Alongside its feedback statement on 28 May 2002 on the With-Profits Review the FSA also issued a feedback statement on the future role of actuaries in the governance of life companies. This statement was issued separately because, although it takes account of conclusions arising from the With-Profits Review, it is relevant to all life firms and not just those conducting with-profits business. The FSA intends to set out detailed proposals by the end of 2002 with changes to the appointed actuary regime coming into effect during 2003.
The FSA is concerned that the appointed actuary regime has resulted in over-reliance on appointed actuaries by boards. It also considers that the regime is potentially inconsistent with the principle of directorial responsibility. The FSA's position is that the appointed actuary's function should be advisory rather than executive and that the ultimate responsibility of directors for all matters actuarial should be underlined. The FSA also has concerns regarding conflicts of interest affecting actuaries, the extent to which their work should be externally scrutinised and the efficacy of their existing financial condition reporting obligations. The feedback statement addresses all these issues.
Role of actuaries in with-profit and non-profit life business
The FSA proposes that in specified areas (those where discretion is applied in with-profits business) boards will be required to take advice from an appointed actuary. As regards non-profit business, existing responsibilities imposed on appointed actuaries will be removed.
Accordingly, as regards with-profits business, the responsibilities of the appointed actuary (as set out in Chapter 4 of the Supervision Manual (SUP4)) will be narrowed to focus on advising on matters impacting on the level of policyholder benefits.
In relation to other areas of with-profits life business, and in relation to non-profit life business, there will be created, as a required function, an "actuarial function" responsible for providing advice (presumably as and when a board wants it). In particular, the FSA envisages that this function would be responsible for giving advice on the calculation of policy liabilities.
The result is that the appointed actuary will remain in place as regards with-profits life business but will also carry out the actuarial function or will work alongside an actuary carrying out the actuarial function. For nonprofit life business appointed...