Tag Archives: Ireland

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.


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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Price optimisation for personal lines insurance in Ireland

Price optimisation is a powerful and often controversial technique that blends traditional risk cost modelling and an understanding of behavioural considerations such as price sensitivity to predict the “optimal” combination of premiums charged and expected profit. In this article, Milliman’s Eoin Ó Baoighill and Anita Subramani discuss price optimisation and its use for personal lines insurance in Ireland.

Aggregate statistical data published for the Irish insurance industry

On 18 August the Central Bank of Ireland (CBI) published consolidated insurance statistics based on firms’ year-end 2016 positions. This is the first such publication since the introduction of Solvency II and this format will be used for publications in each future year as part of efforts to harmonise disclosure across Europe. This publication replaces the ‘Central Bank Insurance Statistics’ produced in previous years (based on the returns submitted to the CBI under the old solvency regime), more commonly known as the ‘Blue Book.’

Industry balance sheet
The statistics are at an aggregate level only, covering 196 companies based in Ireland (a mix of life and non-life firms, both direct writers and reinsurers) with assets valued at almost €347 billion. It is interesting to note that, while two new authorisations were granted during 2016, 15 authorisations were withdrawn.

The total Own Funds of the Irish industry are just in excess of €39.0 billion. They cover a Solvency Capital Requirement (SCR) of almost €22.7 billion. The resulting solvency cover for the industry is 172%. In comparison the European industry as a whole had coverage of 210% at the end of June 2016.

Of the SCR of €22.7 billion almost two-thirds is calculated using the standard formula. Nine companies use full internal models and another three use partial internal models to calculate the SCR, with these 12 firms accounting for 36% of the total SCR at an industry level. In addition to the calculated SCR, one firm has had a capital add-on imposed by the CBI, totalling almost €94 million at year-end 2016. The CBI does not disclose the name of the company with the capital add-on in this publication.

Applications to the CBI
The statistics also outline various approvals granted by the CBI during 2016. Of the three firms which applied to use the volatility adjustment, only two received approval, adding to the total number of seven firms using the volatility adjustment at year-end 2016. Only one firm submitted an internal model application during the year, which appears to have been unsuccessful. This could suggest that some firms were inadequately prepared when submitting applications to the CBI.

As at year-end 2016 no firms were using the matching adjustment and only one firm was applying the transitional measure on risk-free interest rates. No further submissions for these measures were received during 2016. This could indicate that the long-term guarantee measures are not considered to be very attractive to Irish companies—either in terms of the effort involved in obtaining approval or the benefit gained.

Aggregate data
While the data contains a number of interesting figures, it is the absence of company-specific data that is most noteworthy. The Blue Book previously outlined assets, liabilities and premium volumes at a company level. The new format report does not include any premium data and only provides statistics at an industry level. Of course all this information is publicly available in individual companies’ Solvency and Financial Condition Reports, but requires some time to analyse.

Full details of the year-end 2016 statistics published by the CBI can be found here. Additional Milliman analysis of the year-end 2016 position of the Irish industry can also be found here.

New developments in the computation of mortality rates: An actuary’s bread and butter

The computation of mortality rates has traditionally been the bread and butter of actuaries. The first mathematicians to venture into the actuarial field most likely spent their days analysing mortality rates and conducting life valuations. Nowadays, the work of actuaries is much more varied—which is a welcome development for most—but are we sometimes neglecting this core skill?

Milliman researchers in Paris certainly aren’t and their new research, hot off the press, published on 22 February 2017, represents a significant development in mortality and longevity risk modelling. It is vital reading for anyone working in this sphere.

My colleagues have developed a robust statistical methodology to correct the implicit inaccuracies of national mortality tables which are used widely in sophisticated mortality and longevity risk modelling. The results are striking.

Here I take a closer look at the relevance of these national mortality tables, the problems with them, and the corrections available in order to enhance mortality and longevity risk models. I will touch on the key technical points behind these developments from an Irish/UK perspective, leaving the rigorous mathematical explanations to the underlying research publications—the 2017 publication can be found here and the 2016 publication can be found here.

The use of national mortality tables
In Ireland and the UK, to set basic mortality assumptions in our pricing and reserving work, we tend to use insured lives mortality tables, such as the Continuous Mortality Investigation (CMI) tables. However, national mortality tables based on the population as a whole are also used extensively in mortality and longevity risk modelling, where a greater quantity of data is required.

National mortality tables are used to calibrate stochastic mortality models, to derive mortality improvement assumptions, in sophisticated mortality risk management models, in Solvency II internal models, in pricing mortality/longevity securitisations, and in bulk annuity transactions.

Bulk annuity transactions are popular in the UK market, with a number of large deals executed during 2016, including the ICI Pension Fund’s two buy-in deals completed in the wake of Brexit, totalling £1.7 billion. Legal & General completed a £2.5 billion buyout agreement with the TRW Pension Scheme in 2014.

