Systemic impact on insurers and perception of insurance
Lead: Daryl Boxall
Detail: What long term systemic impacts on life insurers are possible from the biometric and market risk discontinuity of 2020? Are there issues around availability of insurance, consumer depend for insurance that need to be systematically viewed.
(Re)insurance companies tend to have wide-ranging stress and scenario testing regimes which consider risks affecting the undertaking and/or group. An area of potential weakness is the consideration of systemic risks*, perhaps because it is difficult for individual (re)insurers to determine appropriate assumptions for the measures the government and other bodies would take in such an event.
*In this context systemic risk is the risk of a major failure of a financial system leading to the collapse or failure of an industry or an entire economy
Life office macro financial and capital management
Detail: See sub-workstream descriptions below:-
Life office macro financial and capital management A (PRA Forberance)
Lead: Paul Fulcher
Detail: Where the PRA has discretion under Solvency II how is the PRA exercising the discretion? Are the measures taken so far useful?
- Where could further discretion be exercised to alleviate the impact of COVID-19 on insurers and to ensure that policyholders are not disadvantaged?
- Are there any potential opportunities that the PRA could take advantage of from the Solvency II review?
- What else could the PRA do in addition post the end of the Brexit transition period?
Life office macro financial and capital management B (Procylicality)
Lead: Paul Fulcher, Tim Stedman
Detail: (Re)insurers have been acutely impacted by COVID-19, experiencing extreme stresses to both the asset and liability side of their balance sheets. While the industry is generally perceived to be highly robust, the interaction between complex and competing priorities (e.g. maintaining risk-based capital, duties to policyholders and shareholders, rating agencies, availability and access of capital) can incentivise pro-cyclical behaviour. As institutions with long-term liabilities, this pro-cyclical behaviour can damage
- Are there any common areas of (re)insurance firms’ regulatory and economic balance sheets that prompt or encourage pro-cyclical behaviour?
- Are there any instruments / practices / changes to regulations that could be recommended to the industry to halt pro-cyclical behaviours.
Solvency II includes a number of elements that were intended to reduce procyclicality and excessive volatility, and to enable insurers to provide long-term guarantees, often referred to as the long-term guarantees measures.
Life office macro financial and capital management C (Management Actions)
Lead: Rosalind Rossouw
Detail: COVID-19 has stressed insurance companies in unexpected ways. There is a need for insurers to review the effectiveness of their current management actions in light of COVID-19 and identify any new management actions that COVID-19, and other emergent risks, require.
- How effective in dealing with COVID-19 were our existing management actions?
- Do the management actions in the ORSA need revising in light of COVID-19?
- Do we have the correct processes and management actions in place to identify and manage emergent risks such as COVID-19?
Outputs: Using hindsight to gain foresight
The first wave of Covid-19 and the associated severe stock market impact potentially put life insurers’ solvency under significant strain. We have looked back at what happened in the UK and internationally, with a view to lessons that may be learned from such events for the future, especially in the context of a potential second wave, a further stock market downturn, or any other financial crisis. This blog considers the capital and management actions taken by life insurers, both prior to and during the crisis, as well as those planned for the future.
This paper has been authored by a group of Life actuaries led by Ivy Ye. The group has a focus on Capital Management and is working as part of the IFoA Covid-19 Action Taskforce. Here we are looking at how the solvency ratios had performed thus far since YE19.
This article is co-authored by IFoA Fellow Konrad Farrugia and a group of Life actuaries led by IFoA Fellow Rosalind Rossouw. All contributors are working as part of the IFoA COVID-19 Action Taskforce and have a focus on Capital Management for life insurers.
In this blog we focus on lessons that might be learned for the future of Solvency II, which is particularly relevant given the current reviews in both the EU5 and, post Brexit, the UK6 .
Life office macro financial and capital management D (Dividends)
Code: Life1D [being merged with Life1C]
Detail: On 2 April 2020 EIOPA issued a statement on dividends distribution and variable remuneration policies in the context of COVID-19. In it, EIOPA urged that, at the current juncture, (re)insurers temporarily suspend all discretionary dividend distributions and share buy backs aimed at remunerating shareholders. This suspension should be reviewed as the financial and economic impact of the COVID-19 starts to become clearer.
EIOPA also urged that this prudent approach is applied by all (re)insurance groups at the consolidated level and also regarding significant intra-group dividend distributions or similar transactions, whenever these may materially influence the solvency or liquidity position of the group or of one of the undertakings involved.
- What are the potential consequences of withholding dividends to: a) (re)insurers?; b) wider society?
- Do these potential consequences change if dividends are withheld for more than one year?
- What steps should be taken if a (re)insurance group needs a dividend distribution from an undertaking, but providing that dividend would materially influence the solvency or liquidity position of the undertaking?
