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Life Practice Board: In the twilight zone of Brexit

In the fourth of our series on the work of the IFoA’s Practice Area Boards, Colin Dutkiewicz, Chair of the IFoA’s Life Practice Area Board, rounds up a busy year for the Board. 

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Colin DutkiewiczThe Life Board has been operating within the twilight zone of Brexit insurance regulations.

Solvency II is still the main focus, as the IFoA continues to assist with the public debate about certain aspects – from the Prudential Regulation Authority (PRA)’s implementation of certain aspects, to the methodology used by actuaries to do some of the calculations.

Following the work with the Treasury Select Committee in the 2017–2018 sessional year, Life Board have continued to have intensive interaction with the PRA and other regulators in 2018–2019, and have provided technical input to a large number of consultations.

This sessional year has underlined the Board’s growing importance in the public interest aspects of life office regulation, and technical expertise has been provided by members of Life Board and of various specialist working parties.

International Financial Reporting Standard 17

IFRS17 is a major game changer for actuaries practising in the life insurance space, and Life Board have hosted a workshop on this topic in addition to setting up three dedicated working parties IFRS17 Future of Discounting, IFRS17 Transversal and IFRS17 Contractual Service Margin (CSM).

These working parties are planning to present next year at a range of venues, including Life Conference 2019 and Sessional Meetings.

We have already had modest progress in this area, but this is just setting the scene for a tumultuous 2020! In the meantime, you can follow their progress on their working party pages.

These working parties have also embraced new methods of sharing research, with the IFRS17 CSM and IFRS17 Future of Discounting working parties both publishing a range of LinkedIn articles which have been timely and well received.

Cross-practice working

Pensions’ consolidators is the other new emerging field, which is of keen interest to Life Board.

This is very much a cross-practice area with the potential for regulatory arbitrage between pension funds, life insurers and possibly pensions’ consolidators. More work is required in this area and Life Board is keen to work closely with the Pensions Practice Area Board on this topic.

We have also undertaken funded consumer research in three territories in Asia, to support the research report being produced by the Life Asia Sub-committee.  We anticipate the outputs of this research will be of interest to members in other practice areas when it is published in the next few months. 

We also supported a piece of work on Equity Release Mortgages, which moved the debate on this topic forward. This research demonstrates a very important aspect of the functioning of the IFoA in public interest debates.

The IFoA does not have an endorsed approach to the valuation of ERMs for UK life insurers. We are, however, acutely aware of regulator criticism of methodologies being used. It is therefore in the public interest to find new methodologies, and debate the setting of the assumptions for these.

This is somewhat difficult in the context of multiple different uses of the valuations, and a clash of ideologies between market consistent and real-world valuation techniques. 

Working parties

Over 2018-2019 six working parties have completed their operations and closed down: Consumer Risk Metrics, TMTP, Procyclicality, Risk Appetite, Longevity Catalysts and Recovery and Resolution Plans.

Closing down working parties is not a sign in any way of their lack of value or a reduction in activity. Quite the contrary, it reflects a new impetus to get working parties up and running and delivering something concrete and useful in a shorter timeframe than before.

Thereafter, new working parties would pick up the next generation of work spawned by the previous working party, rather than having ‘zombie’ working parties for the sake of it!

And indeed, three have recently launched: The Impact of Regulation on Risk Management, Artificial Intelligence and Automation and The Role of Actuaries in New Product Delivery.

Highlights from 2018–2019 have included 12 working parties presenting their research at Life Conference 2018, IFoA workshops, regional community events, two sessional meetings by the Extreme Events Working Party and the Equity Release Mortgages Working Party, and one presentation at the International Congress of Actuaries by the Extreme Events Working Party.

Ten working parties have also published research in a range of outputs including papers in the British Actuarial Journal (BAJ), or on the IFoA website, articles in The Actuary or other trade press or articles published in newsletters or in social media.

Areas of work for the next year

The Board will continue to build on interactions with the PRA, Financial Conduct Authority (FCA) and other industry bodies to highlight issues that are being overlooked, or where the actuarial view has particular relevance.

The relationship with the FCA is modest for now, but there are a number of areas that need to be developed, such as the future of with-profits funds and the interests of legacy policyholders.

The relationship with the PRA will continue to develop. This is sometimes supportive and collaborative to help actuaries perform their roles and not produce unintended consequences, but also helps to keep the PRA accountable.

The next stage of developments with the Asia sub-committee is some new, focused areas of work on topics that have relevance in the region and a cross-over to UK – top of the list being IFRS17!

If you want to get involved in the work of the Life Board, watch out for opportunities in the IFoA’s volunteer vacancies.

Find out more about the Life Practice Board.

Other blogs in this series