Longevity hedging (in particular, use of longevity swaps) is also an attractive approach to the de-risking of pension schemes, and would equally require the use of national mortality tables. Transactions range from the large-scale £5 billion Aviva longevity swap in 2014 to the recent, more modest, £300 million longevity swap completed between Zurich and SCOR in January 2017.

While the use of internal models to calculate mortality and longevity risk capital requirements under Solvency II is not prevalent in the Irish market, which is due to the size of companies and the amount of risk retained, it is likely that reinsurers are looking at such models. In the UK, larger companies may opt to use internal models if they are retaining large exposures.

Indeed, national mortality tables also typically inform mortality improvement assumptions for all companies, as the analysis of improvements requires large volumes of data. Therefore, even companies that do not use sophisticated mortality and longevity risk modelling techniques are implicitly impacted by the new developments in relation to the construction of national mortality tables.

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Solvency II Directors’ Certifications

The Central Bank of Ireland has published a guideline and a set of frequently asked questions for insurance and reinsurance undertakings on Solvency II Directors’ Certifications. In this briefing note, Milliman’s Aisling Barrett and Ciarain Kelly explain what certifications are required from directors of insurance and reinsurance undertakings under Solvency II and how Milliman can help give comfort to directors in preparing to sign these declarations.

Taking the temperature on Solvency II Pillar 3: A Milliman client survey

The early months of 2016 were busy ones for Solvency II reporting, so the summer allowed the industry to finally come up for air. Following the submission of the first Solvency II reporting (Day 1 and first quarter 2016 templates) in May 2016, we took the opportunity to conduct a survey across the Irish insurance industry on Pillar 3 reporting. Thirty-seven companies took part, representing a broad cross-section of insurers in both the domestic and cross-border markets. It had a heavy focus on companies writing life business.

The survey looks at the experience of companies to date, the key challenges faced by (re)insurers, and the level of work required to meet the first annual reporting requirements in May 2017.

Experience to date: Ireland
Perhaps not surprisingly, the two templates that caused the most difficulty for companies in the survey were S.06.02 (detailed list of assets) and S.06.03 (asset look-through).

All companies were required to complete template S.06.02 based on their asset holdings at the end of the first quarter 2016. This template requires detailed information on each asset held and proved to be one of the most challenging and time-consuming aspects of the quarterly templates. The silver lining for companies is that we would expect the workload required to complete S.06.02 to lessen once processes and procedures have been bedded down.

The asset look-through template (S.06.03) is one of the more contentious and challenging aspects of the Solvency II reporting requirements. Only companies with a high or medium-high rating under the PRISM impact rating system of the Central Bank of Ireland (CBI) are required to prepare the look-through template for quarterly reporting during 2016. Companies with low or medium-low PRISM rating will have to prepare the look-through template for the first time in respect of 31 December 2016.

Looking ahead, 46% of survey respondents stated that they do not expect to fully meet the look-through requirements at year-end 2016 (56% among unit-linked companies). That is, companies do not expect to be in a position to provide a 100% look-through of all collective investment funds.

Love it or hate it, the asset look-through template is likely to keep many financial reporting teams busy in the coming months. The CBI has engaged directly with PRISM impact companies rated high and medium-high, and has set out its expectations regarding future reporting periods.

Looking ahead to annual reporting
While the first reporting deadlines in May 2016 represented a significant milestone, annual reporting in respect of year-end 2016 will be an even bigger hurdle for many companies. In May 2017, companies will be required to submit the first set of annual Quantitative Reporting Templates (QRTs), in addition to the first set of narrative reports—the public Solvency and Financial Condition Report (SFCR) and the Regulatory Supervisory Report (RSR). The first quarter 2017 reporting deadline also falls in May next year, so plenty of coffee and midnight oil may be required.

For the annual QRTs, companies identified the asset templates (including the asset look-through) and the reinsurance templates as the areas requiring most work.

The workload involved in preparing the SFCR and RSR reports for the first time should not be underestimated. Approximately 50% of respondents have not yet started drafting the SFCR and RSR. We received a very wide range of estimates for the length of these reports.

Elsewhere in the Pillar 3 world
Looking ahead to the first submission of annual templates, the CBI recently announced that it will host a test cycle for the annual Solvency II and annual NST returns from 5 to 21 December. Depending on your viewpoint, this represents an early Christmas present or a death knell to your festive season.

Where possible, companies should be looking to conduct a dry run of the annual templates in advance of a busy year-end period next year. This test phase presents a timely opportunity for companies to complete their dry runs.

Furthermore, the CBI recently consulted on the proposed external audit of the SFCR and associated annual QRTs with the aim of determining its final policy position by the end of September 2016. The final audit requirements will go to press shortly, and companies will need to allow for external audit as part of their 2017 plans also.

To read more about the Milliman Solvency II Pillar 3 Survey, please see our briefing note here.