THE ROLE OF THE ACTUARY IN RISK MANAGEMENT Industry Survey & Panel Discussion

Transcription

1 THE ROLE OF THE ACTUARY IN RISK MANAGEMENT Industry Survey & Panel Discussion Jaco van der Merwe & Saffiya Omar Deloitte & Touche Author Contact Details Jaco van der Merwe co.za Saffiya Omar

2 An evolutionary process Background: We see across the industry Evolution of our role Trend: Actuaries => ERM Actuarial CROs seem preferred But what does the industry think? SAM Pillar II Requirements The Financial Sector Regulation Act signed into law on 21 August 2017 The FSB has released updated GOI standards for insurers SAM Pillar II Requirements Requirement to establish a risk management function has led to actuaries taking on risk management responsibilities Requirement to establish a HAC Short Term Insurance Life Insurance Role of the Actuary Statutory Actuary King III/IV/ Basel/SAM/Solvency II Head of Actuarial Control 2

3 Objectives of survey To determine the extent to which actuaries are employed in risk management functions. To assess the readiness of actuaries to fulfil risk management roles. To assess the role and effectiveness of the Head of Actuarial Control (HAC) function. To explore the extent and potential impact of Line of Defence overlap. To investigate the practical challenges faced by actuaries in implementing SAM Pillar II and III. To assess the maturity and effectiveness of the risk management system and controls. 3

4 Setting the scene Our survey was conducted over 31 separate insurance licenses Distribution of participants by licence type Companies by GWP Distribution of participants by nature of insurer 36 % 64 % 50% 73% 27% 23% Non-life Life Group Big Small Big company = Annual GWP > R3b Direct Writer 23% 5% Reinsurer Cell Captive insurer 4

5 Employment Actuaries performing risk management functions Small Big 3% 13% Outsourcing (where no internal actuaries) Small Big 33% 100% Actuaries in risk management teams Life Non-Life Group 9% 20% 53% 12% of actuaries perform risk management roles 60% of companies outsource actuaries to perform actuarial & risk management roles 19% of companies do not employ actuaries to perform actuarial & risk management functions 5

6 Are there sufficient actuarial resources? Are Actuarial resources sufficient? Reasons for not employing actuaries Over resourced 0% 14% 41% 32% 23% Sig shortage 0% Sufficient 35% Some Shortage 65% Companies felt that actuaries are better suited to assess and quantify risks relative to other professionals, however we may lack the strategic & commercial thinking that is required. 6 86% Insufficient training, skills? 59% Hard to find? Yes Too expensive? No 68% Value-add? 77%

7 Key roles in risk management Tracking key risk indicators Dev Dev & Imp Maintenance Not Involved 5% 19% 14% 62% Risk Policies Dev 24% Dev & Imp 43% Maintenance 14% Not Involved 19% Actuaries are well trained to understand, assess and quantify the uncertainties associated with insurance risk, and should be able to measure and communicate the risk exposures, including the up- and down-side tails, better than other professionals. RESPONDANT COMMENTARY Drafting report 0% Not involved 5% Ownership Key elements 7 ORSA 38% 57% Risk Appetite Over 90% of companies use actuaries as key resources in their ORSA s Dev 38% Actuaries are key resources in setting Dev & Imp 48% the risk appetite and tracking key risk Maintenance 10% indicators Not Involved 5%

8 Key roles in risk management ERM Framework Dev 10% Dev & Imp 43% Maintenance 10% Not Involved 38% Risk Strategy Dev 24% Dev & Imp 43% Maintenance 10% Not Involved 24% Risk taxonomy Dev 10% Dev & Imp 33% Maintenance 14% Not Involved 43% Risk Register Dev 10% Dev & Imp 19% Maintenance 33% Not Involved 38% Translating complex metrics into practical application. Modelling extreme events and dependencies. RESPONDANT COMMENTARY 59% of companies rely on actuaries to communicate risk management content to management/board committees 8

9 Key roles in risk management Areas in which Actuaries are involved in making key decisions Actuaries performing risk management roles also perform other functions within the business Operational risk quantification 48% Systems Implementation 33% Providing input regarding the underwriting strategy 76% Product Design 42% Setting investment strategy/ ALM 86% Pricing 57% Appropriateness of reinsurance 90% Reserving 71% Capital management 95% Capital Modelling 75% 9

10 Actuaries as CROs, better or worse? Development of risk policies Oversight of ORSA process Distribution of CRO s who are actuaries Worse-off 9% Worse-off 0% 20% No difference 55% No difference 27% Moderate 32% Moderate 36% Significant 5% Significant 37% Development of risk strategy Worse-off 5% Development of Risk Appetite Worse-off 0% Big Small 80% No difference 32% No difference 18% 24% of CRO s are actuaries Moderate 36% Moderate 32% On average, CRO s who are also Significant 27% Significant 50% actuaries have 5.7 years of experience 10

11 Actuaries as CROs, better or worse? Development of ERM Framework Worse-off No difference Moderate Significant 11 9% 18% 14% Quantification of operational risk Worse-off No difference Moderate Significant 0% 27% 59% 41% 32% Tracking key risk indicators Worse-off No difference Moderate Significant 9% 9% 5% 32% 27% 36% Maintenance of risk register Worse-off No difference Moderate Significant 18% 64% The CRO role has been a natural progression for many actuaries within the risk management area Many areas of responsibility within the CRO role require certain actuarial skills

12 HAC HAC appointed Small 38% Big 71% Overall 59% Outsource HAC Small 33% Big 50% Overall 46% 12 HAC appointed Group Non-life Life Target level of HAC Meet regulatory req Exceed regulatory req 40% 45% 46% 100 % 54% 59% of companies have appointed a HAC function 46% of companies outsource their HAC function Many of the companies that have not appointed a HAC are non-life insurers

13 Overlap of control functions % of companies with overlap between control functions 100% Control Functions Actuarial Risk Management Compliance Internal Audit 80% 60% Risk Management 91% Compliance 14% 55% Internal Audit 0% 14% 18% External Audit 23% 14% 14% 36% 40% 20% 0% Actuarial Int Audit Compliance Risk Mngmnt 13

14 Education 20% 30% In my view actuaries have historically always fulfilled the risk management role within long-term insurers. Much of the guidance did have a risk management flavour and simply needs to be updated into the new language taking modern risk management thinking into account and allowing for the fact that actuaries are expected to work in multi-disciplinary teams. RESPONDANT COMMENTARY 80% Adequacy of CERA? Yes Guidance notes? No 70% The focus of the qualification is fairly general and is focused very much on the underlying principles, which can be applied to any business. I definitely found the course useful for any work I do involving risk management. Recent CERA qualifier 14

15 In summary Actuarial skills are critical within risk management Key areas are ORSA, risk appetite and key risk indicators There is some shortage of actuarial resources within the industry performing these roles This has led to difficulties in achieving segregation between the control functions within companies Certain areas of the CRO role are better suited to a CRO who is also an actuary 15 Although the CERA qualification is adequate, the industry suggests additional guidance notes could be useful

16 Panel members Jaco van der Merwe Andy Rayner Edward Paul Jan Lubbe David Jewell Wayne Savage Director Actuary CRO Actuary CRO Actuary CRO Non-Actuary CRO Actuary Partner CA (SA) 16