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Solvency Assessment and Management: Pillar 2 - Sub Committee

Governance Task Group

Position Paper 831 (v 6)

The Role of the Statutory Actuary

EXECUTIVE SUMMARY This document sets out the recommendations of the Role of the Statutory Actuary Task Group of the FSB. The recommendations are that:

The term “Statutory Actuary” falls away following SAM implementation in 2016, with the role effectively replaced by the individual taking responsibility for heading up the Actuarial Function. To avoid confusion between an individual who may head up an actuarial division not deemed to be part of the actuarial function defined under the control functions, this individual will be referred to as the Head of Actuarial Control (HAC);

It be prescribed that the HAC is required to attest to the accuracy of the calculations and the appropriateness of the assumptions with regards to the technical provisions, the SCR calculations, and the technical provisions and capital requirements forming part of the ORSA projections.

The duties of the HAC pertaining to technical provisions are to follow the principles as advocated in the Solvency II Directive (Article 48 “Actuarial function”), adapted to the South African environment in the following manner:

o The role is an oversight function, typically reviewing the work performed by the other suitably qualified individuals, and expressing opinions and providing advice to the senior management and the Board of the Insurer on specified matters.

o The scope of the work to be conducted has been broadened from Solvency II, where it is more focussed on technical provisions, to also include the SCR, as well as the technical provisions and SCR projections featuring in the ORSA.

o The requirement to express an opinion on the ALM policy of the insurer in addition to the requirement to express an opinion on the overall underwriting policy.

The requirement to have an Actuarial Function and HAC will apply to both short- and long-term insurers.

Requirements pertaining to whistleblowing are included in general requirements pertaining to all heads of control functions.

Along with Board sign-off on the reports to the regulator, the HAC as well as the Head of the Risk Management Function are likely to be required to attest to the accuracy of the content (with the HAC focussing on the accuracy of calculations and appropriateness of assumptions underlying the results) in the report.

The insurer will furthermore have to appoint an independent actuary to provide a peer review. It is envisioned that peer reviews2 are conducted at least once every

1 Position Paper 83 (v 6) was approved as a FINAL Position Paper by the SAM Steering Committee on 27 March

2015.

2 This has largely been informed from discussions with the Office of the Superintendent of Financial

Institutions in Canada as well as their Guideline on the Appointed Actuary role (Guideline E-15).

Solvency Assessment and Management: Steering Committee Position Paper 83 (v 6) – The Role of the Statutory Actuary

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three years and that the FSB would at its discretion specify the frequency, scope and/or timing of the review. The FSB may furthermore specify a reviewer if required. The FSB will be engaging the Actuarial Society of South Africa to develop standards for actuaries who undertake a peer review.

1. INTRODUCTION AND PURPOSE The Role of the Statutory Actuary Working Group, formulated under the SAM Governance Task Group, in Pillar 2 of the SAM governance structure, was established to investigate whether there is a requirement for the role of the Statutory Actuary post-SAM implementation, and, if so, what this role would entail. Given the importance of the actuarial function in terms of regulatory objectives, the FSB has furthered this research and will be responsible for issuing a draft position on the role of the statutory actuary. Versions subsequent to version 3.0 are thus the proposals made by the FSB. The purpose of this document, therefore, is to provide such guidance on the future role of the Statutory Actuary, post SAM implementation. Statutory Actuaries currently provide a key role in the South African insurance industry. Details of the current legal requirements are provided in Annexure A. 2. EU DIRECTIVE ON SOLVENCY II: PRINCIPLES (LEVEL 1) The EU Solvency II Directive, in Article 48 (Actuarial Function) does not mention Statutory Actuaries. It states:

1. Insurance and reinsurance undertakings shall provide for an effective actuarial function to: (a) coordinate the calculation of technical provisions; (b) ensure the appropriateness of the methodologies and underlying models used as

well as the assumptions made in the calculation of technical provisions; (c) assess the sufficiency and quality of the data used in the calculation of technical

provisions; (d) compare best estimates against experience; (e) inform the administrative, management or supervisory body of the reliability and

adequacy of the calculation of technical provisions; (f) oversee the calculation of technical provisions in the cases set out in Article 82; (g) express an opinion on the overall underwriting policy; (h) express an opinion on the adequacy of reinsurance arrangements; and (i) contribute to the effective implementation of the risk-management system referred to

in Article 44, in particular with respect to the risk modelling underlying the calculation of the capital requirements set out in Chapter VI, Sections 4 and 5, and to the assessment referred to in Article 45.

2. 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. 3. STANDARDS AND GUIDANCE (LEVELS 2 & 3)


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3.1 International Association of Insurance Supervisors (IAIS) standards and guidance papers IAIS: Insurance Core Principles (ICP’s), Standards, Guidance and Assessment Methodology The IAIS ICP’s were published in October, 2011 and revised in October 2013. Section 8.5 outlines details about the Actuarial Function, which is seen as one of the key control functions:

Actuarial Function 8.5 The supervisor requires the insurer to have an effective actuarial

function capable of evaluating and providing advice to the insurer regarding, at a minimum, technical provisions, premium and pricing activities, and compliance with the related statutory and regulatory requirements.

8.5.1 A robust actuarial function that is well positioned, resourced, and

properly authorized and staffed is essential for the proper operation of the insurer.

8.5.2 The supervisor should have or have access to the appropriate skills,

knowledge and resources to enable it to critically assess the work of an insurer’s actuarial function.

Board Access and Reporting of the Actuarial Function

8.5.3 The actuarial function should have access to and periodically report to

the Board on matters such as:

any circumstance that may have a material effect on the insurer from an actuarial perspective;

the adequacy of the technical provisions and other liabilities;

the prospective solvency position of the insurer; and

any other matters as determined by the Board.

8.5.4 Written reports on actuarial evaluations should be made to the Board,

Senior Management, or other Key Persons in Control Functions or the supervisor as necessary or appropriate or as required by legislation.

Main Activities of the Actuarial Function

8.5.5 The actuarial function should carry out such activities as are needed

to evaluate and provide advice to the insurer in respect of technical provisions, premium and pricing activities and compliance with related statutory and regulatory requirements. The actuarial function evaluates and provides advice on matters such as:

the insurer’s actuarial and financial risks;

the insurer’s investment policies and the valuation of assets;


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an insurer’s solvency position, including a calculation of minimum capital required for regulatory purposes and liability and loss provisions;

an insurer’s prospective solvency position;

risk assessment and management policies and controls relevant to actuarial matters or the financial condition of the insurer;

distribution of policy dividends or other benefits;

underwriting policies;

reinsurance arrangements;

product development and design, including the terms and conditions of insurance contracts;

the sufficiency and quality of data used in the calculation of technical provisions; and

risk modelling in the ORSA and use of internal models.

8.5.6 Where required, the actuarial function may also provide to the

supervisor certifications on the adequacy, reasonableness and/or fairness of premiums (or the methodology to determine the same) and certifications or statements of actuarial opinion.

8.5.7 The supervisor should clearly define when such certifications or

statements of actuarial opinion need to be filed. When these are required, the supervisor should also clearly define the required qualifications of those allowed to certify or sign such statements, and what must be included in such an opinion or certification.

Appointed Actuary

8.5.8 Some jurisdictions may require an “appointed actuary,” “statutory

actuary,” or “responsible actuary” (hereinafter referred to as an “Appointed Actuary”) to perform certain functions, such as determining or providing advice on an insurer’s compliance with regulatory requirements for certifications or statements of actuarial opinion. The tasks and responsibilities of the Appointed Actuary should be clearly defined.

8.5.9 The insurer should be required, at a minimum, to report the Appointed

Actuary’s appointment to the supervisor. 8.5.10 The Appointed Actuary should not hold positions within or outside of

the insurer that may create conflicts of interest or endanger his or her independence. If the Appointed Actuary is not an employee of the insurer, the Board of Directors should determine whether the external actuary has any potential conflicts of interest, such as if his or her firm also provides auditing services to the insurer. If any such conflicts exist, the Board of Directors should subject them to appropriate controls.

