The October 2009 edition of the
Solvency ii Association
newsletter
Dear Members,
Most of you
work in risk and compliance management.
Although you are
not actuaries, you have to understand better and cooperate with
actuaries. You have to understand who coordinates and who is
responsible for different parts of the project. The implementation
of the Solvency ii framework requires a very clear understanding
of the roles and responsibilities.
This
month we will discuss a new important paper from the GROUPE
CONSULTATIF ACTUARIEL EUROPEEN (EUROPEAN ACTUARIAL CONSULTATIVE
GROUP). The title is "Professional Standards for the Actuarial
Function under Solvency II"
Article 47
of the Solvency II Directive requires an insurance undertaking to
establish an actuarial function.
Article 47(2) states that “The
actuarial function shall be carried out by persons who have
knowledge of actuarial and financial mathematics, commensurate
with the nature, scale and complexity of the risks inherent in the
business of the insurance or reinsurance undertaking, and who are
able to demonstrate their relevant experience with applicable
professional and other
standards.”
This is not very clear, so the Groupe Consultatif has responded
with this paper covering technical and other standards for the
persons carrying out the actuarial function (which were discussed
in CEIOPS Consultation Paper CP33 on Level 2 Implementing Measures
for Solvency II: System of Governance).
According to Bruce Maxwell, Chairman, Groupe Consultatif Actuariel
Européen, the Groupe recommends that
both public interest standards and technical standards should be
formulated, in order to ensure high
quality protection of policyholders and to facilitate convergence
of professional practice throughout the European Union.
These standards would be applicable both for actuaries and for
others who may be appointed to carry out the actuarial function,
and would have relevance to other actuarial responsibilities in
the undertakings.
Public
interest standards should include:
• Qualification standards
• Ethical standards
• Governance standards
• Communication standards
The Groupe recommends that
qualification standards
should include requirements for a specified minimum level of
education, relevant practical experience and mandatory continuing
education.
A preliminary draft of a minimum education syllabus for those
carrying out the actuarial function is provided at Annex 1.
Ethical
standards should cover matters
such as competence, integrity, objectivity, confidentiality and
avoidance of conflicts.
Governance standards should
include the relationship with senior management and with the Board
of the undertaking, cooperation in dealings with other internal
functions and with external parties, checking and quality control
of work, speaking up in case of serious concerns and protection
for those who do speak up.
Communication standards might
cover matters such as explanation of the purpose and scope of any
report, comprehensibility, completeness, transparency,
independence and accountability. A draft communication standard is
provided at Annex 2.
A similar set of standards, with a
considerable amount of common material, should be developed for
the persons carrying out the risk management function under
Article 43 of the Directive and for other functions mentioned in
the Directive.
Technical standards could include
interpretative standards and
technical implementation standards.
Interpretation of regulatory requirements should principally be a
matter for CEIOPS and national supervisory authorities, although
there may well be a need for some kind of interpretative facility
to support consistent interpretation by practitioners.
Technical implementation standards should provide
broad principles on
different aspects of carrying out the actuarial function.
The aim should be to increase consistency of professional practice
and contribute towards harmonisation and convergence of practice
for all types and sizes of undertakings in the EU.
They should ensure a high level of protection for policyholders,
whilst not inhibiting development and innovation in the market.
Principles which might be included in the technical implementation
standards include consistency,
transparency and accountability, reproducibility and credibility.
In order to focus the discussion on a real example of a possible
approach to setting technical implementation standards, Annex 3
sets out, for illustrative purposes, a very provisional draft set
of technical implementation standards.
The final section of the paper considers the various stages of the
process of setting, implementing and enforcing standards and makes
some suggestions on how these responsibilities might be allocated.
The issues involved in setting a full
range of public interest and technical standards are far reaching
and complex. Currently there is a wide diversity of types of
standards and arrangements for setting them, with differing roles
for the professional bodies, supervisors or regulators and new
public interest bodies such as the Board for Actuarial Standards
in the United Kingdom.
Development of the final versions will require much consultation
and a robust due process.
Ensuring compliance by those who are not members of the actuarial
profession will present challenges.
However, the Groupe Consultatif has sought to provide a
comprehensive response to the question of what standards are
needed for those carrying out the actuarial function.
Much of what we are recommending is already in place within the
actuarial profession in Europe, as represented by the Full Member
Associations of the Groupe Consultatif, in particular:
- a comprehensive core syllabus
requirement which new fully qualified actuaries have to meet;
- agreed core content for the professional Codes of Conduct,
covering the aspects proposed under ethical standards and an
obligation to be competent to fulfil any role undertaken;
- a continuing education strategy already agreed by the Groupe
which could be made mandatory for those carrying out the actuarial
function (with some member associations already having in place
mandatory continuing education requirements);
- a commitment to serve the public interest in the development of
the EU actuarial profession.
Standards
for the Actuarial Function under Solvency II
1 Introduction and background
1.1 The CEIOPS consultation paper CP33 on Level 2 Implementing
Measures for Solvency II:
System of Governance discussed the actuarial function required by
Article 47 of the Level 1 text (the EU Solvency II Directive).
Article 47(2) of the Directive states that
The actuarial
function shall be carried out by persons who have knowledge of
actuarial and financial mathematics, commensurate with the nature,
scale and complexity of the risks inherent in the business of the
insurance or reinsurance undertaking, and who are able to
demonstrate their relevant experience with applicable professional
and other standards.
