General insurance actuaries: a reserved role 31st Annual GIRO Convention

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General insurance actuaries a reserved
role?31st Annual GIRO Convention

• 12-15 October 2004
• Hotel Europe
• Killarney, Ireland

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What are we going to talk about?

• Background
• What is the question?
• Who are the stakeholders?
• What are the options?
• So what is the profession doing about it?
• What are the issues?
• Next steps

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Background

• Should actuaries have a formal role in non-life
  reserving?
• The question has been around for ages
• Indeed it was the subject of a 1998 pamphlet
  (reissued in 2000)
• It was also a question in CP04/7
• It was also a question in the Morris Review
  consultation paper

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Background

• CP04/7 stated

and then asked whether readers agreed with this
approach
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Background

• Morris asked

The professions response to both papers was, in
effect, were thinking about it That was fine
as a holding position, but the profession now
needs to decide what it thinks.
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Background

• Who are the stakeholders?

Regulators
GI actuaries/ profession
Insurance operations
Third parties e.g. SP, investors
Insurance consumers
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Background
An SAO regime? (c.f. Lloyds)

• And what are the options?

No change
No SAO requirement at Lloyds?
An actuarial audit role?
Anything else?
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So what are we doing about it?

• The profession intends forming and, if
  appropriate, promoting its view on this
• It has commissioned this paper, to set out
  options, issues and potential arguments for and
  against
• It intends discussing this issue, using the paper
  as a framework/stimulant, with the stakeholders
  and/or their representative bodies
• The profession will weigh up the views expressed
  during these discussions and will then decide on
  its position
• Key stakeholders are general insurance actuaries
  themselves we start discussing the issue now!

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What are the issues?

• Good question
• but before we get stuck into them you may be
  wondering what you are listening to..
• maybe you arent
• ..anyway, it is Oasis and a song that was
  originally a B Side to Wonderwall
• this song is called The Masterplan

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What are the issues?

• ..no, its not meant to imply that we have a
  masterplan for an actuarial reserving roleor
  indeed that we intend to form one
• it merely reflects the questionable musical
  tastes of the Chairman of the Working Party, and
  his bizarre approach to putting together
  presentations
• it also reflects the fact that this presentation
  will last precisely 5 minutes 20 seconds.
• now on with the real issues.

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What are the issues?

• The paper lists 27 issues
• The paper then sets out what some might say in
  respect of each of these issues
• To ensure balance, it outlines views on each
  issue at opposite ends of the spectrum (NB the
  profession does not agree with several of these
  views, but is keeping an open mind on the overall
  question)
• What we want to do now is to
• identify any issues not already covered in the
  paper
• understand the overall view of the general
  insurance actuarial community
• To stimulate your thoughts, here are a selection
  of views that some might say (this is not
  another Oasis allusion)

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What some might say?

• Auditors already opine on the appropriateness of
  insurers reserves. A statutory role for
  actuaries in non-life reserving would add no
  value to the existing audit process
• Having reserves formally reviewed and signed-off
  by professionals instils confidence in consumers
  and external bodies (e.g. rating agencies)
• A genuinely prudential statutory standard for
  reserving would reduce the potential for the
  failure of non-life insurers. Actuaries, through
  their expertise in statistics, would be ideally
  positioned to set or opine on reserves at
  particular levels of prudence
• Reserves themselves are of limited importance in
  an ICAS environment

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What some might say?

• In many recent cases of insurance insolvency, it
  can be seen that the reserves had been inadequate
  for some time. Had these inadequacies been
  uncovered earlier then remedial action might have
  been possible, or earlier and less costly closure
  ensued
• A statutory SAO provided by a responsible
  actuary would allow the FSA to reduce the degree
  of direct supervisory oversight
• A statutory SAO regime for insurance companies
  would bring them into line with Lloyds
  operations, and with insurers in many other
  developed markets
• Markets thrive because of differences. We
  should promote the virtues of these differences,
  rather than try to eliminate them..

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What some might say?

• Its up to the directors, not an actuary, to set
  the reserves
• As experts in finance, probability and
  statistics, actuaries are ideally qualified to
  opine on insurance reserves
• Actuaries are experts? But they always get it
  wrong? Anyway, Fred isnt an actuary but he has
  always done our reserving perfectly
  satisfactorily why should a reserved role be
  just for actuaries...?
• A reserved role would become a commoditised
  product, it would become uneconomic to provide a
  value-added service and the risk of litigation
  would increase
• A reserved role will lead to a shortage of
  suitably qualified general insurance actuaries

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What some might say?

• Either insurers are already using actuaries in
  reserving in which case there is no benefit
  from making it statutory or it will add cost
• The root cause in most recent cases of insurance
  failure was inappropriate management action, not
  bad reserving. Better reserving would not
  reduce the number of failures
• It would be of no value to the regulators
• Statutory roles increase the potential for
  adverse publicity, which the profession could do
  without (c.f. Equitable Life, pensions)
• Statutory reserving roles for actuaries work
  well and are considered beneficial elsewhere
  why not also in the UK?

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Next steps

• Okay, its nearly time for you to talk
• well, it will be when this song has finished
• it has a long play out, doesnt it
• anyway, you all have microphones and we would
  like to hear your views
• particularly if they are on matters of
  substance, rather than pointing out minor errors,
  typos, etc (of which we are aware there are
  several)
• and if you dont say anything we must assume
  that you arent bothered one way or another.

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Discussion

• Take the time to make some sense of what you
  want to say, then cast your words
• Noel Gallagher
• (from The Masterplan)

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Do you believe.

• that better reserving would reduce insurance
  company failures?
• that were actuaries to have a statutory role in
  non-life reserving it would lead to better
  reserving?

Take the time to make some sense of what you
want to say, then cast your words
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Do you believe.

• that the ICA supervisory system makes
  unnecessary a reserved role for actuaries in
  non-life reserving?
• that the formal involvement of actuaries in
  non-life reserving would improve consumer and
  investor confidence in non-life insurers?

Take the time to make some sense of what you
want to say, then cast your words
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Do you believe.

• that actuaries currently have the training and
  skills set appropriate for a statutory role?
• that the reputation of the actuarial profession
  would be enhanced by it assuming such a role?

Take the time to make some sense of what you
want to say, then cast your words
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