8.5.11 If an Appointed Actuary resigns or is removed by an insurer, the

insurer should provide notification to the supervisor which includes the reasons why the Appointed Actuary resigned or was replaced. In some jurisdictions, such a notification includes a statement from the


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insurer regarding whether there were any disagreements with the former Appointed Actuary regarding the content of the actuary’s opinion on matters of risk management, required disclosures, scopes, procedures, or data quality, and whether or not such disagreements were resolved to the former Appointed Actuary’s satisfaction.

8.5.12 The supervisor should have the authority to require an insurer to

replace an Appointed Actuary when such person fails to adequately perform required functions or duties, is subject to conflicts of interest, or no longer meets the jurisdiction’s requirements to be eligible for the position.

EIOPA (formerly CEIOPS) –Advice for Level 2 Implementing Measures on Solvency II: System of Governance Some selected areas from the Level 2 implementing measures pertaining to Article 48 of the Directive which are deemed applicable are quoted below. 3.331. The actuarial function shall have access to the appropriate resources and information

systems that provide all necessary information, relevant for the discharge of its responsibilities.

3.332. In coordinating the calculation of the technical provisions the actuarial function shall at a minimum: a) Apply methodologies and procedures to assess the sufficiency of technical

provisions ensuring that their calculation is consistent with the underlying principles;

b) Assess the uncertainty associated with the estimates; c) Produce judgement whenever this is needed, making use of appropriate

information and experience of the persons that are in charge of the function; d) Ensure that problems related to the calculation of technical provisions arising from

insufficient data quality are dealt with appropriately and that, where it is impracticable to apply common methods of calculating technical provisions because of insufficient data quality, the most appropriate alternatives to common methods are found, taking into consideration the principle of proportionality;

e) Ensure that homogeneous risk groups for an appropriate assessment of the underlying risks are identified;

f) Consult relevant market information and ensure that it is integrated into the assessment of technical provisions;

g) Compare and justify any material differences among the estimates for different years; and

h) Ensure that an appropriate assessment of options and guarantees embedded in liabilities is provided.

3.333. In order to ensure the appropriateness of the underlying methodologies and models used in the calculation of the technical provisions, the actuarial function not only has to assess the general suitability of the methodology or underlying model for the calculation of technical provisions as such, but also has to decide whether they are appropriate for the specific lines of business of the undertaking, for the way the business is managed and for the available data.

3.334. While assessing the sufficiency and quality of the data used in the calculation of the technical provisions, the actuarial function shall have regard to the objectivity, reasonability and verifiability of management actions included in the calculation of technical provisions. It shall also assess whether information technology systems used in actuarial procedures sufficiently support these procedures.


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3.335. The comparison of the best estimates against experience requires the actuarial function to assess whether past best estimates have proved sufficient and to use the insights gained in this assessment to improve the quality of present best estimate calculations.

3.336. This analysis shall also include comparisons between observed values and the assumptions used in the calculation of technical provisions in order to produce conclusions on the appropriateness of the data used and the methodologies applied on their estimation.

3.337. Informing the administrative, management or supervisory body of the reliability and adequacy of the calculation of the technical provisions is not limited to expressing an opinion on these points, including on the degree of uncertainty about the ultimate outcome and the circumstances that might lead to a significant deviation from the provisions made. The actuarial function must set out how it arrived at its opinion and clearly state and explain any concerns it may have as to the technical provisions being sufficient.

3.338. The actuarial function shall oversee when a case-by-case approach to the calculation of technical provisions shall be followed, that is, when there is not sufficient quality of data to apply a reliable actuarial method. Also, it has to produce judgement to establish assumptions and to safeguard the accuracy of the results.

3.339. Regarding the overall underwriting policy, the opinion to be expressed by the actuarial function shall at least include the following issues: a) Sufficiency of the premiums to cover future losses, notably taking into

consideration the underlying risks (including underwriting risks), the impact of expenses directly associated with future claims and of unallocated loss adjustment expenses and the impact of embedded options and guarantees on future liabilities; and

b) Considerations regarding inflation, legal risk, change of mix, anti-selection and adequacy of bonus-malus system(s) implemented in specific line(s) of business.

3.340. Regarding the overall reinsurance arrangements, the opinion to be expressed by the actuarial function shall include an opinion on the adequacy of the significant reinsurance arrangements as well as expected cover under stress scenarios in relation to the underwriting policy and the adequacy of the calculation of the technical provisions arising from reinsurance.

3.341. In order to be able to provide its opinions free from influence from other functions and the administrative, management or supervisory body, the actuarial function shall be constituted by persons who have a sufficient level of independency.

3.342. In forming and formulating its own actuarial view the actuarial function shall be objective and free from influence of other functions and the administrative, management or supervisory body.

3.343. The actuarial function shall at least annually produce written reports to be submitted to the administrative, management or supervisory body. The reports shall document the tasks that have been undertaken, clearly state any shortcomings identified and give recommendations as to how the deficiencies could be remedied.

3.2 Other relevant jurisdictions (e.g. OSFI, APRA) The Australian Prudential Regulatory Authority (“APRA”), the Office of the Superintendent of Financial Institutions Canada (“OSFI”), and the Bermuda Monetary Authority (BMA) were three jurisdictions that were considered in this section. OSFI The OSFI recognises the role of an Appointed Actuary, with the following duties, inter alia:

to value the actuarial and other policy liabilities as at the end of a financial year;


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state that policy liabilities are valued in accordance with accepted actuarial practice;

to report to the directors or the chief agent on the company’s financial position;

when directed by the Superintendent, to report on the company’s expected future financial condition;

to report any matters that have material adverse effects on the financial condition of the company, that require rectification. Where suitable action is not taken, the Appointed Actuary shall report to the Superintendent;

to report on the fairness to participating policyholders of a proposed dividend, bonus or other benefit;

to report on the fairness of the allocation method used by the company;

to report on the fairness of changes to the premium or charge for insurance or surrender value in respect of adjustable policies;

to confirm that the instructions pertaining to the Minimum Continuing Capital and Surplus Requirements, and to the Test of Adequacy of Assets in Canada and Margin Requirements, and to the annual return have been followed. These guidelines set out requirements for the test of capital adequacy;

to express an opinion on areas where the calculation required discretion, or where significant technical calculations, methodologies and judgements were applied.

There is furthermore a requirement that the work of the Appointed Actuary be peer reviewed at least every three years. APRA The Prudential Standard LPS 320 (May 2009, draft) and GPS 310 (November 2009, draft) aims to ensure that the Board and senior management of a life company are provided with impartial advice in relation to its operations, financial condition and policy liabilities. It outlines certain roles and responsibilities of an Appointed Actuary:

to provide an assessment of the overall financial condition of the life company and advise on the valuation of its policy liabilities on an annual basis;

to prepare a Financial Condition Report and an Insurance Liability Valuation Report;

to provide advice on certain life policies;

to report to APRA where a life company or its directors may have contravened the Life Insurance Act or the Financial Sector (Collection of Data) Act, and the contravention may significantly prejudice the interests of the owners of policies issued by the life company.

Non-life insurers are furthermore required to have each valuation report peer reviewed by an independent actuary. BMA The BMA (Guidance Notes 9 and 10) recognises the role of an Approved Actuary, integral to their insurance supervisory model, for long-term insurers. The role of the Approved Actuary encompasses, inter alia, expressing an opinion on the adequacy of the Insurer’s Total Long-term Business Reserves. 3.3 Other sources of information

The Long-Term Insurance Act 52 of 1998 The Long-Term Insurance Act, states in section 20 (5a) that the Statutory Actuary of a long-term Insurer shall:


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(i) “without delay, report in writing to the board of directors of the long-term insurer any

matter relating to the business of the long-term insurer of which he or she becomes aware in the performance of his or her functions as statutory actuary and which, in his or her opinion, constitutes a contravention of section 29(1) or any other section of this Act relating to the duties of the statutory actuary, or in future may prejudice the long-term insurer’s ability to comply with section 29(1) or any other section of this Act relating to the duties of the statutory actuary, which report must give a description of the matter and must include such other particulars as the statutory actuary considers appropriate: Provided the report must be submitted without delay also the Registrar where, in the opinion of the statutory actuary, the matter-

aa) materially prejudices the insurer’s ability to comply with any of these sections;

bb) does not materially prejudice the insurer’s ability to comply with these sections, but the statutory actuary is of the opinion that immediate remedial action must be taken by the long-term insurer; and

(ii) if steps to rectify the matter are not taken by the board of directors of the long-term insurer to the satisfaction of the statutory actuary within 30 days after the date of the report, without delay inform the Registrar.”

