1

European Actuarial

Standards

Cypriot Actuaries Seminar

Nicosia – 9 March 2016

David Martin, Chairperson

of AAE Standards, Freedoms and

Professionalism Committee

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Professionalism in Actuarial Work

IAA, AAE and the

Cyprus Association

Code of Conduct

– Integrity

– Competence and Care

– Compliance

– Impartiality

– Effective

Communication

Important Issues

– Conflicts of Interest

– Whistleblowing

– Contingency Fees

– Peer review

– CPD

– Discipline

– Which standards to

use?

Governance of

International Work

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Membership criteria

– Full Member Association (33)

• Code of Conduct / disciplinary process

• Minimum education standards (Core Syllabus)

• Due process if standards are promulgated

• Ability to sign the Mutual Recognition Agreement*

* AAE only

Membership of the IAA & AAE

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International Standard Setting

What is an Actuarial Standard?

IAA strategy for ISAPs and International

Actuarial Notes, and Due Process

–The role of ISAPs, and activity to date

European perspective and the AAE

–The role of ESAPs and activity to date

Actuarial Standards in Cyprus

Discussion

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What is an actuarial standard?

A set of statements of behaviour expected of

actuaries

Minimum standards on

• methodology to be employed

• approach to be used in setting

assumptions

• reporting

To achieve greater consistency of approach

To increase the confidence of clients and the

public

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What is a model standard?

Upholds the Principle of Subsidiarity

Does not – of itself – apply to an

actuary unless the local actuarial

standard setter adopts it (with or without

amendment)

Is recommended for

adoption/adaptation by local actuarial

standard setters

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Pros and Cons of standards

Cons

– Compliance is a disadvantage for the individual

actuary as compared to an expert with no

compliance burden

– Developing a standard is costly

Pros

– Ensuring high quality and reliability of the

actuarial work to its users

– Trust and confidence of users of actuarial

services

– Acknowledgment of serving the public

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Who is an actuary?

An individual member of one of the member

associations of the IAA/AAE

– I.e. actuaries are subject to the code of conduct

of the member association they belong to

– I.e. actuaries are subject to the disciplinary

measures of the member association they

belong to

Non-compliance with a compulsory standard is a

violation of the code of conduct of an IAA/AAE

member association

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IAA and ISAPs

The IAA

IAA strategy for ISAPs

ISAPs versus IANs

Due Process for ISAPs

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The IAA’s strategy for standards

Establish, maintain and promote common

standards of actuarial education and

common principles of professional conduct.

Promote the development and issuance of

actuarial standards in the jurisdictions of all

Full Member Associations, and the global

convergence of actuarial standards.

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ISAPs and IANs

International Standards of Actuarial Practice

(ISAPs) are intended to serve as model

standards for use by standard-setters around

the world.

International Actuarial Notes (IANs) are

educational documents on an actuarial subject

that has been adopted by the IAA in order to

advance the understanding of the subject in

question. A set of IANs will often be developed

in support of an ISAP.

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Objectives for ISAPs

ISAPs widely accepted as a basis for

convergence by local standard-setters

ISAPs recognised by the parties who rely

on actuarial standards such IASB, IAIS,

IOSCO and the local regulators and audit

firms.

ISAPs widely seen as contributing to the

public good.

ISAPs promote high quality actuarial

practice.

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Objectives of standards

ISAPs are established to promote high quality

actuarial practice globally

– To help serve the public interest by benefiting

users of actuarial work, regulators, and

participants and beneficiaries of financial

products and services

– To benefit actuarial associations and individual

actuaries by enhancing the credibility of the

actuarial profession

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Dual role of ISAPs

1. To serve as model standards for use

by standard-setters around the world

2. To serve as standards for use on

assignments where the terms of

engagement specify that the work is

to be carried out in accordance with

these ISAPs

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Due process for ISAPs

Clear governance structure

and a high level of

transparency

Input is sought at every stage

from all stakeholders

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Standard setters and ISAPs

The IAA encourages relevant FMAs to consider

taking one of the following courses of action:

• adopting the ISAP as a standard

• customizing the ISAP while ensuring it is substantially consistent

with the ISAP;

• endorsing the ISAP by declaring that the ISAP is appropriate for use

in certain clearly defined circumstances;