Longer term pandemic modelling for life insurers
Lead: Natalia Mirin
Assumption setting in current uncertainty (H2'20, FY'20)
Lead: Natalia Mirin
Detail: The current pandemic situation has increased the level of uncertainty in the assumptions. Many insurers have assessed immediate impact of COVID-19 on their operations. The 2020 financial year end is fast approaching and a new set of assumptions will need to be set for valuation of life insurance liabilities, testing their resilience to changes and capital assessment. This workstream aims to research and set out considerations the following areas:
- Which YE20 assumptions will be affected by the COVID-19 pandemic?
- What is the impact on mortality, morbidity, other demographic assumptions?
- Do we need to change any economic assumptions?
- What impact of the liabilities, stress and scenario testing, capital assessment would changes in assumptions have?
- How different impact of the COVID-19 pandemic should be translated into changes in assumptions?
- How the increased market volatility, change in consumer behaviour and increased uncertainty impact the assumption setting process?
A group of Life Actuaries, working as part of the IFoA Covid-19 Action Taskforce, are releasing a series of blogs considering various ways that the pandemic has affected Life insurers.
In the first in this series, they consider potential differences in the extent of Covid-19 that may or may not have an impact on the assumption-setting processes in a particular company and its businesses in different countries.
In the second blog in this series, they explain how Covid-19 has created uncertainty and what it is important to think about when setting valuation assumptions for bonus rates.
The Covid-19 pandemic has resulted in significant worldwide business interruption and operational changes. As the virus directly affects risks associated with the life and health of the population, insurers are currently considering whether any changes to the assumptions used for valuation of these risks will be required at this year end.
This blog discusses Covid-19’s impact on considerations for setting assumptions for unit-linked business charges.
This blog is discussing considerations when setting margins over and above best estimates assumptions in financial reporting.
In this article, authors* Alexia Jami and Roy Perlson look at potential additional data considerations due the impact of COVID-19.
This blog discusses the potential impact of Covid-19 on expenses and expense inflation valuation assumptions for non-linked life products.
In this article, the authors consider potential pandemic impacts on economic assumptions and aim to support actuaries in deciding whether to adjust these assumptions.
Lead: Karen Brolly
Detail: The core of the issue is in a broad consideration of operational risk scenarios and appropriate accountability of these. Common sets of operational risk scenarios used by insurers may or may not cover risks that have occurred as a result of COVID-19 pandemic and impacts these risks have brought.
Operational resilience need to be reconsidered given the current experience and potential new additions to operational risks under consideration, their outcomes and mitigating actions identified.
Have insurers considered a broad enough set of operational failure scenarios? Do these really lead to failure or could be mitigated by appropriate actions being put in place? What will exactly fail should scenarios under consideration occur and if there is any possibility to reverse such an impact?
Lead: Tom Kenny
Lead: Tom Kenny
Part VII transfer continuations
Lead: Phil Simpson
Detail: COVID-19 is complicating Part VII transfers and the PRA/FCA are asking for considerable information on its potential consequences.
COVID-19 hits transfers in particular through changes in market risk, operational risk and insurance risk. The ability of insurers to execute the transfer may be materially affected by areas including:
- higher death, and possibly morbidity, claims
- significant decreases in value and quality of investments; and
- suffering operational disruption either directly or through third parties providing services
What consequences of COVID-19 should the Independent Expert consider? and what additional activities do firms undertaking (or planning) a Part VII transfer need to undertake as a consequence of COVID-19?
Sufficiency of extreme interconnected scenarios
Lead: Daryl Boxall
Detail: Modern financial markets are highly globalised and interconnected. At times of stress, this interconnectedness can act to facilitate the spread of an asset class or region specific shock into a generalised global crisis.
As complex multi-asset investors (re)insurers are particularly exposed (in the short term) when equilibrium market conditions break down. Typical examples might be:
- Usually uncorrelated assets behaving in highly correlated ways at times of crisis
- Heavy reliance on market capacity and functionality to trade assets
- Sufficient liquidity to meet collateral calls on derivative positions
How does the interdependency of financial markets influence the progression of a financial crisis? What are the key circuit breakers / accelerators in the financial infrastructure?
What are the key pain points for (re)insurers in a generalised market crisis, and what actions could be take to mitigate these?
External risks - what if the impossible becomes possible?
Detail: Over the last decade we have seen a number of events that would largely be assigned very low probabilities prior to their occurrence. Examples of such events are: very low interest rate environment that lasts for a long time; even further reduction to variety of valuation discount rates; pandemics and their breadth; negative commodity prices; etc.
- What is the process of setting external risks for consideration in insurance companies’ operations?
- How can this be improved to ensure the recent experiences are accounted for and “risk thinking” is broadened for the future?
Interaction between operational and financial risks in a systemic crisis
Detail: (Re)insurers are used to modelling the interaction between operational and financial risks in a relatively stable environment. There is little empirical evidence of how these risks interact in a systemic crisis.
