The Reserve Bank of New Zealand (RBNZ) is recommending a number of areas for improvement to make the Appointed Actuary role more effective, arising out of its just completed thematic review of Appointed Actuaries under the Insurance (Prudential Supervision) Act (IPSA).
These include potential changes to ensure Appointed Actuaries have greater independence and more access both to their Boards and to the RBNZ.
The Appointed Actuary’s primary duties under IPSA are to identify the key material risks that may impact the financial condition and solvency of an insurer and report these in a Financial Condition Report for the insurer. Appointed Actuaries are also required to provide advice to an insurer’s directors and senior management to assist with sound decision making, for the benefit of both the insurer and policyholders.
The review concluded that although the Appointed Actuary role was largely effective at serving its function, there is a need for clarity and guidance around RBNZ’s expectations of the role, which is far wider than perceived by insurers in practice.
Key areas for improvement recommended in the review include:
- processes for appointments, absences, and reviews to continue with or replace the Appointed Actuary
- preparedness for the Appointed Actuary’s involvement in a crisis
- identifying and managing conflicts of interest
- clarity of delegations
- processes for following up recommendations in the Financial Condition Reports
- engagement between insurers’ boards and Appointed Actuaries
- engagement between the Reserve Bank and Appointed Actuaries, and
- guidance around the Reserve Bank’s expectations of the Appointed Actuary role, including explicit expectations regarding their independence and impartiality.
The review also makes a number of recommendations for the RBNZ to consider, including:
- consulting on a purpose statement to clarify RBNZ’s expectations and objectives of the Appointed Actuary role and an actuarial advice framework, and
- expanding the scope of the Appointed Actuary’s role to include a requirement to comment on conduct risk and premium adequacy and to advise on policyholder interests in a wider range of circumstances than currently prescribed under IPSA.
RBNZ has commented that the IPSA review will provide an opportunity to address any recommendations that will require legislative change, and others will be addressed as part of a review of insurer solvency standards or through supervision and guidance.
If you would like more information on this topic or its implications for your business, please get in touch with one of our contacts.
Appointed Actuary Thematic Review Report
Reserve Bank’s Expectations of Insurers and Appointed Actuaries policy note