1.2 CP33 identified three options for the development and
promulgation of standards:
Option 1:
The function should use technical standards developed by CEIOPS on
Level 3.
Option 2:
The function should rely on technical standards that are widely
accepted in the industry and the profession.
Option 3:
The function should rely on European technical standards to be
developed and endorsed by a body of representatives of different
stakeholders, including CEIOPS.
1.3 CEIOPS-IGSRR-12/09 also referred to this issue, indicating
that CEIOPS now favoured an approach which calls for the
development of European technical standards to be endorsed by
different stakeholders, including CEIOPS.
1.4 Responses from stakeholders to CEIOPS Consultation Paper 33
touched on four main themes in relation to professional standards:
• scope, i.e. they should not be
limited to technical standards alone;
• the need for ownership of standards by a wide range of
stakeholders;
• standards should evolve and should build on best practice in
respect of existing standards
• they should be consistent with global standards
1.5 Currently practice varies considerably between different
countries, with some countries relying on the actuarial profession
to set professional standards and others relying on supervisory
authorities to play the leading role.
1.6 The Groupe Consultatif responded to the CP33 consultation
paper on 8 June 2009 with detailed comments, and also sent a
letter to the Chairman of CEIOPS, including the following remarks:
The Groupe considers that the following issues should be
considered in the context of formulation and assessment of the
impact of full implementing measures in respect of Article 47:
• The full framework and scope for
professional standards as applying to the actuarial function;
• The appropriate balance and interaction between legislation and
standards i.e. between Level 2 implementing measures and Level 3
guidance and practitioner-influenced interpretative standards;
• The respective roles and responsibilities of the CEIOPS,
national supervisors, the Groupe, its member associations and
other parties in development and maintenance of professional
standards, including interpretative standards;
• The respective roles and responsibilities of the same parties in
relation to monitoring of compliance and, should it be necessary,
enforcement and sanctions.
1.7 In order to follow up these comments, the Groupe Consultatif
has given detailed consideration to the possible content of
standards for those carrying out the actuarial function and the
way in which such standards could be developed, endorsed,
promulgated and enforced.
Although the
standards would apply to the individuals carrying out the
actuarial function, regulated companies should also be under an
obligation to ensure compliance with the standards and, in
particular, to appoint individuals who are able to demonstrate
compliance with applicable professional and other standards, as
required under Article 47.
2
Framework for professional standards
2.1 The Groupe Consultatif suggests that it is helpful to think of
professional standards as falling within two principal categories:
1) Public interest
standards and
2) Technical
standards.
Both types of standards should apply to anyone carrying out the
actuarial function under Article 47, whether or not they call
themselves an actuary or are a member of a recognised actuarial
association.
2.2 The Groupe Consultatif member actuarial professional bodies in
the EU currently mandate standards on their members, and enforce
compliance through their own discipline processes.
They would be able to
extend this role
to any future standards relating to the actuarial function under
Article 47.
However, in order to
ensure high quality professional work by anyone carrying out the
actuarial function, equivalent application and enforcement would
need to be carried out by CEIOPS or the national supervisory
authorities for any individual carrying out the actuarial function
who is not a member of the actuarial profession.
Certain aspects of
the standards will also require the
explicit compliance of the insurance undertakings themselves.
2.3 Various types of what we denote as public interest standards
are needed in order to implement the Level 1 text of Article
47(2). First of all it will be necessary to have standards of
qualification and standards for the maintenance of appropriate
knowledge for carrying out the actuarial function.
There should also be
generic ethical standards of professional
behaviour, touching on matters such as integrity, objectivity,
avoiding conflicts of interest and respecting confidentiality.
Standards should also
cover operational and governance matters, such as the relationship
between the actuarial function and the risk management function,
the senior management, the Board of Directors and external
auditors. It would also be useful for them to include standards
for communication of the outputs from the actuarial function.
2.4 We therefore recommend that public interest standards should
be drawn up and promulgated under the following four categories:
•
Qualification standards
• Ethical standards
• Governance standards
• Communication standards
2.5 Technical standards are more specific to the content of
actuarial work and in particular to work relating to the actuarial
function (including but not necessarily limited to the content of
Article 47).
They should emphasize
principles for carrying out the various tasks, rather than seeking
to legislate the work in a detailed way. We discuss this further
below but to complete the taxonomy of standards, we recommend that
consideration should be given to promulgating two types of
technical standards:
•
Interpretative standards
• Technical implementation standards
3 Public
interest standards
3.1 Qualification standards
3.1.1 We consider that the qualifications necessary for carrying
out the actuarial function should include education, specific
knowledge of the technical aspects of the work of the actuarial
function appropriate for the company for which an individual is to
carry out the function, experience requirements and standards for
continuing education.
3.1.2 CP 33 states (§ 3.293) that CEIOPS does not envisage a
specific university degree or training as a prerequisite for
adequately fulfilling the actuarial function.
Nevertheless, it
affirms that the actuarial function
requires “an understanding of the stochastic nature of insurance
and the
risks inherent in assets and liabilities … as well as an
understanding of the use of statistical models”.
3.1.3 The education requirements should be
harmonized across the EU and should include
practical application and knowledge of the insurance business, as
well as theoretical foundations.