- How are operational and financial risks interacting in the current global pandemic?
- Is this the same or different from how they generally interact n a stable environment?
- Is it how they are likely to interact in any systemic crisis?
Learnings from the Covid-19 Crisis
Detail: The issue is in the ability of insurers to consider a broad number of external events that may affect their businesses and how to ensure that “impossible” is also given appropriate consideration.
The COVID-19 pandemic has created a huge number of unfortunate fatalities across the globe, severely impacted the daily lives of billions of people, and created economic conditions across multiple industries that were previously unthinkable.
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This session will focus on the transformation roadmap of the healthcare sector in KSA and the role of actuarial capabilities in enhancing its evolution to the desired end stage as per the objectives of the Vision 2030. The discussion will focus how the system has evolved so far and shed light on the expected future changes. Through examining the transformation, we will highlight how the sector is and can use actuarial expertise to not only assist with this transformation but also use basic actuarial principles to identify the key risks and their respective mitigation strategies.
The purpose of this research paper is to explore enterprise risk management lessons which can be learnt from the Covid-19 pandemic in preparation for potential future pandemics as well as other “gray rhino” or “black swan” events. This paper is not intended to be an all-encompassing solution to the issues presented by Covid-19; rather, the content has been provided to help drive discussions regarding how risk management processes may need to evolve in line with the dynamic nature of the underlying risks that they sometimes need to capture.
This webinar will discuss good exam technique, including various approaches candidates can take in managing their time completing their exams in the online format.
This session is for new candidates and existing candidates where we will be discussing the practical steps you need to take leading up your exam and on the day. We will be discussing how to testing the online exam platform, downloading and uploading your paper and key information from the Exam Handbook.
The exam webinar is for candidates, new to IFoA exams and returning candidates, sitting in the September 2022 exam session.
The role of Non-Executive Directors has become increasingly challenging and critical over the past few years.
Big picture thinking, Governance knowledge, Independent mindset, Ambassador potential and Energy and commitment: these are the essential skills sought in a successful NED, according to the Chartered Governance Institute (UK & Ireland).
In parallel, Environmental, Social and Governance (ESG) criteria are increasingly key and used by investors to measure the sustainability and ethical impact of investing in an organisation.
This webinar will cover:
• Some background on the risks of misselling in an ESG context, including the DWS case
• Achieving positive impact is a strong antidote to the risks of greenwashing or ESG misselling, however this risks having a tension with fiduciary responsibilities
• This tension can be resolved with a concept called Universal Ownership
• Under Universal ownership, investors have an appetite to make a loss in order to achieve positive impact, and yet still have no compromise on their fiduciary responsibilities
In the UK, the idea of collective defined contribution (CDC) pension schemes is gaining more attention with the launch of the Royal Mail CDC scheme, the first of its kind in the UK. Our recent research on CDC plans investigates the sources of the putative benefits of CDC schemes: the smoothing of pensions for members. Using an attribution analysis to burrow into the scheme design, the reason for the smoothing of members' pensions is explained and understood.
The IFoA's Infrastructure Working Party, led by Chris Lewin, will present its new introductory guide to infrastructure investment, which will be published on the IFoA web-site prior to the webinar. Those readers whose institutions have already taken the plunge into infrastructure will know that it is a highly complex and diverse field of activity. This guide does not explore all the matters which investors take into account, but it does discuss many of the more important points, including the risks and past returns, benchmarking, and ESG and SDG considerations. Attendees will be invi
Social care reform has long been on the to-do list for successive governments over the last two decades. In February, the government’s proposed reforms to adult social care [including cap on care costs] was published. Against this backdrop of funding promise and rising National Insurance taxation, in this session we will debate the resilience of these new proposals, the impact of future demand for care services and what role for the insurance industry and the important role it has played in long-term care funding in other countries where public-private partnership works.
Health contributes to happiness at the personal, family, community and societal level. Health, importantly underpins all our economic security. This talk will explore the drivers of our health, the measurement of health and the steps we can take to improve health – most of which lie outside the NHS.
We are delighted to announce the return of GIRO as an in-person conference, giving you an opportunity to connect with actuaries in your practice area. Join leading experts to discuss key issues, emerging ideas, and new research across the General Insurance sector.
Life Conference returns as an in-person conference in 2022, giving you an opportunity to connect with your peers and fellow actuaries in your sector, in person. You will also hear leading experts discuss key issues, emerging ideas, and new research across the Life insurance sector.
Mortality and morbidity risk varies by variables such as age, sex and smoking. In traditional actuarial experience analysis, these variables, and certain combinations thereof can be explored. However, with the wealth of data now available it is becoming increasingly challenging to identify the key drivers of experience and account for the interaction between different variables. A univariate approach often compares apples and pears, for example males are more likely to smoke and have larger policies than females. Likewise, variable interactions are missed unless specifically included.