Central Bank feedback on AOTPs and ARTPs

The Central Bank of Ireland (CBI) has published its findings following a thematic review of Actuarial Opinions on Technical Provisions (AOTPs) and Actuarial Reports on Technical Provisions (ARTPs) in respect of year-end 2016. This feedback is very timely as many Heads of Actuarial Functions (HoAFs) enter the year-end 2017 process and prepare to present these reports for the second time since the Solvency II regime came into force.

The quick read: Highlights

The CBI clarified that HoAFs can add comments to the AOTPs template on:

• Reliance on others in the calculation of Technical Provisions (TPs)
• Material concerns, limitations and recommended improvements

Our industry experience indicates that many HoAFs did not list recommendations in the AOTPs for last year-end, as the wording from the CBI implied that recommendations could only be included if the AOTPs was qualified first.

The CBI also called for improvements in the documentation of methods used to assess the completeness, accuracy and appropriateness of data used. Improvements in reporting methodologies, assumptions and experience analysis were more areas of focus, and the CBI also called for more detail to be provided around simplifications, expert judgements and materiality.

Background

By way of a recap—the CBI published the ‘Domestic Actuarial Regime and Related Governance Requirements under Solvency II‘ in 2015 and these requirements became effective on 1 January 2016. Companies must appoint HoAFs and each HoAF must, amongst other things, deliver the AOTPs to the CBI on an annual basis and a more detailed ARTP to the board on an annual basis (which is also made available to the CBI on request). The format of the AOTPs is provided as an appendix to the published requirements.

During 2017 the CBI reviewed a sample of ARTPs and AOTPs and has since issued specific recommendations to a number of companies and HoAFs. The CBI has also issued some general findings which have been published on the CBI’s website here.

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If This Then That (IFTTT) product design for InsurTechs

Traditional insurance product design relies on human implementation for agent sales and claims adjusters. If This Then That (IFTTT) product design relies on data to pay a defined benefit based on an objective trigger. IFTTT product design aligns with overall strategy common to many InsurTechs. And InsurTechs are uniquely positioned to improve customer and carrier results with IFTTT products. This presentation by Milliman consultant Steve Walsh provide more perspective.

Asian life insurance growth story continues boosting embedded value and new business values

Milliman has released its latest report, 2017 Mid-Year Embedded Value Results (excl. Japan), which summarises mid-year 2017 embedded value (EV) results disclosed by Asian insurers in eight key countries. The report examines the results at a company and country level and supplements the 2016 Embedded Value Results: Asia (excl. Japan) report released in August 2017. It also includes an update of the India 2016 full-year results, not available earlier due to the market’s March financial year-end. The findings highlight an overall increase in growth of EV, increase in value of new business (VNB) and improvement in new business margins.

‘As expected, positive performances by Asian equity markets and improving yields have led to an increase in the EV of life insurers within the region,’ said Milliman principal and consulting actuary Paul Sinnott. ‘These favourable economic conditions, combined with refined product strategies and improved distribution channel productivity, continue to drive growth in life insurance premiums, margins and the overall business in Asia.’

Key findings from the report include:

• Overall, insurers have reported positive gains in their 2017 mid-year embedded values over their 2016 mid-year values, with many companies showing single-digit EV growth but some posting larger gains in Hong Kong and mainland China.
• Hong Kong and mainland China insurers continued to report significant increases in VNB in the first half of 2017 compared to the first half of 2016, with over 50% increases in VNB for several companies, primarily driven by strong new business sales.
• Nearly all operating entities reported an increase in their new business margins between the first half of 2016 and the first half of 2017, with single- or double-digit increases in new business margins for many.
• As initial public offering (IPO) activity among insurers continues in India, companies are adopting the market-consistent Indian Embedded Value methodology (which is prescribed for IPO disclosures).

A copy of the report is available for download here.

EIOPA consultation on second set of advice on its Solvency II review

On 6 November 2017 the European Insurance and Occupational Pensions Authority (EIOPA) released a consultation paper on its second set of advice to the European Commission on the Solvency II review. This follows on from an earlier consultation paper and subsequent report released by EIOPA in July and October, respectively, on its first set of advice on the Solvency II review.

The second consultation paper is very detailed and sets out EIOPA’s proposed advice on a number of areas including various Solvency Capital Requirement (SCR) risk modules (premium and reserve risk, mortality and longevity risk, catastrophe risk, market risk, counterparty default risk), the risk margin, own funds and the look-though approach.

We are currently reviewing the consultation paper in detail and plan to publish a briefing note outlining EIOPA’s proposals for each of the topics covered in the consultation paper in the coming weeks.

However in advance of that, we have highlighted a few key proposals in this blog post:

• EIOPA is proposing that the calibration of the standard formula mortality risk capital charge should increase from 15% to 25% (as set out in section 3 of the consultation paper).
• EIOPA is proposing changes to the methodology underlying the interest rate risk capital charge to take account of the low interest rate environment. Two options are proposed in the consultation paper (see section 7).
• EIOPA is proposing simplifications to the application of the ‘look through’ approach for the purposes of the SCR calculation (as set out in section 15).
• EIOPA is proposing to keep the cost of capital rate used in the calculation of the risk margin unchanged at 6% (as set out in section 18).
• EIOPA is proposing changes to the standard formula factors for the standard deviation of premium and reserve risk for some non-life lines of business, including medical expense insurance (see section 1). For medical expense insurance EIOPA is proposing to increase the factors for standard deviation of premium risk from 5.0% to 6.0% and for reserve risk from 5.0% to 6.6%.

The deadline for responses to the consultation is 5 January 2018. EIOPA is expected to provide final advice to the European Commission on the proposed changes on 28 February 2018.

Milliman debuts proprietary predictive modeling platform for advanced analytics and enhanced data management

Milliman will debut its proprietary predictive modeling platform at the Insider Tech Conference held in New York City on December 6. Milliman’s recently created analytics software, Solys, uses advanced computer languages, models, and machine learning so that consultants can serve their clients with increased speed, reach, and cost-efficiency.

An internal tool that can be used to benefit Milliman’s current and future clients, Solys simplifies processes, improves data management, and performs advanced predictive analytics using the latest software environments and programming languages. The leading technology increases efficiencies and consultant capabilities in the growing InsurTech field. Milliman consultants will be discussing the tool and the firm’s work in InsurTech at a panel discussion at the Insider Tech event in New York on December 6.

As insurers face disruption around the “Internet of Things,” the shared economy, and autonomous vehicles, it’s vital that their consultants provide the best answers in the fastest and most cost-efficient manner possible. Milliman’s advanced predictive modeling tool enables consultants to address their clients’ InsurTech questions and remain leaders in this rapidly changing industry.

To read Milliman’s InsurTech research,  click here. Also, to subscribe to Milliman’s InsurTech updates, contact us here.

Emerging cyber risk regulations will move companies to fortify risk management strategies

New York has enacted regulations to protect the state’s financial services industry and consumers from cyberattacks. Future regulation may require a reliable, evidence-based approach to risk assessment as a minimum requirement for compliance.

In this article, Milliman’s Mark Stephens and Lisa Henderson discuss the evolution of cyber risk and the need for companies to understand their cyber risk exposure and the financial implications of a potential cyberattack event. They also outline several actionable steps companies can take to assess and quantify their cyber exposure.