In order to protect policyholders of insurance companies, and to
ensure that the public interest is served, the Groupe Consultatif
recommends that persons carrying out
the actuarial function should be required to demonstrate education
which includes coverage of the most important and relevant topics
in the Groupe Consultatif Core Syllabus
(for the full Core Syllabus see www.gcactuaries.org) which is
already in place for actuaries throughout the EU.
3.1.4
One of the ethical standards
which we propose below is that a person should only carry out the
actuarial function if they have the necessary competence and that
they should be required to certify that they do have that
competence.
In order for it to be
possible to monitor whether those carrying out the actuarial
function have the necessary competence, a syllabus of relevant
knowledge and competence should be agreed.
A first draft of a
more detailed suggested syllabus requirement is included at Annex
1. Because ethical, governance and
communication standards are so important for carrying out the
actuarial function, qualification standards should also include
relevant professionalism education to cover the various types of
standards which are mandated for those carrying out the actuarial
function.
3.1.5 In order to be suitably qualified to perform the various
roles of the actuarial function, it will be necessary to have
appropriate, relevant and proportional experience for the tasks to
be undertaken and the level of responsibility to be assumed.
We suggest that this
should normally be at least five years’
recent and appropriate practical experience
in the relevant practice area (life, general, pensions, health,
reinsurance) for which they are to carry out the actuarial
function.
The requirements
should be proportionate to the nature, scale and complexity of the
risks underlying the insurance obligations of the company for
which the individual is fulfilling the actuarial function.
3.1.6 The scientific, regulatory and business knowledge required
for the successful exercise of the actuarial function will need to
be kept up-to-date.
It is not feasible to rely on education undertaken or experience
gained many years before.
We therefore
recommend that there should be a formal requirement for actuarial
functions to carry out a minimum amount
of Continuing Education (CE) each year.
The qualification
standard would stipulate how much CE, as well as any requirements
that are thought necessary as to the nature of CE and whether it
should be subject to particular reporting requirements.
3.1.7 It is understood that some companies may appoint different
individuals to carry out different parts of the actuarial
function. An example might be in respect of a company which has
both life and non-life business, where one person might be
carrying out the actuarial function for the general insurance
business and another person for the life business.
However, it is
likely, even under such a scenario, that
one person will need to exercise overall
responsibility.
The educational
background, experience requirements and continuing education
requirements should be appropriate for an individual’s particular
responsibilities in carrying out the actuarial function.
3.1.8 Article 42 of the Level 1 text states:
Insurance and reinsurance undertakings shall ensure that all
persons who effectively run the undertaking or have other key
functions meet at all times the following requirements:
(a) Their
professional qualifications, knowledge and experience are adequate
to enable sound and prudent management (fit);
(b) They are of good
repute and integrity (proper).
3.1.9 In paragraph 3.42 of CP33, the CEIOPS advice on this
indicates that
“Undertakings shall have
in place documented policies and procedures to ensure that all
persons subject to Article 42 are fit and proper.” This includes
those carrying out the actuarial function.
3.1.10 Furthermore, paragraph 3.341 of CP58 on Supervisory
Reporting and Public Disclosure Requirements states that
“The supervisor needs to be satisfied that
within the undertaking or the group there is a permanent and
effective actuarial function that is staffed with persons of
appropriate experience and expertise for the role that the
actuarial function is required to perform.”
Both regulated entities and supervisors need to be able to rely on
there being actuaries available who meet the qualification
standards. Requirements as set out above, with a defined syllabus
similar to that in Annex 1, will help to give undertakings
confidence that those whom they appoint to carry out the actuarial
function are ‘fit’ in terms of expertise and experience.
3.2
Ethical standards
3.2.1 We believe that the ethical standards could be based on the
Groupe Consultatif’s Code of Professional Conduct. This is already
in place in the actuarial profession throughout the EU, since Full
Member Associations of the Groupe are required to have a code of
conduct which complies with the Groupe’s code as a minimum.
Some aspects of the
Groupe’s Code may not be directly relevant to the role of carrying
out the actuarial function and some we are suggesting would be
covered under other headings, such as qualification standards and
governance standards.
We suggest that the
following would be an appropriate minimum set of ethical standards
for the individuals carrying out
the
actuarial function:
1. An individual shall not carry out
the actuarial function unless satisfied of his or her competence
for the task.
2. A person carrying out the actuarial function shall perform
professional services with integrity, skill and care. He or she
shall fulfil his professional responsibility to his client or
employer and shall not act against the public interest.
3. A person carrying out the actuarial function shall carry out
the responsibilities of the role with integrity and objectivity.
4. A person carrying out the actuarial function must treat
information relating to the function with confidentiality, subject
to any requirements by a statutory, law-enforcement or judicial
authority for disclosure in the public interest.
5. A person carrying out the actuarial function shall be
responsible for complying with applicable public interest and
technical standards in fulfilling the role and shall certify
compliance.
6. A person carrying out the actuarial function shall not perform
professional services involving an actual or potential conflict of
interest, unless the ability to act fairly is unimpaired and there
has been full disclosure of the actual or potential conflict.
7. When a person carrying out the actuarial function is not
employed by the undertaking, he or she shall disclose to the
client, in writing and in a timely fashion, all sources of income
related to any service on behalf of the client or related party
which could influence, or be perceived to influence, the carrying
out of the actuarial function.