The South African Actuarial Professional Guidance Notes (PGN) PGN 106: Actuaries and long-term Insurance in South Africa states, in section 2.9:

“The Statutory Actuary must have regard to all aspects likely to materially affect the financial position of the Insurer in respect of its long-term business including the possible effect of any contingent liabilities should they crystallise. The information required, and the frequency of monitoring, will depend on the nature of the business carried out by the Insurer. The following list, which is not exhaustive, sets out the most usual items of information which are required to monitor risks, particularly those of a financial nature. The Statutory Actuary must use his judgement to decide which items are required and the frequency with which they should be monitored, and advise the Insurer appropriately.

(a) the terms on which existing business has been, and current new business is being written, with particular reference to all options and guarantees;

(b) the existing investments of the long-term business and the continuing investment policy including the use of derivative instruments and the extent to which assets and liabilities are matched by term, by type and by currency;

(c) the nature, extent and availability of the Insurer’s surplus assets; (d) the marketing plans, in particular the expected volumes and costs of sales; (e) the current and likely future level of expenses; (f) the current and likely future levels of mortality and morbidity; (g) the reinsurance, underwriting and claims handling arrangements; (h) the Insurer’s policy in regard to the nature and timing of allocations of profits to

policyholders and/ or shareholders; (i) the current and likely future taxation position of the Insurer; (j) the persistency of the business written both in the short and long term, and the

terms for discontinuance; (k) for unit-linked policies, the pricing policy for internal linked funds; and; (l) the systems of control which the Insurer has established, especially those relating

to operational risk.” The Actuarial Profession of the United Kingdom


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The Actuarial Profession of the UK recently published two articles on whistle blowing (sometimes referred to as “speaking up”), guides for both actuaries and employers of actuaries. Actuaries aspire to high standards of professional conduct which helps to enhance public confidence and trust in organisations with which actuaries are associated. As such, actuaries add value to any organisation, increasing and inspiring the confidence of both clients and regulators. Actuaries in the UK are required by their professional body (The Institute and Faculty of Actuaries), to act honestly and with the highest standards of integrity. They are also required to “respect confidentiality unless disclosure is permitted by law and justified in the public interest”. Therefore, the duty of confidentiality to an employer is not absolute and may be overridden by other considerations. The Actuaries’ Code recognises that actuaries will: “...comply with all relevant legal, regulatory and professional requirements, take reasonable steps to ensure that they are not placed in a position where they are unable to comply, and will challenge non-compliance by others.” It is, therefore, clear that actuaries are expected to raise concerns about any potentially unlawful, unethical or improper course of action with their clients and/or employer; and report

Information to the relevant regulatory authorities, in accordance with legal or regulatory obligations to do so;

Behaviour which they believe to be unlawful, unethical or improper to regulators or other relevant authorities where there is legal protection to allow them to do so;

Any breach of the Actuaries’ Code which appears to constitute misconduct or which is otherwise considered material, including any material breach of any relevant legal, regulatory or professional requirements.

At all times, actuaries must be guided by both the public interest and their own consciences to make use of permitted disclosures in order to comply with their professional obligations. An important factor in creating an environment which meets the criteria above, is an effective whistle blowing policy. An example of a whistle blowing policy is provided by the Actuarial Profession of the UK. 4. APPROACH GIVEN THE SOUTH AFRICAN CONTEXT The starting point for the establishment of proposals for the role of the Head of the Actuarial Function (HAC) under the SAM regime was consideration of Article 48 of the Solvency II Directive. Most European jurisdictions have not however historically required a Statutory or Appointed Actuary. As such, ICP 8 as well as the regimes in other jurisdictions which do require an Appointed Actuary were actively considered, as were the current Statutory Actuary requirements in South Africa. This is because it is felt that the role currently played by the Statutory Actuary in all life insurers (and some non-life insurers) is an important one given the South African context. The intention is however not to draft suggested legal text, but to propose principles to inform legislation. In order to fully contextualise the role of the HAC, the requirements pertaining to the control functions and in particular the heads of control functions should be considered. These have been included in Appendix C. Under the current South African statutory requirements, Statutory Actuaries of long-term insurers have obligations pertaining to the actuarial soundness of policies. Currently there are no such requirements pertaining to short-term insurers. The conditions on which policies are granted to policyholders, including pricing thereof and any bonuses granted to policyholders, inherently have an impact on levels of technical provisions and hence on the potential future solvency of an insurer. Given this link, it is deemed appropriate that the HAC


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express an opinion on the actuarial soundness of premiums, benefits, and any other values thereof, including the awarding of bonuses to policyholders. Paragraph 1 “Insurance and reinsurance undertakings shall provide for an effective actuarial

function to:” Details of the qualifications and experience required for the role of the HAC are specified in paragraph 2 below. The role of the actuarial function, including the head, may be outsourced (but the insurer must notify the registrar timeously and prior to entering into such an arrangement, as proposed in the draft Insurance Laws Amendment Bill). If a provider is used both for conducting actuarial work as well as fulfilling the requirements of the HAC, then the provider must provide evidence that enables the insurer to satisfy itself that an appropriate segregation of duties is in place. Paragraph 1(a) “coordinate the calculation of technical provisions;”

To avoid possible confusion, reference to the term “coordinate” should be changed to “review and attest to the reliability and adequacy of”. This implies an element of review of the work produced in arriving at the calculations, as well as any other checks and balances required in the process. Furthermore, the scope of the statement is to be extended to cover the SCR as well as the technical provisions and capital requirement projections forming part of the ORSA. Paragraph 1(b) “ensure the appropriateness of the methodologies and underlying models used as well as the assumptions made in the calculation of technical provisions;” It is submitted that the wording of this paragraph is applicable as presented here, with the exception that the scope be extended to cover the technical provisions and capital requirement projections forming part of the ORSA. With regard to the SCR, it is proposed that the same requirement apply to any methodologies and underlying models used other than that prescribed by the regulator. With regards to the calculations underlying the standard formula for the SCR, the role should cover ensuring the appropriateness of the methodologies, underlying models, and assumptions used to establish the inputs to the standard formula where this is applicable. Paragraph 1(c) “assess the sufficiency and quality of the data used in the calculation of technical provisions;” It is submitted that this paragraph is applicable as presented here, with the scope to be expanded to refer to the SCR and the technical provisions and capital requirement projections forming part of the ORSA. Paragraph 1(d) “compare best estimates against experience;” One of the aims of doing a comparison of best estimates and experience is as a control to validate the assumptions used to calculate technical provisions and alter assumptions where necessary. Although experience data will most likely be used to calibrate SCR models where applicable as well as models used in the projection of capital requirements under the


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ORSA, the direct comparison of experience against best estimates is mainly applicable to technical provisions and it is proposed that the words “when evaluating technical provisions” be added to make this clear. Paragraph 1(e) “inform the Board of the reliability and adequacy of the calculation of technical provisions;” It is submitted that this paragraph is applicable as presented here (with the term Board replacing “administrative, management or supervisory body”, and level 2 and level 3 guidance be further considered. Paragraph 1(f) “oversee the calculation of technical provisions in the cases set out in Article 82;” Article 82 of the Directive states that, where, in specific circumstances, insurance and reinsurance undertakings have insufficient data of appropriate quality to apply a reliable actuarial method to a set or subset of their insurance and reinsurance obligations, or amounts recoverable from reinsurance contracts and special purpose vehicles, appropriate approximations, including case-by-case approaches, may be used in the calculation of the best estimate. Therefore, the HAC must have oversight of the calculation of technical provisions in such cases. It is proposed that the HAC apply similar standards to the calculation of the SCR as well as the technical provisions and capital requirements used in the projections required as part of the ORSA. The calculations should be reviewed as in paragraph 1(a) above. Paragraph 1(g) “express an opinion on the overall underwriting policy;” In addition to this requirement, it is proposed that the HAC express an opinion on the ALM policy. Paragraph 1(h) “express an opinion on the adequacy of reinsurance arrangements; and” It is submitted that this paragraph is applicable as presented here, and level 2 and level 3 guidance be further considered. Paragraph 1(i) “contribute to the effective implementation of the risk-management system referred to in Article 44, in particular with respect to the risk modelling underlying the calculation of the capital requirements set out in Chapter VI, Sections 4 and 5, and to the assessment referred to in Article 45.” This paragraph mainly ensures that the actuarial function under Solvency II contributes to the internal model where applicable as well as the ORSA process. Given that it is envisaged that the HAC under SAM play a more active and explicit role in capital calculations as well as the ORSA, it is deemed that this paragraph is not required. Not having this paragraph does