• modifying existing standards to obtain substantial

consistency with the ISAP; or

• confirming that existing standards are already

substantially consistent with the ISAP

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ISAPs in place and underway

Approved

Glossary

ISAP 1 General

ISAP 2 Social

Security

ISAP 3 – IAS 19

In process

ISAP 1A – Governance of

Models

ISAP 4 – Insurance Contracts

IFRS

ISAPs 5 and 6 – ERM

Task Force chair - USA

ISAPs 7 … – BCR* & ICS*

Task Force chair - UK

*Basic Capital Requirement and Insurance Capital

Standard, in process of development by IAIS

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ISAPs already adopted 1/3

ISAP 1 General Actuarial Practice

–18 November 2012

–Reformatted and Glossary

separated on 13 October 2013

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ISAP 1 (already adopted) – Content

Acceptance of

assignment

Knowledge of

circumstances

Reliance

Materiality

Data quality

Process management

Assumptions and

methods

Responsibility for them

Peer review

Documentation

Reporting

Deviation from

guidance

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ISAPs already adopted 2/3

ISAP 2 Financial Analysis of Social

Security Programs

–13 October 2013

Glossary of Defined Terms Used in

ISAPs

–13 October 2013

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ISAPs already adopted 3/3

ISAP 3 Actuarial Practice under IAS

19 Employee Benefits

–11 April 2015

Glossary of Defined Terms Used in

ISAPs

–11 April 2015

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ISAPs published ED phase1/2

ISAP [1A] Governance of Models

–Final SOI was ratified by Council in

October 2015

–The relevant task force will soon be

working on responses to the ED

(comment period ends at the end of

March, 2016)

–Expected completion: ~ 2017

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ISAPs in “published ED” phase 2/2

– Final SOIs were ratified by Council in September

2014

ISAP 5 Insurer Enterprise Risk Models

– The relevant task force will be working on responses

to the ED (comment period ends at the end of

March, 2016)

– Expected completion: ~ 2017

ISAP 6 ERM Programs and IAIS Insurance Core

Principles

– The relevant task force is working on drafting an ED

– Expected completion: ~ 2018

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ISAPs in ED-drafting phase 1/2

ISAP 4 Actuarial Practice in relation

to IFRS X Insurance Contracts

–Final SOI was ratified by Council

in September 2014

–The relevant task force is working

on drafting the ED

–Expected completion: ~ 2019

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ISAPs in ED-drafting phase 2/2

ISAP 7 “Current estimates” and other

matters in relation to the IAIS capital

standards

–Final SOIs was ratified by Council in

November 2014

–The relevant task force is working on

drafting an ED (partly jointly with the

ISAP 4 task force)

–Expected completion: ~ 2018

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Usage by standards-setters

& associations

Survey by IAA Professionalism

Committee included in

Accreditation Committee annual

questionnaire to associations

Here in Nicosia, AAE is

considering an ESAP

questionnaire

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Summary of responses to ISAP 1 by FMAs 2014

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Summary of responses to ISAP 2 by FMAs 2014

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Actuarial Standards in Europe

ISAPs and ESAPs

The European Regulatory Scene

– European Commission

– EIOPA

– Solvency II

AAE Standards Project Team (SPT)

Purpose and Process of ESAPs

ESAP1 – in place

ESAP2 – in place

ESAP3 – Consultation comments being considered

Other ESAPs under consideration

Actuaries and Solvency II

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Actuarial Standards

for Solvency II

Is there a specifically European

context for standards?

Yes…Solvency II

Solvency II is an EU level set of laws and regulations

…which creates an overarching regulatory framework

for insurance companies regulated in EU countries

EIOPA is an EU level regulator which sets guidelines

for national regulators

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What is the AAE doing

about standards?

Standards Project Team established in

October 2010

in October 2011 the GC/AAE approved

– purpose of standards and criteria to adopt

standards

– report on due process for the development of

standards

– work plan for standards development 2011-

2015

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AAE standard-setting

Purpose and Process

The overriding purpose should be to serve the public

interest by ensuring that the users of actuarial services

benefit from a high quality of actuarial work.