3.2.2 As noted, fully qualified members of the actuarial
associations of the Groupe Consultatif already respect these
standards.
3.3 Governance
standards
3.3.1 Governance standards
concern
relationships of the actuarial function with the Board and senior
management of the company and with other functions such as risk
management and audit.
They include some elements which might be considered to be akin to
ethical standards and some which will facilitate the ability of
the persons carrying out the actuarial function to do the job
effectively.
Some will need to be
made an obligation on insurance undertakings as well as
individuals carrying out the actuarial function and there may need
to be safeguards in legislation to protect those who speak out
(see items 5 and 6 below).
We recommend that
they might include the following:
1. A person carrying out the actuarial
function shall have direct access to the Board of the company, as
well as to the senior management, and to any higher level Boards
(for example at the group level) which exercise significant
influence on the company.
2. A person carrying out the actuarial function shall work closely
together with the risk management function of the company and with
other relevant internal functions.
3. A person carrying out the actuarial function shall liaise and
co-operate with auditors and regulators.
4. The work of the actuarial function shall be subject to adequate
checking and quality control.
5. In the event of a person carrying out the actuarial function
having serious concerns about the financial soundness of the
company, or about the fair treatment of policyholders, and having
exhausted appropriate channels within the company for registering
these concerns, such as to the Supervisory Board where there is
one, he or she shall report the concerns to the relevant
regulator.
6. A person carrying out the actuarial function shall have legal
and regulatory protection for reporting under 5 above, should that
become necessary.
3.4
Communication standards
3.4.1 The Groupe Consultatif believes that good communication will
be vital to the effective exercise of the actuarial function. Both
style and content of any communication should be appropriate to
the particular audience.
This will apply to
any actuarial report and in particular to reports accompanying the
calculation of the technical provisions and risk modelling and
also to the statements of opinion required of the actuarial
function in respect of the overall underwriting policy and the
adequacy of reinsurance arrangements.
We recommend that an
appropriate set of communication standards should cover matters
such as:
• Explanation of the scope and purpose
of any report
• Comprehensibility
• Completeness
• Transparency
• Independence
• Accountability
3.4.2 A draft generic communication standard is included at Annex
2. Specific communication standards might be developed in respect
of particular public reporting responsibilities of regulated
companies and their actuarial function, along the lines indicated
in CP58 in respect of the Solvency and Financial Condition Report
and the Report to Supervisors.
4
Technical standards
4.1 Interpretative standards
4.1.1 One role for technical standards could be to provide more
detailed interpretation of legislation, regulations and
implementing measures or to deal with additional matters which are
not covered by the implementing measures.
The Groupe Consultatif
believes that such interpretation may prove necessary, but that
in general it should be the role of the
supervisors, either at the national level or at the EU level, to
provide this sort of interpretation.
Technical standards
developed by the actuarial profession should not impose additional
legal requirements.
However, there may be a need for some form of interpretative
facility to be provided by the Groupe Consultatif, such as access
to discussion groups, frequently asked questions, etc. and
possibly a standing committee to moderate and guide such
discussions.
4.2 Technical
implementation standards
4.2.1 We believe that it is important to be clear on what is
understood by ‘technical implementation
standards’
as there are many different
perspectives on how far-reaching these should be and whether they
should simply set out some broad principles or provide detailed
guidance on different aspects, for example to cover each of the
nine areas of responsibility of the
actuarial function, as set out in Article 47(1).
4.2.2 CP33 does not define standards but appears to envisage them
as an additional layer of rules with which those fulfilling the
actuarial function would be required to comply.
Technical
implementation standards could fulfil a number of purposes, such
as
- helping to ensure the quality of
delivery of professional services
- providing additional protection for policyholders
- increasing consistency of professional practice
- contributing towards harmonisation and convergence of practice
throughout the EU
- introducing clarity regarding what is expected or acceptable
- providing guidance on good practice
- enhancing the accountability of the person(s) carrying out the
actuarial function
4.2.3 As noted by the Groupe Consultatif in its response to CP33,
‘actuarial methodologies and techniques for the valuation of
technical provisions are the subject of continuous scientific
research and development’ and ‘the legal framework provided by
Level 2 may not be sufficiently flexible’ to facilitate regular
reviews and updates.
Technical
implementation standards need to be
responsive to emerging issues, or sufficiently generic to permit
the evolution of practice within the established broad principles,
so as to ensure a high level of protection for policyholders,
whilst not
inhibiting innovation and market development.
4.2.4 In CP45, CEIOPS also noted that
European technical standards are expected to provide comprehensive
support to undertakings for calculating their technical
provisions, and a high level of convergence in the guidelines to
be used. Until the detailed implementing measures are published,
it is difficult to comment in detail on what technical
implementation standards will be required to achieve this.
4.2.5 Up to now, most technical standards in the EU have been
issued by regulatory authorities, with
a view to defining more precisely their requirements for
compliance with the statutes and regulations.
There are also
examples of technical standards issued by the actuarial profession
in certain countries. Some of these are quite detailed and provide
guidance to the appointed actuary or responsible actuary in
setting technical provisions and other duties.