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not exclude the HAC from contributing more generally to the risk management system, but it does not make such a contribution a requirement. Paragraph 2 “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.” It is already required under the draft ILAB, in the conditions imposed on the Board (and with particular reference to heads of control functions), that a robust fit and proper assessment process be in place. As such, this paragraph will not be part of primary legislation, however minimum requirements will be further considered in subordinate legislation and guidance. 5. RECOMMENDATION

The Head of the Actuarial Function in the SAM final measures is to effectively replace the

current Statutory Actuary, fulfilling many of the duties currently undertaken by this individual.

Some changes are recommended to the principles proposed in Article 48 which will apply to

the HAC (and the Actuarial Function) – mainly to expand the scope of the role beyond

focussing on technical provisions. The role of the HAC is thus to provide assurance to the

Board regarding the accuracy of the calculations and the appropriateness of the

assumptions of the technical provisions, the SCR calculations, and the technical provisions

and capital requirements used in the ORSA projections. The HAC will furthermore need to

attest to this accuracy and appropriateness in the regular reporting to the supervisor. .

Whistle blowing requirements will pertain to all heads of control functions.

The key proposals for SAM primary legislation are as follows:

1. Insurance and reinsurance undertakings shall provide for an effective actuarial function, headed up by the Head of Actuarial Control, insofar as the following functions are concerned, to:

(a) review and attest to the reliability and adequacy of technical provisions, the SCR calculation (whether internal model or standard formula), and the technical provisions and capital requirements forming part of the projections in the ORSA, including to:

i. ensure the appropriateness of the methodologies and underlying models used as well as the assumptions made;

ii. assess the sufficiency and quality of the data used in the calculations; iii. compare best estimates against experience when evaluating technical

provisions; iv. inform the Board of the reliability and adequacy of the calculations; and v. oversee the calculations in the cases set out in Article 82;

(b) express an opinion on the overall underwriting and ALM policies; (c) express an opinion on the reinsurance policy and the adequacy of

reinsurance arrangements; (d) express an opinion on the actuarial soundness of premiums, benefits, and

any other values thereof, including the awarding of bonuses to policyholders.


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2. The HAC, in fulfilling the role of a head of control function, will be required to meet fit and proper requirements as stipulated in the Insurance Laws Amendment Bill and current draft SAM primary legislation. While the onus is on the Board to assess the control function heads with respect to fit and proper requirements, the expectation is that the function holder will be a suitably qualified actuary. Further details regarding requirements for minimum qualifications specific to the HAC will be prescribed in subordinate legislation. The FSB will be engaging with ASSA regarding the establishment of these minimum qualifications.

3. The HAC will be subject to a periodic peer review. This is anticipated to be conducted at least every three years, and that the FSB would at its discretion specify the frequency, scope and/or timing of the review. The FSB may furthermore specify a reviewer if required. The FSB will be engaging ASSA to develop standards for actuaries who undertake a peer review.

4. SAM Primary legislation will provide that the role and functions will be prescribed. 5. Whistleblowing requirements are placed on all heads of control functions

Considering the three jurisdictions above (OSFI, APRA, BMA), which recognise the role of either an Appointed or an Approved Actuary, it is submitted that the recommendations outlined in this discussion document will not contradict accepted international practice, as applied in these jurisdictions. Clarifications and Proportionality This section aims to provide some insight as to how the application of these principles is envisaged to work in practice. As such, these concepts may feature as part of Level 3 guidance, or may simply form part of the regulator’s basis for conducting assessments of the practices of the Actuarial Function. It was however decided to include this section to provide greater clarity as to how some of the above recommendations were intended to be applied. It is suggested that the insurer apply proportionality when considering the structure of the actuarial function – specifically when considering segregation of duties. The HAC should ensure that there is appropriate segregation of duties in place in conducting their work. For the insurers at the upper end of the nature, scale and complexity continuum, it is expected that the HAC be functionally separated from the functions responsible for producing the actuarial results. For insurers closer to the middle of this continuum, actuaries producing the results may form part of the actuarial function, headed up by the HAC. It should furthermore be noted that these requirements do not preclude the HAC from undertaking activities which fall outside of those recommended above. As with any control function, the activity may be outsourced, providing that the general requirements applicable to outsourcing are met In terms of reporting requirements, the Reporting Task Group will be asked to consider the role of the HAC in the submission of information to the Financial Services Board. It is however proposed that the HAC signs off on the regular reports to the FSB together with the head of the risk management function. Further work to be conducted by the FSB Role of the Statutory Actuary Task Group will be to further develop proposals for subordinate legislation and, if required, for guidance.


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ANNEXURE A ROLE OF STATUTORY ACTUARY: SECTIONS OF THE SHORT-TERM AND LONG-TERM INSURANCE ACTS THAT REFERS TO STATUTORY ACTUARY 13 FEBRUARY 2012 Note: The sections of the Short-term and Long-term Insurance Acts that refer to the statutory actuary are replicated in columns 1 and 2 below. In light of the discussions on 8 February 2012 on the role of the statutory actuary, please indicate in columns 3 if any of these sections must be amended.

SECTION PROVISION

1. Definitions “statutory actuary” means an actuary appointed in accordance with section 19A (1) or 20 (1);

19. Auditor (8) Without derogating from an auditor’s right to do so in respect of anything which is material

to the carrying out of the auditor’s duties, an auditor shall not be required to examine or

express an opinion in relation to a statement forming part of a return, report or certificate or to

the particulars thereof, in respect of which a statutory actuary is required, in terms of this Act,

to make an examination, give an attestation or express an opinion.

(9) An auditor may rely on the work performed by the statutory actuary in relation to the

financial affairs of a short-term insurer, when the auditor expresses an opinion in relation to the

financial affairs of that short-term insurer in terms of this Act or any other law, subject to

compliance with the prevailing auditing standards.

19A. Statutory

actuary

(1) A short-term insurer shall from time to time appoint, and at all times have, a statutory

actuary under the circumstances determined by the Registrar, either generally or in a particular

case.

(2) A short-term insurer may appoint an alternate to act in the place of its statutory actuary

during his or her absence for any reason.

(3) No person other than a natural person who is permanently resident in the Republic, is a

Fellow of the Actuarial Society of South Africa and has, as an actuary, appropriate practical

experience relating to short-term insurance business, shall be appointed as a statutory actuary

or his or her alternate.

(4) No appointment of a statutory actuary or his or her alternate shall take effect unless it has

been approved by the Registrar.

(5) The statutory actuary of a short-term insurer shall –

(a) submit to the Registrar, if his or her appointment is for any reason terminated, a

statement of what he or she believes to be the reasons for that termination; and

(b) (i) without delay, report in writing to the board of directors of the short-term insurer any

matter relating to the business of the short-term insurer of which he or she becomes

aware in the performance of his or her functions as statutory actuary and which, in his or

her opinion, constitutes a contravention of section 28 (1) or any other section of this Act

relating to the duties of the statutory actuary, or in future may prejudice the short-term

insurer’s ability to comply with section 28 (1) or any other section of this Act relating to

the duties of the statutory actuary, which report must give a description of the matter and

must include such other particulars as the statutory actuary considers appropriate:

Provided that the report must be submitted without delay also to the Registrar where, in

the opinion of the statutory actuary, the matter -

(aa) materially prejudices the insurer’s ability to comply with any of these sections;


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SECTION PROVISION

(bb) does not materially prejudice the insurer’s ability to comply with these sections, but

the statutory actuary is of the opinion that immediate remedial action must be taken

by the short-term insurer; and

(ii) if steps to rectify the matter are not taken by the board of directors of the short-term

insurer to the satisfaction of the statutory actuary within 30 days after the date of the

report, without delay inform the Registrar.

