurer
• the actuarial soundness of PRODUCT DEVELOPMENT and design, including the
• – terms and conditions of insurance contract,
• – premiums,
• – insurance obligations and other values, along with the estimation of the capital required to underwrite the product
• the development and use of INTERNAL MODELS for internal actuarial or financial projections, or for own solvency projections (ORSA)
• where the insurer uses the regulatory capital model to assess its risks, why that regulatory capital model is an accurate reflection of the insurer’s own risk profile, board approved risk appetite, and business strategy.

Question 4

4 Requirements of the Asset-Liability Management policy

Answer 4

1. Clearly specify the nature, role and extent of the insurer’s asset-liability management activities and their relationship with product development, pricing functions and investment management.
2. Co-ordinate the management of risks associated with assets and liabilities and the complexity of those risks.
3. Recognise the interdependence between the insurer’s assets and liabilities and to take into account the correlation of risk between different asset classes and the correlations between different products and business lines.
4. Take into account any off-balance sheet exposures that the insurer may have and the contingency that risks transferred may revert to the insurer.

Question 5

7 Requirements of The Underwriting Policy

Answer 5

1. Identify the NATURE of the insurer’s insurance business, including, but not limited to:
   a) the classes of insurance to be underwritten
   b) the types of risks that may be underwritten and those that are to be excluded.
2. Describe the formal RISK ASSESSMENT PROCESS for underwriting, including, but not limited to:
   a) the criteria used for risk assessment
   b) the methods for monitoring emerging experience
   c) the methods by which emerging experience is taken into consideration in the underwriting process.
3. Establish decision-making processes and controls where non-mandated underwriting managers perform binder functions on behalf of the insurer in accordance with Part 6 of the Regulations made under the Short-term Insurance Act, 1998.
4. Set out the actions to be taken by the insurer to assess and manage the risk of loss, or of adverse change in the values of insurance and reinsurance liabilities, resulting from inadequate pricing and provisioning assumptions.
5. Establish the insurer’s approach to assumption setting, including the level of conservatism needed to align with the insurer’s risk appetite.
6. Set out the relevant data to be considered in the underwriting and reserving process.
7. Provide for the regular review of the adequacy of claims management procedures, including the extent to which they cover the overall cycle of claims.