In both the United
Kingdom and Ireland there have been a number of such standards,
but in the UK they are in the process of
being withdrawn and replaced by a new generation of technical
actuarial standards issued by the Board for Actuarial Standards
(BAS), a standard-setting body which is independent of the
actuarial profession and which comes under the aegis of the
Financial Reporting Council, which also oversees the Accounting
Standards Board and the Auditing Practices Board.
4.2.6 Issuing
detailed guidance on all
the possible topics relating to the actuarial function could be a
major undertaking and could result in undue inflexibility, just as
would incorporating similarly detailed provisions into Level 1 and
Level 2 legislation.
The Groupe
Consultatif believes that a more appropriate approach would be for
standards to focus on the general principles which are widely
accepted should be followed in carrying out actuarial work, such
as the following:
-
Consistency
- Transparency and accountability
- Market consistency
- Results must be capable of being reproduced
- Credibility
- Robustness of models
- Proper treatment of outliers
- Comprehensibility of advice
4.2.7 Some specific principles relating to the activities of the
actuarial function under Article 47 could also be included, under
topics such the following:
- Data
- Assumptions
- Models
- Monitoring experience
- Underwriting policy
- Adequacy of reinsurance arrangements
- Effective
implementation of the risk management function
4.2.8 In order to focus the discussion on an actual example of
this approach to setting technical implementation standards, Annex
3 sets out, for illustrative purposes, a very provisional draft of
what some technical implementation standards of this sort might
look like.
This formulation
includes articulating some general principles but also goes on to
develop some more specific, but still quite high level and
principles-based, standards on various particular topics relating
to carrying out the actuarial function.
These standards
should be sufficiently general to apply across the EU, although we
do not preclude the possibility of some additional guidance being
provided at national level to address specific local issues.
5 Setting
and ensuring compliance with standards
5.1 A
fundamental question
with regard to all the types of standard discussed in this paper
is which body or bodies will be responsible for setting the
standards, for monitoring compliance and for taking action against
any person carrying out the actuarial function who is considered
not to be in compliance.
A common theme of
many of the responses to CP33 was that the development of
technical standards should draw on the experience of
practitioners, the strength of CEIOPS’ role and consultation with
other informed stakeholders.
We suggest therefore
that both CEIOPS and the Groupe Consultatif should play key roles.
There should also, of
course, be a strong and broad-ranging due process for consultation
on draft standards, in order to draw on the experience and
perspectives of various stakeholders, including the European
Commission
5.2 The standard-setting and implementation process will have a
number of different stages:
•
Drafting
• Exposure to stakeholders
• Redrafting and finalising
• Endorsing
• Monitoring
• Enforcing standards and applying sanctions in case of
non-compliance
• Keeping the standards up-to-date
5.3 The Groupe Consultatif is in principle well-placed to play a
significant role in the initial drafting stage, as well as in the
redrafting and finalising of the standards in the light of
comments from stakeholders.
The Groupe
Consultatif brings together the collective resources of the
actuarial professional bodies in the countries of the EU and has
30 years of experience of operating at the European level.
However, there could be a need for financial support due to the
limitations of volunteer resources.
5.4 When it comes to endorsing
standards, that is to say giving them an official stamp of
approval and raising their status as mandatory instruments which
must apply to regulated entities and to all individuals fulfilling
the actuarial function, whether members of a member association of
the Groupe Consultatif or not, it seems that only CEIOPS could
adequately play this role at the European level.
National supervisory
authorities would also need to give formal recognition to the
standards and accept responsibility for monitoring compliance.
5.5 Similar issues arise with respect to monitoring and ensuring
compliance.
CEIOPS and national
supervisory authorities will need to play a part in monitoring
compliance and taking action against any individual carrying out
the actuarial function or any undertaking which is not complying
with standards.
Member associations
of the Groupe Consultatif all have in place a rigorous and fair
disciplinary process, which could be used to address issues of
alleged non-compliance by any of their members, but similar
disciplinary arrangements would need to be applied by CEIOPS, or
by national supervisory authorities, for others carrying out the
actuarial function.
5.6 A permanent process would also be needed to keep the standards
under review, and revise and update them as necessary to ensure
that they remain fit for purpose.
5.7 There are
a number of possible ways
in which the responsibilities could be allocated to different
actors in order to achieve an optimum result. It is likely that
the vast majority of those carrying out the actuarial function
will be actuaries and will be fully qualified members of the Full
Member Associations of the Groupe Consultatif.
We therefore consider
that it would be appropriate for the Groupe Consultatif to be
responsible for developing drafts of the standards, taking them
through due process, including consultation with CEIOPS and with
specific stakeholders and with the general public, drawing on
logistical support from CEIOPS.
The Groupe could
establish a standard-setting board with non-actuaries as members
as well as a majority of actuaries, in order to increase
transparency and the independence of the process.
5.8 The standards would be endorsed by CEIOPS, who would mandate
compliance by regulated entities and by all individuals carrying
out the actuarial function, even if not members of a national
actuarial association.
The Groupe would
issue the standards through Full Member Associations and
compliance would be a professional requirement for all members of
these associations.
Member Associations
of the Groupe would investigate, and if
necessary take disciplinary action against, any individual member
who was alleged not to have complied with the standards.
The onus would be on
CEIOPS and national supervisory authorities to take responsibility
for monitoring compliance by those who are not members of the
Groupe Consultatif associations and to ensure that the standards
were enforced, with appropriate sanctions being applied in the
case of any material non-compliance.