(6) (a) The furnishing, in good faith, by a statutory actuary of a report or information in terms of

subsection (5) shall not be deemed to constitute a contravention of a provision of a law or a

breach of a provision of a code of professional conduct to which he or she is subject.

(b) The failure, in good faith, by a statutory actuary to furnish a report or information in terms of

this section shall not confer upon any person a right of action against the statutory actuary

which, but for that failure, that person would not have had.

(7) In addition to duties assigned to the statutory actuary by any other law or a code of

professional practice, the statutory actuary shall -

(a) in relation to a statement forming part of the returns in respect of which he or she is required to submit in terms of section 35, examine that statement and satisfy himself or herself that it is properly drawn up so as to comply with the requirements of this Act and attest or, as the case may be, express an opinion in connection with that statement; and

(b) carry out the other duties provided for in this Act or prescribed by the Minister.

(8) A statutory actuary shall -

(a) have the right of access at all times to the accounting records and other books and documents of the short-term insurer and be entitled to require from the directors or officers of that insurer the information and explanations he or she deems necessary for the carrying out of his or her duties;

(b) be entitled to -

(i) attend and speak at a general meeting of the short-term insurer;

(ii) receive the notices and other communications relating to a general meeting referred to in subparagraph (i) that a member of that short-term insurer is entitled to receive; and

(c) (i) attend and be entitled to speak at any meeting of the board of directors of the short-term insurer on the business of the meeting which concerns the duties conferred on or assigned to him or her as statutory actuary by or under this Act and by any other law or code of professional practice; and

(iii) receive the notices and other communications relating to any meeting referred to in subparagraph (i) which a member of the board of directors is entitled to receive.

20.

Appointment

of auditor or

statutory

actuary by

Registrar

(1) If a short-term insurer for any reason fails to appoint an auditor or statutory actuary, the

Registrar may, notwithstanding sections 269 (4) and 271 (1) of the Companies Act, but subject

to section 19 or 19A of this Act, appoint an auditor or statutory actuary for that short-term

insurer.

(2) A person or firm appointed under subsection (1) as auditor or statutory actuary of a short-

term insurer shall be deemed to have been appointed by the short-term insurer in accordance


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SECTION PROVISION

with this Act.

21. Removal

of appointees

who are not fit

and proper

(1) The Registrar may by notice require a short-term insurer to terminate the appointment of a

director, managing executive, public officer, auditor or statutory actuary of that short-term

insurer, if the person or firm concerned is not fit and proper to hold the office concerned.

32. Liabilities (2) If an unexpired risk provision is considered to be necessary, the insurer shall determine the

amount thereof in consultation with its auditor and, where a statutory actuary has been

appointed, its statutory actuary.

63.

Application of

other

provisions of

Act to Lloyd’s

(4) (b) Section 19A shall apply with the necessary changes in relation to the statutory actuary

appointed by virtue of section 57 (5) (b) in respect of each of the Lloyd’s Trusts as if the

reference to section 28 (1) in section 19A (5) (b) (i) were a reference to section 60 and the

reference to section 35 in section 19A (7) (a) were a reference to section 58 (1) and paragraph

7 of Schedule 3.

69. Special

provisions

concerning

short-term

insurers that

are not public

companies

(3) The financial statements of a short-term insurer, other than the financial statements drawn

up by the statutory actuary, shall be drawn up and presented in accordance with financial

reporting standards applicable to a widely-held company.

1. Definitions “statutory actuary” means an actuary appointed in accordance with section 20(1) or 21(1)(b);

19. Auditor (8) Without derogating from an auditor’s right to do so in respect of anything which is material

to the carrying out of the auditor’s duties, an auditor shall not be required to examine or

express an opinion in relation to a statement forming part of a return, report or certificate or to

the particulars thereof, in respect of which a statutory actuary is required, in terms of this Act to

make an examination, give an attestation or express an opinion.

(9) An auditor may rely on the work performed by the statutory actuary in relation to the

financial affairs of a long-term insurer, when the auditor expresses an opinion in relation to the

financial affairs of that long-term insurer in terms of this Act or any other law, subject to

compliance with the prevailing auditing standards.

20. Statutory

actuary

(1) A long-term insurer shall from time to time appoint, and at all times have, an actuary.

(2) A long-term insurer may appoint an alternate to act in the place of its statutory actuary

during his or her absence for any reason.

(3) No person other than a natural person who is permanently resident in the Republic is a

Fellow of the Actuarial Society of South Africa and has, as an actuary, appropriate practical

experience relating to long-term insurance business, shall be appointed as a statutory actuary

or his or her alternate.

(4) No appointment of a statutory actuary or his or her alternate shall take effect unless it has

been approved by the Registrar.

(5) the statutory actuary of a long-term insurer shall -

(a) submit to the Registrar, if his or her appointment is for any reason terminated, a

statement of what he or she believes to be the reasons for that termination; and


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SECTION PROVISION

(b) (i) without delay, report in writing to the board of directors of the long-term insurer any

matter relating to the business of the long-term insurer of which he or she becomes

aware in the performance of his or her functions as statutory actuary and which, in his or

her opinion, constitutes a contravention of section 29(1) or any other section of this Act

relating to the duties of the statutory actuary, or in future may prejudice the long-term

insurer’s ability to comply with section 29(1) or any other section of this Act relating to the

duties of the statutory actuary, which report must give a description of the matter and

must include such other particulars as the statutory actuary considers appropriate:

Provided that the report must be submitted without delay also to the Registrar where, in

the opinion of the statutory actuary, the matter-


(bb) does not materially prejudice the insurer’s ability to comply with these sections, but

the statutory actuary is of the opinion that immediate remedial action must be taken

by the long-term insurer; and

(ii) if steps to rectify the matter are not taken by the board of directors of the long-term

insurer to the satisfaction of the statutory actuary within 30 days after the date of the

report, without delay inform the Registrar.

(6) (a) The furnishing, in good faith, by a statutory actuary of a report or information in terms of

subsection (5) shall not be deemed to constitute a contravention of a provision of a law or a

breach of a provision of a code of professional conduct to which he or she is subject.

(b) The failure, in good faith, by a statutory actuary to furnish a report or information in terms of

this section shall not confer upon any person a right of action against the statutory actuary


(7) In addition to duties assigned to the statutory actuary by any other law or a code of

professional practice, the statutory actuary shall -

(a) in relation to a statement forming part of the returns in respect of which he or she is

required to do so in terms of section 36, examine that statement and satisfy himself or

herself that it is properly drawn up so as to comply with the requirements of this Act and

attest or, as the case may be, express an opinion in connection with that statement; and

(b) carry out the other duties provided in this Act or prescribed by the Minister.


(a) have the right of access at all times to the accounting records and other books and

documents of the long-term insurer and be entitled to require from the directors or

officers of that insurer the information and explanations he or she deems necessary for

the carrying out of his or her duties;


(i) attend and speak at a general meeting of the long-term insurer; and

(ii) receive the notices and other communications relating to a general meeting which a

member of that long-term insurer is entitled to receive;

(c) (i) attend and be entitled to speak at any meeting of the board of directors of the long-

term insurer on the business of the meeting which concerns the duties conferred on or


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SECTION PROVISION

assigned to him or her as statutory actuary by or under this Act and by any other law or

code of professional practice; and

(ii) receive the notices and other communications relating to any meeting referred to in

subparagraph (i) which a member of the board of directors is entitled to receive.

21.

Appointment

of auditor or

statutory

actuary by

Registrar

(1) If a long-term insurer for any reason fails to appoint –

(b) an actuary in terms of section 20(1), the Registrar may, subject to section 20, appoint an

actuary for that long-term insurer.

(2) A person or firm appointed under subsection (1) as auditor or actuary of a long-term

insurer shall be deemed to have been appointed by the long-term insurer in accordance with

this Act.

22. Removal

of appointees

who are not fit

and proper

(1) The Registrar may by notice require a long-term insurer to terminate the appointment of a

director, managing executive, public officer, auditor or statutory actuary of that long-term

insurer, if the person or firm concerned is not fit and proper to hold the office concerned.

