15 December 2022
Joshua Waters, Chair of the Life Standards and Consultations Sub-committee, provides an update on the IFoA Life Board activities.
We welcomed Neil Buckley, Chair of the Regulatory Board to the Life Board for an update on the future of actuarial regulation following the proposal published by Government during a year with three Prime Ministers, three Secretaries of State for BEIS and four Chancellors.
Neil also highlighted:
- the new Practising Certificates Scheme reflecting consultation; and
- the thematic review into Equity Release Mortgages was published this month.
The Board discussed the Bank of England’s role as lender of last resort and the potential for moral hazard when firms expect intervention as a backstop. An industry-wide perspective may be required to manage systemic risk across competing individual firms. Planned management actions to mitigate risks may have pro-cyclical supply and demand implications if they were enacted by many firms at the same time. Historical case studies where intervention has proved difficult include the UK’s exit from the European Exchange Rate mechanism in 1992.
Jonathan Welsh and Ben Stroud presented their working party’s paper on managing closed with-profits funds, which was published last month.
- Every with-profits fund is as unique as a fingerprint.
- Whilst the expectation was that in run-off closed books would become more risk averse with lower equity backing ratios, the opposite trend was seen in the survey.
- Sunset clauses that could benefit from a refresh may be prohibitively expensive to change.
Model risk was a theme that ran through this quarter’s meeting.
- The IFoA responded to the PRA’s recent consultation on model risk management principles.
- Professor Catherine Donnelly published her report on model risks in collective defined contribution schemes for the Actuarial Research Centre.
The Bank of England recently held a two-day conference on Climate and Capital which will be used to help set the next steps for their ClimateHub team during 2023. Around 100 people were invited to attend an in-person split between central banks, academia, think tanks, insurers, and banks. There was IFoA representation from past president Louise Pryor and other volunteers including members of the Life Board.