This
monitoring and enforcement role could in
practice be delegated to national supervisory authorities.
The whole process
could be supported by agreement of a ‘memorandum of understanding’
between CEIOPS and the Groupe.
Annex 4 shows the whole process in an illustrative schematic way.
5.9
Another option would be for the
Commission to set up an independent standard-setting body, and
there could be various ways of adjusting the balance between
CEIOPS and the Groupe in carrying out the due process of
consultation with interested stakeholders, including national
supervisory authorities, industry bodies and national actuarial
associations.
5.10 The Groupe considers itself to be the appropriate body to
take a lead in developing actuarial standards at the European
level, as it is the only legitimate representative of practising
actuaries throughout the member states of the EU.
Member associations
of the Groupe have fair and effective discipline schemes and would
be able to investigate allegations of non-compliance and take
effective action against any actuary found guilty of misconduct.
However,
the Groupe does not have any power to impose standards on persons
carrying out the actuarial function who
are not members of one of the Member Associations of the Groupe,
or to exercise discipline over such people.
It would therefore be
essential that CEIOPS and national supervisory authorities
endorsed the standards and played a parallel role in mandating the
standards on those who were not members of actuarial professional
bodies and carrying out the disciplinary role if necessary.
5.11 The Groupe will establish a set of governance standards to
guide its own role in setting, implementing and monitoring the
application of standards, in order to place the public interest in
a preeminent position and continue to act in line with its core
values of independence, objectivity, professionalism,
accountability, transparency and relevance, as well as with
respect for other stakeholders.
Annex 1
Education necessary to carry out the Actuarial Function under
Solvency 2
Overview
1. The requirements are set out in four
stages:
Stage 1 : Basic education
Included in this stage are subjects which are essential background
for carrying out the actuarial function.
Stage 2 : Core Technical Education
Included in this
stage are the fundamental tools of actuarial science and finance
and subjects in which the principles and practice of actuarial
techniques are developed in relation to life, general, pensions
and health insurance, to the extent appropriate for carrying out
the actuarial function(s).
Stage 3 : Subject-Specific Education
Persons carrying out the actuarial function must be familiar with
the business environment and with the detailed regulatory,
legislative, cultural and administrative framework of the EU and
of the country or countries of operation of the company for which
they are carrying out the actuarial function.
Stage 4 : Professionalism Education
Persons carrying out the actuarial function should have a thorough
grounding in business ethics and professionalism and be familiar
with all professional and technical standards that have been
promulgated in respect of the role.
2. The qualification requirement should include a minimum period
of recent practical experience in work directly relevant to the
actuarial function.
3. Continuing Education is essential to ensure that persons
carrying out the actuarial function are up-to-date with changes in
the legislative and accounting framework for their practice area,
with latest developments in products and in technical
methodologies.
Minimum annual
Continuing Education requirements should be laid down.
Stage 1:
Basic Education
The subjects of which a background knowledge is required by
persons carrying out the actuarial function are:
1. Mathematics
2. Probability and Statistics
3. Stochastic Processes
4. Economics
5. Computing
6. Accounting and Financial Reports
1.
Mathematics
Persons carrying out the actuarial function should have a solid
grounding in mathematical techniques to support understanding of
the other subjects and to provide an understanding of mathematical
modelling.
(a) Functions, equations and
inequalities
(b) Differential and integral calculus
(c) Differential equations
(d) Sequences and series
(e) Linear algebra
(f) Introductory measure theory
(g) Difference equations
(h) Numerical analysis
2.
Probability and Statistics
Persons carrying out the actuarial function should have a good
knowledge of probability and statistics.
(a) Main features of data sets
(b) Basic probability theory
(c) Random variables and related concepts
(d) Transformation of variables
(e) Generating functions
(f) Central limit theorem
(g) Concepts of sampling
(h) Methods of estimation
(i) Confidence intervals.
(j) Hypothesis testing
(k) Correlation analysis and regression analysis
(l) Analysis of variance
(m) Decision theory
(n) Simulation methods
3.
Stochastic Processes
Persons carrying out the actuarial function should understand
stochastic processes and their use in models relevant to the
actuarial function.
(a) Principles of modelling
(b) Principles and classification of stochastic processes
(c) Markov chains
(d) Markov processes
(e) Time series
(f) Gauss-Wiener processes
(g) Simulation methods for stochastic processes
4.
Economics
Persons carrying out the actuarial function should be familiar
with the fundamental concepts of economics as they affect the
operation of insurance and other financial systems
(a) Supply, demand and equilibrium
price
(b) Elasticity of supply and demand
(c) Utility theory and consumer choice in insurance
(d) Theory of the firm under differing market structures
(e) General equilibrium theory
(f) Government policies and their effects (direct and via the
banking system)
(g) Domestic macroeconomic factors and their management
(h) International trade, exchange rates and the balance of
payments
5.
Computing
Persons carrying out the actuarial function should have a working
knowledge of modern Information and Communications Technology
appropriate for fulfilling the function.
6.