23. Audit

committee

(3) (b) to facilitate and promote communication and liaison concerning the matters referred to

in paragraph (a) or a related matter between the board of directors and the managing

executive, auditor, statutory actuary and internal audit staff of the long-term insurer;

29.

Maintenance

of financially

sound

condition

(5) A long-term insurer shall not declare or pay a dividend to its shareholders unless its

statutory actuary has certified that the declaration or payment will not be contrary to subsection

(4).

31. Kinds and

spread of

assets

(2) Subject to subsection (1), the kinds of assets that a long-term insurer has, and the spread

of those assets among different kinds, shall –

(a) to the satisfaction of the statutory actuary of the long-term insurer, be proper and suitable

having regard to the nature of its various liabilities and the time when, the place where,

and the manner in which, it is required, or expects to be required, to meet those liabilities;

and

34.

Prohibitions

concerning

assets and

certain

liabilities

(2) A long-term insurer shall not invest in derivatives other than for one or more of the

following reasons:

(a) Derivatives designated as an asset in respect of a linked policy;

(b) derivatives acquired out of or in respect of assets that are in excess of the assets

required to meet the long-term insurer’s liabilities under long-term policies and capital

adequacy requirement in terms of section 30(1):

(c) for the purpose of efficient portfolio management:

(d) for the purpose of reducing investment risk:

Provided that-

(i) in respect of paragraphs (a), (b) and (c), the long-term insurer will, or reasonably

expects to, have the asset at the settlement dale of the derivative instrument which

matches the obligations under that instrument and from which it can discharge those

obligations;


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SECTION PROVISION

(ii) in respect of paragraph (d), the statutory actuary has in writing agreed thereto.

35. Failure to

maintain

financially

sound

condition

(2) When the Registrar has received the information and proposals referred to in subsection

(1), the Registrar may, without derogating from the Registrar’s powers under section 11 or 12

or any other provision of this Act –

(a) authorise the long-term insurer concerned, by notice, to adopt a course of action,

approved by the Registrar after considering those proposals and after consultation with

the auditor and the statutory actuary of the long-term insurer, and which the Registrar is

satisfied will reasonably ensure that the long-term insurer complies with section 29(1),

and the Registrar may, at that time or at any time thereafter, after further consultation

with the auditor and the statutory actuary, by notice authorise the modification of that

course of action to the extent that the Registrar deems appropriate in the circumstances;

or

46. Policy to

be actuarially

sound

(1) A long-term insurer shall not-

(a) enter into any particular kind of long-term policy unless the statutory actuary is satisfied

that the premiums, benefits and other values thereof are actuarially sound;

(b) make a distinction between the premiums, benefits or other values of different long-term

policies unless the statutory actuary is satisfied that the distinction is actuarially justified;

or

(c) award a bonus or similar benefit to a policyholder unless-

(i) it is done in accordance with the principles and practices of financial management of

the long-term insurer; and

(ii) the statutory actuary is satisfied that it is actuarially sound and that a surplus is

available for that purpose.

52. Failure to

pay premiums

(3) A long-term insurer shall have rules which to the satisfaction of its statutory actuary

prescribe a sound basis on which, and the methods by which, a long-term policy is to be

valued and otherwise dealt with for the purposes of subsection (2).

71. Special

provisions

concerning

long-term

insurers that

are not public

companies

(3) The financial statements of a long-term insurer, other than the financial statements drawn

up by the statutory actuary, shall be drawn up and presented in accordance with financial

reporting standards applicable to a widely-held company.

75.

Interpretation

of certain

references in

existing laws

Unless it would in a particular case be clearly inappropriate, a reference in a law in force

immediately before the commencement of this Act –

(i) to a valuator, as defined in the repealed Act, shall be construed as a reference to a

statutory actuary.

ANNEXURE B

JUXTAPOSITION OF PROPOSALS FOR THE APPOINTED ACTUARY AND CURRENT REQUIREMENTS PERTAINING TO THE STATUTORY ACTUARY

Appointment Short-term Insurance Act Long-term Insurance Act SAM Proposals

19A. Statutory Actuary

(1) A short-term insurer shall from time to time appoint, and at all times have, a statutory actuary under the circumstances determined by the Registrar, either generally or in a particular case.

(2) A short-term insurer may appoint an alternate to act in the place of its statutory actuary during his or her absence for any reason.

(3) No person other than a natural person who is permanently resident in the Republic, is a Fellow of the Actuarial Society of South Africa and has, as an actuary, appropriate practical experience relating to short-term insurance business, shall be appointed as a statutory actuary or his or her alternate.

(4) No appointment of a statutory actuary or his or her alternate shall take effect unless it has been approved by the Registrar.

20. Appointment of auditor or statutory actuary by Registrar

(1) If a short-term insurer for any reason fails to appoint an auditor or statutory actuary, the Registrar may, notwithstanding sections 269 (4) and 271 (1) of the Companies Act, but subject to section 19 or 19A of this Act, appoint an auditor or statutory actuary for that short-term insurer.

(2) A person or firm appointed under subsection (1) as auditor or statutory actuary of a short-term insurer

20. Statutory Actuary (1) A long-term insurer shall from time to time appoint, and

at all times have, an actuary.

(2) A long-term insurer may appoint an alternate to act in

the place of its statutory actuary during his or her absence for any reason.

(3) No person other than a natural person who is permanently resident in the Republic is a Fellow of the Actuarial Society of South Africa and has, as an actuary, appropriate practical experience relating to long-term insurance business, shall be appointed as a statutory actuary or his or her alternate.

(4) No appointment of a statutory actuary or his or her alternate shall take effect unless it has been approved by the Registrar.

21. Appointment of auditor or statutory

actuary by Registrar

(1) If a long-term insurer for any reason fails to appoint –

(b) an actuary in terms of section 20(1), the Registrar may, subject to section 20, appoint an actuary for that long-term insurer.

(2) A person or firm appointed under subsection (1) as auditor or actuary of a long-term insurer shall be deemed to have been appointed by the long-term

This role is to be fulfilled by the Head of the Actuarial Function in the SAM final measures. Further details pertaining to requirements for control functions are in Discussion Document 71 as well as the draft Insurance Laws Amendment Bill. Requirements pertaining to 19A (3) of the Short-term act and 20 (3) of the Long-term act to be removed, with the requirements pertaining to fitness and probity deemed to be sufficient. It will be a requirement to all insurers to have a Head of Actuarial Function. Fit and proper requirements as discussed in Discussion Document 71 and the draft Insurance Laws Amendment Bill are applicable to Heads of Control Functions.


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shall be deemed to have been appointed by the short-term insurer in accordance with this Act.

21. Removal of appointees who are not fit and proper

(1) The Registrar may by notice require a short-term insurer to terminate the appointment of a director, managing executive, public officer, auditor or statutory actuary of that short-term insurer, if the person or firm concerned is not fit and proper to hold the office concerned.

63. Application of other provisions of Act

to Lloyd’s (4) (b) Section 19A shall apply with the necessary

changes in relation to the statutory actuary appointed by virtue of section 57 (5) (b) in respect of each of the Lloyd’s Trusts as if the reference to section 28 (1) in section 19A (5) (b) (i) were a reference to section 60 and the reference to section 35 in section 19A (7) (a) were a reference to section 58 (1) and paragraph 7 of Schedule 3.

insurer in accordance with this Act.

22. Removal of appointees who are not fit and proper

(1) The Registrar may by notice require a long-term insurer to terminate the appointment of a director, managing executive, public officer, auditor or statutory actuary of that long-term insurer, if the person or firm concerned is not fit and proper to hold the office concerned.

Duties

Short-term Insurance Act Long-term Insurance Act SAM Proposals 19A. Statutory Actuary

(5) The statutory actuary of a short-term insurer

shall – (a) submit to the Registrar, if his or her

appointment is for any reason terminated, a statement of what he or she believes to be the reasons for that termination; and

(b) (i) without delay, report in writing to the board of directors of the short-term insurer any matter relating to the business of the short-term insurer of which he or she

20. Statutory Actuary

(5) the statutory actuary of a long-term insurer shall -

(a) submit to the Registrar, if his or her appointment is for any reason terminated, a statement of what he or she believes to be the reasons for that termination; and

(b) (i) without delay, report in writing to the board of directors of the long-term insurer any matter relating to the business of the long-term insurer of which he or she becomes aware in the performance of his or her functions as statutory actuary and which, in his

Whistle blowing requirements will pertain to all Heads of Control Functions, as indicated in Discussion Document 71 and the draft Insurance Laws Amendment Bill.