Standards should be principles-based

AAE will issue model standards

In general ESAPs will assume existence of ISAPs

AAE member associations will be invited to

– adopt standard (in English or French or translated into own

language)

– adapt standard to take into account local conditions

– adapt an existing standard to cover material of AAE model standard

– certify that the contents are covered by existing standards

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Difference between ISAPs and ESAPs

Most of the underlying principles are the same as

for ISAPs

One of the special principles for ESAPs:

– There should be no conflict or overlap with

ISAPs unless there are specific circumstances in

the EU which justify such differences

Principle of Subsidiarity of the IAA: European

flavour

– EP, EC, ESAs, EIOPA, Solvency II

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Role of actuaries

under Solvency II

Major challenge for the AAE

…and its member associations

The role of the actuary looks set to expand and

develop

…Solvency II is a trigger for this ... and an

opportunity

Widely accepted high quality standards will

assist

– …to provide support for claim of professionalism

– …to raise the credibility of AAE and its members

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Article 48 (2) of the Solvency II Directive

The actuarial function shall be carried out by

persons who have knowledge of actuarial

and financial mathematics, commensurate

with the nature, scale and complexity of the

risks inherent in the business of the

insurance or reinsurance undertaking, and

who are able to demonstrate their relevant

experience with applicable professional and

other standards

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Role of actuaries under Solvency II

Widely accepted high quality ESAPs

will assist

–to provide support for claim of

professionalism

–to raise the credibility of AAE and its

members

within the relevant stakeholders in

Europe

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ESAPs already adopted 1/2

ESAP 1 General Actuarial Practice

–Adopted on 3 October 2014 by

the General Assembly of the AAE

Why ‘duplicate’ ISAP 1?

–...to ensure that ESAPs make a

coherent set without relying on

external model standards

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ESAPs already adopted 2/2

ESAP 2 Actuarial Function

Report under Directive

2009/138/EC

Adopted on 31 January 2016 by

the General Assembly of the

AAE

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ESAP 2 - Purpose

Standard covers reporting – and not the

content of the work

–EIOPA guidelines are more than

sufficient on content

Based on the responsibilities of the

actuarial function in Article 48

–…and the requirement to

prepare an annual report

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ESAP 2 - Content

Reporting on technical provisions

– Conclusions on adequacy and reliability of TPs

– Important Information about TPs

– Disclosure of opening and closing TPs

– Co-ordination of process

– Sufficiency and quality of data

– Methods and models

– Assumptions

– Comparing best estimates against experience

– Sensitivity analysis

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ESAP 2 - Content

Opinions on

–Underwriting policy

–Reinsurance arrangements

Contribution to risk management

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ESAP under development

ESAP 3 Actuarial practice in relation to the ORSA

process under Solvency II

– A Proposal to Develop Standard was discussed in

October 2014 in AAE committees

– A Discussion Paper was debated in March 2015 in

AAE committees

– The ED was consulted on from September 2015

– A revised ED is expected

in September 2016

– A related EAN is being

developed by the Insurance

Committee

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ESAPs under consideration

ESAP 4 on the role of the Actuarial Function in

contributing to the risk management system under

Solvency II

ESAP 5 on independent review by actuaries under

Solvency II

ESAP 6/ESAP 1A on Governance of models and

Actuarial practice in relation to internal models

under Solvency II

ESAP 7 on Actuarial Function Reporting for IORPs

ESAP 8 on Risk Reporting for IORPs

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Proliferation of standards?

At the 2014 Spring meetings of the AAE

the issue was discussed in committees

–7 ISAPs and 8 ESAPs could appear

in a short period of time

–Phased

progress

is needed

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Who sets standards?

The national association?

The national financial regulator(s)?

A separate standard setting body set up by

the association?

A separate standard setting body set up by

the national government?

A mixture of two or more

of the above?

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IAA / AAE criteria for

Associations setting standards

Established process required

Draft standards available to its members and

relevant 3rd parties for comment

Comments on exposure draft duly

considered

Adopted standards properly disseminated by

an authority with powers to do so

Standards published and available to

members

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Standard setting in Cyprus

Who sets your standards?

Does your association have the necessary powers?

Do you have any existing standards in a particular

area?

Will you consider the existing and proposed ISAPs and

ESAPs?

If so, will you adopt them, adapt them (including

translating), amend existing standards and/or declare

substantial consistency?

Are you liaising with your local national financial

regulators about authorized persons and about

standards?

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Your

questions

and your

views………….