Accounting and Financial Reports
Persons carrying out the actuarial function should have the
ability to interpret the accounts and financial statements of
companies and financial institutions
(a) Different types of business entity
(b) Financial structures of business entities
(c) Basic principles of corporate taxation
(d) Taxation of investments held by institutions
(e) The role of the main institutions in financial markets
(f) Basic structure of company accounts
- profit and loss (revenue) account
- balance sheet
- cash flow statement
- provisions and reserves
(g) Basic principles of group accounts
(h) International Financial Reporting Standards
(i) Limitations of company accounts
Stage 2:
Actuarial Education
The subjects of which knowledge is required by all persons
carrying out the actuarial function are:
7. Financial Mathematics
8. Survival Models (only a basic knowledge required for the
non-life actuarial function)
9. Contingencies (only a basic knowledge required for the non-life
actuarial function)
10. Risk Mathematics (only a basic knowledge required for the life
actuarial function)
11. Risk Modelling
7.
Financial Mathematics
Persons carrying out the actuarial function should have a thorough
grounding in financial mathematics and applications relevant to
the insurance business.
(a) Deterministic theory of interest
- compound interest
- cash-flow modelling; annuities certain
- bond market theory
(b) Introduction to contingent claims analysis
- definition of derivative securities
- no arbitrage principle
(c) Stochastic calculus for finance
- conditional expectation, introduction to martingales
- stochastic integrals and differential equations
- pricing and hedging of derivatives
(d) Stochastic theory of interest
- interest rate models (discrete and continuous time)
- derivatives on interest rates and bonds
(e) Dynamic portfolio management
- stochastic optimal control
- asset-liability modelling
(f) Applications to insurance liabilities
- embedded options in life insurance
- valuation techniques for embedded options
8.
Survival Models
Persons carrying out the actuarial function should have a
grounding in survival models (only basic knowledge required for
the actuarial function in general insurance)
(a) Survival models
(b) Statistical models of transfers between multiple states
(c) State-space and Markov models for life insurance
(d) Maximum likelihood estimators for transition intensities
(e) Construction of a multiple decrement table.
(f) Binomial model of mortality
(g) Comparison of actual against expected experience.
(h) Heterogeneity within a population with regard to mortality and
sickness.
9.
Contingencies
Persons carrying out the actuarial function for a life insurance
company should have a thorough grounding in the mathematical
techniques which are of particular relevance to actuarial work in
life insurance, pensions insurance and health insurance (only
basic knowledge required for the actuarial function in general
insurance).
(a) Formulae for annuity values and
assurance factors for single life and joint life assurances and
annuities
(b) Surrender values and policy alterations
(c) The use of computational tools (for example commutation
functions)
(d) Random future loss
(e) Net premiums and net premium reserves
(f) Gross premiums and gross premium reserves.
10. Risk
Mathematics
Persons carrying out the actuarial function for a general
insurance company should have a thorough grounding in risk
mathematics and its use in actuarial work (only some topics
required for the actuarial function in life, pensions and health
insurance).
(a) Loss distributions.
(b) Risk models.
(c) Aggregate claim distributions for short term insurance
contracts.
(d) Ruin theory.
(e) The impact of reinsurance.
(f) Credibility theory.
(g) Loss reserving
(h) No claim discount (NCD) systems.
(i) Use of scenario testing and simulation for dynamic financial
analysis of general insurance business of a company
11. Risk
modelling
Persons carrying out the actuarial function should understand the
principles of modelling for the purposes of risk management.
(a) Model structures
(b) Selection process
(c) Calibration
(d) Validation
(e) Scenario setting
(f) Sensitivity testing
(g) Limitations of models
(h) Computer applications of modelling
(i) Documentation and audit trail
(j) The role of the internal model in risk management
Stage 3:
Subject-Specific Education
The subjects of which knowledge is required according to the
business of the company for which
the actuarial function is to be performed are:
12. Life Insurance
13. General Insurance
14. Pension Insurance
15. Health Insurance
12. Life
Insurance
Persons carrying out the actuarial function for a life insurance
company must have the ability to use judgement and apply the
principles of actuarial planning and control needed for the
operation on sound financial lines of providers of life insurance.
(a) Principal terms
(b) The main contract types
(c) The principles of life insurance markets
(d) Data requirements and verification
(e) Product pricing
(f) Reserving
(g) Surrender values
(h) Policy alterations
(i) Derivation of actuarial assumptions
(j) Measurement and analysis of surplus
(k) Methods of distributing surplus to policyholders
(l) Principles of investment and asset-liability modelling
(m) Principles of regulation and accounting
(n) Risk and uncertainty in life insurance business
(o) Principles of risk management including reinsurance
(p) Life insurance regulations, including:
Taxation
Accounting
Supervisory regulation
EU requirements
(q) Experience rating
(r) Future financial requirements including dynamic financial
analysis
(s) Value of a life company
(t) Evaluation of the capital requirements of a life insurer for
the purpose of determining the strategy for growth in business.
13.
General Insurance
Persons carrying out the actuarial function for a general
insurance company must have the ability to apply the principles of
actuarial planning and control needed for the operation of
providers of general insurance on sound financial lines.