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becomes aware in the performance of his or her functions as statutory actuary and which, in his or her opinion, constitutes a contravention of section 28 (1) or any other section of this Act relating to the duties of the statutory actuary, or in future may prejudice the short-term insurer’s ability to comply with section 28 (1) or any other section of this Act relating to the duties of the statutory actuary, which report must give a description of the matter and must include such other particulars as the statutory actuary considers appropriate: Provided that the report must be submitted without delay also to the Registrar where, in the opinion of the statutory actuary, the matter –


(bb) does not materially prejudice the insurer’s ability to comply with these sections, but the statutory actuary is of the opinion that immediate remedial action must be taken by the short-term insurer; and

(ii) if steps to rectify the matter are not taken by the board of directors of the short-term insurer to the satisfaction of the statutory actuary within 30 days after the date of the report, without delay inform the Registrar.

(6) (a) The furnishing, in good faith, by a statutory

actuary of a report or information in terms of subsection (5) shall not be deemed to constitute a contravention of a provision of a law or a breach of a provision of a code of professional conduct to which he or she is subject.

(b) The failure, in good faith, by a statutory actuary to furnish a report or information in terms of this section shall not confer upon any person a right of action against the statutory actuary

or her opinion, constitutes a contravention of section 29(1) or any other section of this Act relating to the duties of the statutory actuary, or in future may prejudice the long-term insurer’s ability to comply with section 29(1) or any other section of this Act relating to the duties of the statutory actuary, which report must give a description of the matter and must include such other particulars as the statutory actuary considers appropriate: Provided that the report must be submitted without delay also to the Registrar where, in the opinion of the statutory actuary, the matter-


(bb) does not materially prejudice the insurer’s ability to comply with these sections, but the statutory actuary is of the opinion that immediate remedial action must be taken by the long-term insurer; and

(ii) if steps to rectify the matter are not taken by the board of directors of the long-term insurer to the satisfaction of the statutory actuary within 30 days after the date of the report, without delay inform the Registrar.

(6) (a) The furnishing, in good faith, by a statutory actuary

of a report or information in terms of subsection (5) shall not be deemed to constitute a contravention of a provision of a law or a breach of a provision of a code of professional conduct to which he or she is subject.

(b) The failure, in good faith, by a statutory actuary to

furnish a report or information in terms of this section shall not confer upon any person a right of action against the statutory actuary which, but for that failure, that person would not have had.

(7) In addition to duties assigned to the statutory actuary by

any other law or a code of professional practice, the

statutory actuary shall -

(a) in relation to a statement forming part of the


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(7) In addition to duties assigned to the statutory

actuary by any other law or a code of professional

practice, the statutory actuary shall -

(a) in relation to a statement forming part of the returns in respect of which he or she is required to submit in terms of section 35, examine that statement and satisfy himself or herself that it is properly drawn up so as to comply with the requirements of this Act and attest or, as the case may be, express an opinion in connection with that statement; and

(b) carry out the other duties provided for in this Act or prescribed by the Minister.

returns in respect of which he or she is required to do so in terms of section 36, examine that statement and satisfy himself or herself that it is properly drawn up so as to comply with the requirements of this Act and attest or, as the case may be, express an opinion in connection with that statement; and

(b) carry out the other duties provided in this Act or prescribed by the Minister.

Activities

Short-term Insurance Act Long-term Insurance Act SAM Proposals 32. Liabilities

(2) If an unexpired risk provision is considered to be necessary, the insurer shall determine the amount thereof in consultation with its auditor and, where a statutory actuary has been appointed, its statutory actuary.

29. Maintenance of financially sound

condition (5) A long-term insurer shall not declare or pay a dividend

to its shareholders unless its statutory actuary has certified that the declaration or payment will not be contrary to subsection (4).

31. Kinds and spread of assets

(2) Subject to subsection (1), the kinds of assets that a

long-term insurer has, and the spread of those assets

among different kinds, shall –

(a) to the satisfaction of the statutory actuary of the long-term insurer, be proper and suitable having regard to the nature of its various liabilities and the time when, the place where, and the manner in which, it is required, or expects to be required, to meet those

1. Insurance and reinsurance undertakings

shall provide for an effective actuarial function, headed up by the HAOF, insofar as the following functions are concerned, to:

(a) review the calculation of technical

provisions, the SCR calculation (whether internal model or standard formula), and the technical provisions and capital requirements forming part of the projections in the ORSA including to:

ensure the appropriateness of the methodologies and underlying models used as well as the assumptions made;

assess the sufficiency and quality of


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liabilities; and

34. Prohibitions concerning assets and certain liabilities

(2) A long-term insurer shall not invest in derivatives other

than for one or more of the following reasons:

(a) Derivatives designated as an asset in respect of a

linked policy;

(b) derivatives acquired out of or in respect of assets that

are in excess of the assets required to meet the long-

term insurer’s liabilities under long-term policies and

capital adequacy requirement in terms of section

30(1):

(c) for the purpose of efficient portfolio management:

(d) for the purpose of reducing investment risk:

Provided that-

(i) in respect of paragraphs (a), (b) and (c), the long-term insurer will, or reasonably expects to, have the asset at the settlement dale of the derivative instrument which matches the obligations under that instrument and from which it can discharge those obligations;

(ii) in respect of paragraph (d), the statutory actuary has in writing agreed thereto.

35. Failure to maintain financially sound

condition

(2) When the Registrar has received the information and

proposals referred to in subsection (1), the Registrar

may, without derogating from the Registrar’s powers

under section 11 or 12 or any other provision of this Act

–

the data used; compare best estimates against

experience when evaluating technical provisions;

inform the Board of the reliability and adequacy of the calculations;

oversee the calculations in the cases set out in Article 82;

(g) express an opinion on the overall underwriting and ALM policies;

(h) express an opinion on the adequacy of reinsurance arrangements;

(i) (j) and (k) express an opinion on the actuarial

soundness of premiums, benefits, and any other values thereof, including the awarding of bonuses to policyholders.

Overall investments will be governed by the

Prudent Person Principle outlined in Discussion Document 39.

Maintaining financial soundness remains

overall the responsibility of the board of directors, and as such decisions affecting financial soundness (e.g. declaring dividends) do not explicitly require actuarial sign-off to enact such decisions. The HAC does however provide assurance to the board as well as the regulator as to the financial soundness of the insurer in their submissions to the board and the regulator.


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(a) authorise the long-term insurer concerned, by notice, to adopt a course of action, approved by the Registrar after considering those proposals and after consultation with the auditor and the statutory actuary of the long-term insurer, and which the Registrar is satisfied will reasonably ensure that the long-term insurer complies with section 29(1), and the Registrar may, at that time or at any time thereafter, after further consultation with the auditor and the statutory actuary, by notice authorise the modification of that course of action to the extent that the Registrar deems appropriate in the circumstances; or

46. Policy to be actuarially sound

(1) A long-term insurer shall not-

(a) enter into any particular kind of long-term policy unless the statutory actuary is satisfied that the premiums, benefits and other values thereof are actuarially sound;

(b) make a distinction between the premiums, benefits or other values of different long-term policies unless the statutory actuary is satisfied that the distinction is actuarially justified; or

(c) award a bonus or similar benefit to a policyholder

unless-

(i) it is done in accordance with the principles and practices of financial management of the long-term insurer; and

(ii) the statutory actuary is satisfied that it is actuarially sound and that a surplus is available for that purpose.

52. Failure to pay premiums (3) A long-term insurer shall have rules which to the

satisfaction of its statutory actuary prescribe a sound basis on which, and the methods by which, a long-term policy is to be valued and otherwise dealt with for the purposes of subsection (2).


