The Central Bank of Ireland (CBI) has published its findings following a thematic review of Actuarial Opinions on Technical Provisions (AOTPs) and Actuarial Reports on Technical Provisions (ARTPs) in respect of year-end 2016. This feedback is very timely as many Heads of Actuarial Functions (HoAFs) enter the year-end 2017 process and prepare to present these reports for the second time since the Solvency II regime came into force.

The quick read: Highlights

The CBI clarified that HoAFs can add comments to the AOTPs template on:

- Reliance on others in the calculation of Technical Provisions (TPs)
- Material concerns, limitations and recommended improvements

Our industry experience indicates that many HoAFs did not list recommendations in the AOTPs for last year-end, as the wording from the CBI implied that recommendations could only be included if the AOTPs was qualified first.

The CBI also called for improvements in the documentation of methods used to assess the completeness, accuracy and appropriateness of data used. Improvements in reporting methodologies, assumptions and experience analysis were more areas of focus, and the CBI also called for more detail to be provided around simplifications, expert judgements and materiality.

Background

By way of a recap--the CBI published the 'Domestic Actuarial Regime and Related Governance Requirements under Solvency II' in 2015 and these requirements became effective on 1 January 2016. Companies must appoint HoAFs and each HoAF must, amongst other things, deliver the AOTPs to the CBI on an annual basis and a more detailed ARTP to the board on an annual basis (which is also made available to the CBI on request). The format of the AOTPs is provided as an appendix to the published requirements.

During 2017 the CBI reviewed a sample of ARTPs and AOTPs and has since issued specific recommendations to a number of companies and HoAFs. The CBI has also issued some general findings which have been published on the CBI's website here.

Points to remember when drafting ARTPs or AOTPs

We have summarised below some of the key points that HoAFs should be mindful of when drafting ARTPs and AOTPs:

- If there are areas referred to in the ARTPs where the HoAF has materially relied on the work, opinion or assurances of others, they should also be included in the AOTPs. The ARTPs and AOTPs documents should be consistent on any material points.

- Material simplifications (simplified modelling techniques) and expert judgements should be described in the ARTPs along with an estimate of the impact of the simplifications or expert judgements and their uncertainties.

- The CBI expects HoAFs to define materiality thresholds if the HoAF makes judgements around simplifications, assumptions and methodologies based on materiality. Board discussion on this point would be expected by the CBI.

- The HoAF is not expected to duplicate the work of others regarding data checks but appropriate enquiries should be made so an informed opinion on the data can be provided to the board in the ARTPs. Good practice is for HoAFs to explain to boards the work they undertook themselves, for example spot checks.

- In relation to data, the extent of reliance on the work of others and the work completed themselves should be explained. The HoAF should comment on whether the checks conducted are accurate and appropriate.

- The CBI expects the AOTPs to include material recommendations for improvements, which in most cases have been documented in the ARTPs but not in the AOTPs to date.

- It is good practice is to show a link between experience analysis and the assumptions set. Deviations in experience should ideally be split between trend components and volatility components.

- Further detail is desired in the ARTPs in relation to methodology and assumption setting. A few particular areas noted were risk margin calculations: 'events not in data' (ENID), segmentation and communicating uncertainties.

- The CBI noted that the section about the firm's background, strategy, experience and operating environment in most ARTPs wasn't linked to how the technical provisions might be impacted by these items. Good practice is to discuss how issues inside and outside the company can impact the TPs rather than simply describing the company history or operating environment.

- Where HoAFs wish to add comments to the AOTPs, in order to add context to their opinions, the AOTPs template may be amended to incorporate them, without the need for qualifying the opinion. This might be expected for items such as reporting reliances on others, material concerns, limitations and recommended improvements.