(a) Principal terms
(b) Product types
(c) The principles of general insurance markets
(d) Data requirements and verification
(e) Pricing bases for general insurance contracts
(f) Tariff systems
(g) Methods of determining the value of the insurance liabilities
of a general business insurer and the value of the assets, in
terms of emerging costs and in terms of discounted values, for the
purposes of
- the establishment of provisions and reserves for the accounts
- the estimation of solvency
- the pricing of products
(h) Experience rating
(i) Claim reserving
(j) Modelling the uncertainty in claim frequency and amount
(k) Bases for valuing the assets and liabilities of a general
business insurer
(l) Methods of analysing the experience of a general business
insurer for the purposes of determining pricing and valuation
assumptions and identifying the main sources of profit and loss
(m) Principles of investment for general business insurers’ assets
(n) Principles of regulation and accounting for general insurance
(o) Risk and uncertainty in general insurance business
(p) Principles of risk management including reinsurance.
14.
Pension Insurance
Persons carrying out the actuarial function for a pension
insurance company must have the ability to apply the principles of
actuarial planning and control needed for the operation on sound
financial lines of pension insurance companies or the pension
business of life insurance companies.
(a) Principal terms
(b) Benefit types
(c) The needs and roles of the various parties that may be
involved
(d) Methods of financing provision
(e) The regulatory environments in which benefits may be provided
(f) Risks and uncertainty
(g) Reinsurance as a means of risk management
(h) Actuarial models to project income and outgo
(i) Principles of financing, including asset and liability
relationships
(j) Determining assumptions for valuing future benefits and
contributions
(k) Placing values on assets, future benefits and future
contributions for
the purpose of:
- financing
- the establishment of provisions and reserves for the accounts
- the estimation of solvency
- the determination of benefits including guarantees and options
(l) Monitoring and analysing experience
(m) Calculation and distribution of surplus
15.
Health Insurance
Persons carrying out the actuarial function for a health insurance
company must have the ability to apply the principles of actuarial
planning and control needed for the operation on sound financial
lines of health insurance companies or the health insurance
business of other companies.
(a) Principal terms
(b) Different models for financing health care
(c) The main features of mixed public/private financial health
care systems
(d) Main features of the major types of health insurance product,
including
sickness insurance
critical illness insurance
long-term care insurance
medical expenses insurance
disability insurance
(e) The principles of health insurance markets
(f) Principles of accounting for health insurance
(g) Major areas of risk and uncertainty in health insurance
(h) Principles of investment for health insurers’ assets
(i) Valuation data and verification procedures
(j) Analysis of the experience of a health insurer
(k) Pricing of health insurance products
(l) Valuation of liabilities for the purposes of
- the establishment of reserves for the accounts
- the determination of solvency
(m) Interpretation of the accounts of a health insurer
(n) Establishing the impact of the liabilities of a health insurer
on the choice and
management of assets
(o) Modelling of the uncertainty in claim frequency and amount
(p) Experience rating for health insurance
(q) Evaluation of the capital requirements of a health insurer for
the purpose of determining
the strategy for growth in business.
16.
Legislative instruments of the European Union
Persons carrying out the actuarial function must be familiar with
the legislative instruments of the European Union and the
characteristics of regulation and supervision of insurance
companies within the EU.
17.
Country-specific commercial and legislative environment
Persons carrying out the actuarial function must be familiar with
the commercial and legislative environment in the Member State(s)
in which he or she is fulfilling the actuarial function and in all
countries in which the company in question writes insurance
business.
Stage 4:
Professionalism Education
Persons carrying out the actuarial function must appreciate the
importance of ethical and professional behavior in the role and be
equipped to handle the ethical and professionalism issues which
may arise in the course of the work.
(a) Business ethics
(b) Professional standards, incl. public interest standards
(ethical standards, governance standards, communication standards)
and technical standards (interpretative standards and technical
implementation standards in relation to the actuarial function
(c) The role of persons carrying out the actuarial function
- analysis and resolution of ethical issues
- objectivity, integrity, openness and accountability
- interests of policyholders and shareholders
- confidentiality
- identifying and managing conflicts
- peer review
- speaking out
- the public interest
Dear members,
The
Solvency ii Association develops and maintains a compendium of
Solvency ii related risk and compliance topics. Subject matter
experts review and update this body of knowledge.
The Solvency ii Association
offers two Solvency ii certification programs:
A. Certified
Solvency ii Professional (CSiiP) for
professionals working in the EEA countries
B. Certified Solvency ii Equivalence Professional
(CSiiEP) for professionals working in
non-EEA countries
The Solvency ii Association has signed an
exclusive worldwide partner agreement with Solvency II Training
Ltd., so the Association will provide Solvency II Training classes
worldwide only in cooperation with Solvency II Training Ltd.
Solvency II Training Ltd has been selected
by the Summit Finuas Network to provide Solvency II training
courses to network member companies operating in the International
Financial Services Industry (IFSC) in Ireland.
Next
European Solvency II Training Course:
Date: November 23-25, 2009
Location: Clarion Hotel IFSC, Dublin, Ireland
Seminal
leader: George Lekatis, President of the Solvency ii Association
Funding for this training course is
available to network member companies operating in the
International Financial Services Industry (IFSC) in Ireland.
As Corporate Affiliates of The Institute of Continuing
Professional Development (CPD) our three-day Solvency II training
courses offer delegates a total of 24 (CPD) hours.
For further information regarding this course or in-company
training please contact: Ross Fenwick, Managing Partner, Solvency
II Training
T: + 44 207 060 3312, F: + 44 207 681 3317
E:
r.fenwick@solvencyiitraining.eu
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