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Access

Short-term Insurance Act Long-term Insurance Act SAM Proposals 19A. Statutory Actuary


(a) have the right of access at all times to the accounting records and other books and documents of the short-term insurer and be entitled to require from the directors or officers of that insurer the information and explanations he or she deems necessary for the carrying out of his or her duties;


(i) attend and speak at a general meeting of the short-term insurer;

(ii) receive the notices and other communications relating to a general meeting referred to in subparagraph (i) that a member of that short-term insurer is entitled to receive; and

(c) (i) attend and be entitled to speak at any meeting of the board of directors of the short-term insurer on the business of the meeting which concerns the duties conferred on or assigned to him or her as statutory actuary by or under this Act and by any other law or code of professional practice; and

(ii) receive the notices and other communications relating to any meeting referred to in subparagraph (i) which a member of the board of directors is entitled to receive.

20. Statutory Actuary


(a) have the right of access at all times to the accounting records and other books and documents of the long-term insurer and be entitled to require from the directors or officers of that insurer the information and explanations he or she deems necessary for the carrying out of his or her duties;


(i) attend and speak at a general meeting of the long-term insurer; and

(ii) receive the notices and other communications relating to a general meeting which a member of that long-term insurer is entitled to receive;

(c) (i) attend and be entitled to speak at any meeting of the board of directors of the long-term insurer on the business of the meeting which concerns the duties conferred on or assigned to him or her as statutory actuary by or under this Act and by any other law or code of professional practice; and

(ii) receive the notices and other communications relating to any meeting referred to in subparagraph (i) which a member of the board of directors is entitled to receive.

23. Audit committee (3) (b) to facilitate and promote communication and

liaison concerning the matters referred to in paragraph (a) or a related matter between the board of directors and the managing executive, auditor, statutory actuary and internal audit staff of the long-term insurer;

Requirements allowing access to resources as well as access to the board or delegated committee without the presence of senior management will pertain to all Heads of Control Functions, as indicated in Discussion Document 71 and the draft Insurance Laws Amendment Bill.


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Reliance & Financial Reporting

Short-term Insurance Act Long-term Insurance Act SAM Proposals 19. Auditor

(8) Without derogating from an auditor’s right to do so in

respect of anything which is material to the

carrying out of the auditor’s duties, an auditor shall

not be required to examine or express an opinion

in relation to a statement forming part of a return,

report or certificate or to the particulars thereof, in

respect of which a statutory actuary is required, in

terms of this Act, to make an examination, give an

attestation or express an opinion.

(9) An auditor may rely on the work performed by the

statutory actuary in relation to the financial affairs

of a short-term insurer, when the auditor expresses

an opinion in relation to the financial affairs of that

short-term insurer in terms of this Act or any other

law, subject to compliance with the prevailing

auditing standards.

69. Special provisions concerning short-term insurers that are not public companies

(3) The financial statements of a short-term insurer,

other than the financial statements drawn up by

the statutory actuary, shall be drawn up and

presented in accordance with financial reporting

standards applicable to a widely-held company.

19. Auditor (8) Without derogating from an auditor’s right to do so in

respect of anything which is material to the carrying out of the auditor’s duties, an auditor shall not be required to examine or express an opinion in relation to a statement forming part of a return, report or certificate or to the particulars thereof, in respect of which a statutory actuary is required, in terms of this Act to make an examination, give an attestation or express an opinion.

(9) An auditor may rely on the work performed by the

statutory actuary in relation to the financial affairs of a long-term insurer, when the auditor expresses an opinion in relation to the financial affairs of that long-term insurer in terms of this Act or any other law, subject to compliance with the prevailing auditing standards.

71. Special provisions concerning long-term insurers that are not public companies

(3) The financial statements of a long-term insurer, other

than the financial statements drawn up by the statutory actuary, shall be drawn up and presented in accordance with financial reporting standards applicable to a widely-held company.

Similar requirements under SAM are still to be proposed by the Reporting Task Group.


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Other Short-term Insurance Act Long-term Insurance Act SAM Proposals

75. Interpretation of certain references in existing laws

Unless it would in a particular case be clearly inappropriate,

a reference in a law in force immediately before the

commencement of this Act –

(i) to a valuator, as defined in the repealed Act, shall be construed as a reference to a statutory actuary.

ANNEXURE C REQUIREMENTS FOR CONTROL FUNCTIONS AND HEADS OF CONTROL FUNCTIONS

In order to contextualise the recommendations made in this document, it is important to consider the overarching requirements pertaining to control functions and related heads of control functions. The requirements as provided for in the draft Insurance Laws Amendment Bill are outlined below: General requirements for control functions

14J. (1) A long-term insurer must establish and maintain the following control functions:

(a) a risk management function;

(b) a compliance function;

(c) an actuarial control function; and

(d) an internal audit function.

(2) Each control function referred to in subsection (1) must be structured to ensure that the function has the necessary authority, independence, resources, expertise and access to the board and all relevant employees and information to exercise its authority and perform its responsibilities.

(3) The authority and responsibilities of each control function must be determined and documented under the governance framework of the long-term insurer referred to under section 14A.

(4) (a) The risk management function, compliance function and actuarial control function must be regularly reviewed by the long-term insurer’s internal audit function or an objective external reviewer.

(b) The internal audit function must be regularly reviewed by an objective external reviewer.

(c) The board of directors, taking into consideration the reviews referred to under paragraphs (a) and (b), must regularly review the performance of each control function.

(5) The existence of any control function does not relieve the board of directors or senior management from their respective governance and related responsibilities.

(6) A long-term insurer may where appropriate in light of the nature, scale and complexity of the long-term insurer’s business, risks, and legal and regulatory obligations, outsource a control function subject to section 14L.

(7) The Registrar may prescribe requirements for any control function, including, in addition to section 14K, requirements relating to the reporting structures, independence, resources, expertise, responsibilities and functions of a control function.

(8) The requirements prescribed under paragraph (8) do not apply where the responsibilities and functions of the actuarial control function are performed by the statutory actuary in terms of section 20, to the extent that these requirements are addressed in section 20.


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Head of control function

14K. (1) (a) A long-term insurer, subject to paragraphs (b) and (c), must appoint a head for each of the control functions referred to in section 14J.

(b) The appointment, performance assessment, remuneration, disciplining and dismissal of the head of each control function (other than the head of the internal audit function) must be done with the approval of, or after consultation with, the board of directors or relevant board committee.

(c) The appointment, annual or other periodic performance assessment and dismissal of the head of the internal audit function must be done by the board of directors, its chairperson or the audit committee which solely determines his or her remuneration, promotions, demotions or disciplinary actions.

(2) A long-term insurer may where appropriate in light of the nature, scale and complexity of the long-term insurer’s business, risks, and legal and regulatory obligations, -

(a) appoint a person, in full or in part, as the head of more than one control function (other than the head of the internal audit function); or

(b) appoint the statutory actuary as the head of the actuarial control function, if that appointment precludes the statutory actuary from conducting any activities for the long-term insurer which would compromise the independence and oversight requirements of the role of the actuarial control function.

(3) The Registrar, on notification of the appointment or outsourcing of a head of control function in accordance with section 18, may instruct the long-term insurer to appoint another or a dedicated person as the head of control function, or outsource to another person, if the Registrar is of the opinion that –

(a) a person is not a suitable head for more than one control function; or

(b) the appointment of a person as the head of more than one control function will detract from an adequate control environment and risk management system, taking into account the nature, scale and complexity of the long-term insurer’s business and the risks to which it is exposed.

(4) The head of each control function must –

(a) regularly report to the board of directors or one of its committees;

(b) communicate directly and regularly meet (without the presence of senior management) with the chairperson of the board of directors or one of its committees.

(5) The head of a control function must –

(a) without delay, report in writing to the board of directors any matter relating to the business of the long-term insurer of which he or she becomes aware in the performance of his or her functions and which, in his or her opinion, constitutes a contravention of any section of this Act or a material contravention of any other legislation that applies to the long-term insurer; and

(b) where the matter relates to a contravention of this Act, submit the report referred to in paragraph (a), without delay to the Registrar where, in the opinion of the head, appropriate steps to rectify the matter are not taken by the board of directors to the


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satisfaction of the head within 30 days after the date in which the report was submitted to the board of directors.

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