Domestic Actuarial Regime

The Central Bank proposes to encapsulate the objectives of the Actuarial Report on Technical Provisions (“ARTP”) , and to move into the Guidance for (Re)Insurance Undertakings on the Head of Actuarial Function Role the more detailed explanations of how the Central Bank expects the HoAF to meet those objectives. [CP171 DAR Section 2.3/ CP 171 Guidance Section 3.4]

Proposed updates expected to be of particular interest:

• Risks: Inclusion of the identification of any risks arising from the uncertainties connected to the technical provisions in the undertaking’s use of them elsewhere, for example in the calculation of the SCR or the ORSA [CP171 DAR Section 2.3 3g]
• Data checks: Inclusion of the expectation for the HoAF to comment on whether the data checks conducted are accurate and appropriate and to include reference to both the breadth and robustness of tests carried out [CP171 Guidance Section 3.4.4]
• Expert Judgement and/or simplifications/ approximations: In situations where there is material use of expert judgement and/or material uses of simplifications and approximations in the calculation of TP, expanded to include estimates of their impacts and uncertainties [CP171 Guidance Section 3.4.4 g]
• Binary events/ extreme events/ events not present in historical data: Proposed update for commentary to cover how binary events, extreme events and events that are not present in historical data have been dealt within the best estimate liabilities.  [CP171 Guidance Section 3.4.4 g]
• Presentation to Board: Central Bank proposes to relax the wording in relation to presenting the ARTPs to the Board. This leaves it up to the judgment of the HoAF how to adequately inform the Board regarding the TPs. ARTPs can be made available to the Board in summary form, and in this situation the Central Bank expects the level of detail to be proportionate to the nature, scale and complexity of the undertaking. [2018 DAR section 2.3.3 / CP171 DAR Section 2.3.4/ CP171 Guidance Section 3.4.2]

The Central Bank considers that the requirement to have an Actuarial Opinion on the Technical Provisions ("AOTP") remains appropriate, and that the provision of a template gives helpful clarity. In that context, only minor changes to the requirements in relation to AOTPs are proposed.

Proposed updates expected to be of particular interest:

• Proposed update for HoAF to assess compliance of TPs with SII requirements and EIOPA Guidelines (previously only SII requirements were referenced) [CP171 DAR Section 2.2.1]
• There is an additional section included in the Guidance covering the AOTP and includes guidance in relation to following areas; commentary used (to reflect specific issues to firm), reliances (including how HoAF gained comfort with reliances), limitations (including impact) and recommendations (including indication of materiality of recommendation with rationale).

The Central Bank also considers that it gains material benefit from receiving and reviewing the Peer Reviews in respect of ARTPs.

Proposed updates expected to be of particular interest:

• The artificial scope boundaries that previously differentiated between High / Medium High / Medium Low impact undertakings has been removed. [2018 DAR Section 2.7 / CP171 Guidance Section 4.1]
• Some of these elements have been updated and moved from DAR into Guidance. In particular, there is a proposed update for Reviewing Actuary ("RA") to perform an independent recalculation of the TPs for material non-life lines of business [CP171 Guidance Section 4.1.5]
• Consecutively subsequent peer reviews by the same RA could, with the agreement of the Board, be based on a targeted scope.
• The peer review report will need to include the rationale for inclusion or exclusion of items from scope of the peer review [ CP171 DAR Section 2.6]
• In these situations where the peer review is targeted towards specific aspects of the TPs, the Guidance clarifies eight areas that the scope would be expected to cover at a minimum. [CP171 Guidance Section 4.1.11]

The Central Bank’s expectations as to the approach taken to the Opinion on Underwriting, is largely unchanged [CP171 Guidance Section 3.1]

The Central Bank’s expectations are mainly unchanged on the approach to the Opinion on Reinsurance Arrangements

 Proposed updates expected to be of particular interest:

• Removal of expectation that the HoAF to recommend alternative possible reinsurance structures and removal for the discussion of stress tests to include a look-across, to the other possible alternative reinsurance structures identified [2016 Guidance Section 3.2.6]
• Any interconnection between the counterparty risk and value of collateral assets has been included as an item the HoAF is expected to consider whether it is material for the reinsurance programme and if so should be stress tested. [CP171 Guidance Section 3.2.9 d)]

Proposed removal of the requirement for the HoAF to produce a formal ORSA Opinion, with updates to the wording in relation to the Central Bank’s expectations for Contribution to Effective Risk Management amended to reflect the areas of the ORSA that the HoAF may consider themselves to be well placed to make a contribution.

These contributions can be captured in the annual Actuarial Function Report. [CP171 Guidance Section 3.3.1]

 Proposed updates expected to be of particular interest:

• Proposed wording updates to move from HoAF expectation “to consider” to  HoAF expectation “to contribute” to the Risk Management Function’s assessment of the appropriateness of the internal model or standard formula for the undertaking, with their perspective on the elements of the ORSA process that are within their area of expertise. In particular, the HoAF may consider the range of risks and the adequacy of stress scenarios, appropriateness of the financial projections and whether the undertaking is continuously complying with the requirements regarding the calculation of TPs and potential risks arising from the uncertainties connected to this calculation. [CP171 Guidance Section 3.3.2 & 3.3.3]
• The areas the HoAF may consider and comment on when providing their perspective on the ORSA process covers similar areas that were previously required within the ORSA opinion [CP171 Guidance Section 3.3.3]
• The HoAF is expected to document to the risk management function, their perspective on elements of the SCR calculation within their area of expertise. This includes appropriateness of the internal model or standard formula for the undertaking. The HoAF is expected to consider whether the SCR calculations are consistent with the underwriting policy, the TPs and the reinsurance program. [CP171 Guidance Section 3.3.2]

Updated to align more closely with the requirements in Article 267.2 of the Commission Delegated Regulation (EU) 2015/35 with the minimum detail required within the Reserving Policy expanded to include "overview of the process of TPs including(…) models, sources of information"  [CP171 DAR Section 2.4]

Responding to stakeholder requests for greater certainty regarding the scope of "Policyholders’ Reasonable Expectations", the Central Bank proposes to clarify intent by using wording that is more aligned with the Consumer Protection Code. [CP171 DAR section 3.1]

The Central Bank considers that the additional responsibility for the HoAF in direct life undertakings to monitor compliance with requirements relating to disclosure of information is no longer needed.

With the aim of increasing both transparency and efficiency, and as an example of the type of simplification that has been looked for, exemptions from most of the additional DAR requirements are proposed to become automated for: i) non-life firms that do not write certain classes of business; and ii) life firms with small with-profits funds; subject to notification from those undertakings that they meet the stated criteria for achieving those exemptions. [CP171 DAR Section 4.2 & 4.1]

An exemption process has also been set out within the DAR [CP171 DAR Section 4.1]