Why has the CMI changed?

We have recently reviewed the structure and processes of the CMI, to ensure that it remains fit for purpose in the 21st century. The review has sought to address vulnerabilities in the CMI’s structure and funding and to strengthen its processes and governance.

The key vulnerability in the previous arrangements was that the majority of the CMI’s funding was on a voluntary basis and, if a life office or consultancy chose not to contribute, it could still use most of the CMI reports, software and tables as they were freely available.

The review concluded that the voluntary funding regime was not sustainable in the longer term and in future the full outputs of the CMI should only be available to those organisations and individuals who register as CMI users, and who contribute the appropriate amount for their organisation.

These changes took effect from 1 March 2013.

More detail on the background to the changes in the funding arrangements can be found below, but the other key changes were:

• Structure and operations
  Most aspects of the CMI’s operations did not change as at 1 March 2013 however these operations are now undertaken within a new UK private company limited by shares and wholly owned by the Institute and Faculty of Actuaries. This does not change the structure or operations of the CMI - rather, it formalises the CMI as a corporate entity, which will continue to operate as a not for profit research organisation.
• Access to CMI outputs
  Previously, almost all of the CMI’s outputs - reports, tables and models - have been freely available; formerly via 'Blue Books' and more recently on the open website. These existing publications will remain on the open website. Items of news and brief summaries of the CMI’s work - designed for the public - will also continue to be added to the website and be accessible to all. However the full detail of all future CMI publications will only be available to those organisations and individuals who register as CMI users and pay the appropriate fee.
• Funding
  Since inception, the CMI has been funded by voluntary contributions from the life offices who also submit data for our investigations. More recently, contributions have also been received, again voluntarily, from most reinsurers and the major pensions consultancies. This funding is necessary to support our organisation and administration.

The review concluded that the voluntary funding regime is not sustainable in the longer term. In seeking a new approach, we adopted the principle that in order to ensure sustainability while retaining CMI’s not-for-profit basis, funding arrangements should provide a fair, cost-effective and stable basis for the necessary funds to be raised.

The changes do not seek to increase the overall income of the CMI. The costs are stable, and are not expected to increase significantly in future years. Rather, we are making changes so as to provide a fairer split of our costs among our various users.

In summary, the changes are:

• Re-balancing the funding between life offices, reinsurers, and consultancies
• Introducing more appropriate formulae for determining the contributions of life offices and reinsurers
• Requiring contributions from all users of CMI outputs for commercial purposes (although purely research purposes will not require a contribution)

We consulted our present contributors on the proposed changes during 2012 and received a high level of support. Some minor changes were incorporated as a result of feedback.

The previous funding arrangements

There were effectively three constituencies of CMI contributors - life offices, reinsurers and pensions consultancies. All contributions have been given on a voluntary basis, and the CMI has been and is most grateful to all the organisations who have given their financial support.

For many years, the annual costs of the CMI were allocated amongst life offices by reference to the premium income of each office, subject to a minimum contribution. The same formula applied to reinsurers but - due to the low relative level of premium income in comparison with savings business of direct insurers - most contributed at the minimum level.

More recently the contributions requested from life offices and reinsurers have been frozen at 2009-10 levels (i.e. based on 2008 premium income). This was due initially to uncertainty regarding changes in premium income following the ‘credit crunch’, and then our reluctance to make any further changes in advance of this wider review.

Since the SAPS investigation started in 2006, its costs have been met by the pensions consultancies who support it, with charges allocated on a simple size scale, which ranged from £4,000 for a small firm to £17,000 for a large firm in 2012/13. These were expressed net of VAT, whereas those of life offices and reinsurers have been expressed gross of VAT, where applicable, in recent years.

The new funding arrangements

• Consultancies
  The review concluded that the current simple structure for contributions from consultancies was reasonable but that a modest increase was needed to make a fair contribution towards the more general work of the CMI, such as the work on mortality projections. In future, our target is that consultancies bear approximately one-quarter of the CMI’s costs, as SAPS is one out of four of our investigations.
  The scale has also been formalised to reflect the number of UK qualified actuaries in a firm whilst for very small consultancies (including individuals, operating as ‘one-man consultancies’) a ‘per actuary’ fee has been introduced.
• Reinsurers
  Given the increased importance of reinsurance in the bearing of mortality, morbidity and longevity risks, the review concluded that reinsurers should contribute a larger share of the CMI’s costs. Since a large proportion of reinsurance emanating from the UK is written offshore, we have not sought to apply a similar formula as for life offices (below), based on UK regulatory returns. So to achieve what we believe is a fair overall contribution from the reinsurance constituency, a new flat-level reinsurer fee has been introduced.
• Life offices
  Increasing the proportion of the CMI’s costs borne by consultancies and reinsurers, combined with an increased number of organisations who contribute financially, mean that the future share of CMI’s costs to be borne by life offices will be reduced from present levels in aggregate. Each life office’s fee will be based on net capital at risk on death and net reserves for annuities in payment (both for UK business only); subject to a minimum and maximum amount. We believe that this better aligns the costs of the CMI with the value that organisations derive from our outputs but insurers are requested to consider the “spirit” of the formula, and to contact us if they consider that it does not appropriately reflect the nature of their business.
• Other organisations
  In recent years, three types of organisation have provided financial support to the CMI - life offices, reinsurers and (pensions) consultancies. Some organisations that do not fall within any of these constituencies will now be required to pay a fee to use new CMI outputs.

  We anticipate that additional types of organisation will now be required to pay a fee to use new CMI outputs.

  We have set out below our proposed approach to setting fees for some different types of use.

  • Academics
    Will be granted free access provided their use of the CMI’s outputs is solely for non-commercial purposes. This will also apply to any individuals who are members of CMI committees that do not work for an organisation that pays a fee and to overseas actuarial associations.
  • Regulators and government bodies
    Will also be allowed free access, as we believe this will encourage more widespread use of the CMI’s outputs.
  • Other UK commercial firms
    The standard fee for an organisation (other than a life insurer, a reinsurer or an actuarial consultancy, including accountancy firms employing actuaries) will be the same level as for a reinsurer. If a firm can clearly demonstrate that its planned use of CMI outputs is modest, then a lower fee can be considered.
  • Overseas companies with a UK entity
    The fee will be based on the UK entity.
  • Overseas companies with no UK entity
    The fee will normally be calculated as if the company were a UK entity; e.g. for an overseas life insurer, this would be based on net capital at risk on death and net reserves for annuities in payment.

  Organisations that do not fall within any of the categories noted above should contact us at info@cmilimited.co.uk.