Life: research working parties

The research encompasses life, pension and investment, and the working party will align and build on existing research, both from within the profession and externally.

This is an opportunity to produce thought leadership that can be used to inform Government, the market and consumer groups. A key objective is to demonstrate how adverse consequences of the advice gap could be mitigated if the ideas and conclusions of the research are followed.

Key objectives

• Evaluating the emergence of an advice gap post-RDR
• Assessing market distribution mechanisms by wealth segment
• Researching product choice and complexity in the new environment
• Considering adverse consequences of advice gap and two-tier market for consumers and society
• Highlighting potential solutions and mechanisms to mitigate regulatory and market failure

About

Chair: Chris Barnard
Established: 2021

There is a huge amount of climate change research. It can be difficult for life actuaries to know where to start to find relevant information. This working party will seek to help life actuaries efficiently find such information and understand industry practices.

The working party will run multiple workstreams, including:

• Embedding climate change risks into risk frameworks
• Quantifying asset climate change risks for life insurers
• Quantifying demographic risks for life insurers
• Life insurer reporting

About

Chair: Carmela Calvosa
Established: 2021

The research encompasses life, pension, and investment, and the working party should consider engaging with key stakeholders such as FCA, ABI, and Which? to seek their input and influence the debate. The working party would be expected to publish a series of blogs and articles on this subject with a sessional paper at the end to be used as a reference for actuaries working in this area.

This is an opportunity to produce thought leadership that can be used to inform Government, the market and consumer groups. A key objective is to demonstrate how actuaries can help shape and address the requirements in practical terms.

About

Chair: TBC
Established: 2024

Areas of focus include

• Overviews on credit risk in Insurance.
• Options in modelling credit asset capital (transition & default modelling, Matching Adjustment in Stress etc.)
• Best Estimate Credit Risk Provisions (relevant for IFRS Illiquidity premium proposals, MA attestation considerations)
• Considerations for modelling other counterparty default risks (reinsurance, cash, derivatives etc.)
• Explore Sovereign Default Risk

About

Chair: Michael Ashcroft
Established: 2024

The expansion of insurers investing in the Equity Release Mortgages (ERM), and the asset’s long term use to back annuity portfolios, brings ERM into scope of the “matching adjustment” of Solvency II.

Key objectives

1. To assist the Life Board and Life Research Committee to identify and promote new research on this current hot topic
2. Preparation for any future consultation responses in relation to ERMs
3. A review of the consequences for the IFoA from the variation in valuations placed on ERMs, often through actuarial assumptions on common economic factors
4. To present at IFoA Conferences such as Life Conferences and regional societies (see the presentation at the Life Conference 2017)
5. To produce a final report on actuarial practice in respect of (3) and a separate research paper on approaches to valuation of the no negative equity guarantee and how current actuarial practice could evolve.

Equity Release Mortgages 2020 Working Party: terms of reference (80 KB PDF)

About

Chair: Raj Saundh
Established: 2016

The Extreme Events Working Party is a cross-practice working party that aims for a better and wider understanding of the various methodologies that could be used for developing benchmark figures, including the advantages and disadvantages of each methodology.

The objectives of the Extreme Events Working Party include developing robust values for a variety of tables. There is scope for the working party to give consideration to the process for justifying the use of an internal model which would take account of the requirements of Solvency II, as well as of BAS, and any other relevant mandatory requirements.

This cross practice working party is shared by Life and F&I.

About

Chair: James Sharpe
Established: 2012

The main areas of focus of the research are:

• Acceleration of growth – To explore the role funded re plays in the predicted BPA volume growth and the extent to which the risks presented by increasing competitive pressures among BPA players of the market are appropriately managed.
• Counterparty exposure – To investigate the reinsurance counterparty exposure of BPA insurers to funded re-counterparties and the extent of systemic risk in the industry that could be caused by the failure of any particular reinsurer.
• New entrants – to understand business practice and operating models of new entrants, both in terms of BPA insurers and funded re-reinsurers and the impact of these new entrants on industry economics.
• Collateral guideline – To understand the current variations of industry practices in investment guidelines of funded reinsurance, and establish an industry view on the range of best industry practices to reach a balanced view between commercial viability and robust risk management principles.
• Recapture provision – To systematically examine the appropriateness of the way in which the recapture provisions/scenarios are currently set and priced for in funded reinsurance transactions.

About

Chair: Wei Hou
Established: 2024
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For the past generation, many sources of risk pooling have been demised or reduced. Some of this was highlighted by the Great Risk Transfer. However, this continues to be the case with many financial products, and if this isn’t considered now, then many forms of insurance will be unaffordable, unviable or unattainable for an ever greater minority. This risk increases with the ever-wider use of Machine Learning and AI to use data and insights.

If this is transferred, unchecked, into risk selection, then this trend may increase exponentially. The working party will research this area and produce a paper, an Actuary article, and presentations at conferences.

We will also engage with external stakeholders on our research.

About

Chair: Nick Reilly
Established: 2024

Reinsurance is commonly used by life and health insurers to manage their profitability, risk, and capital, and to access services provided by third-party reinsurers. The Life and Health Reinsurance Working Party was established in 2014 and has since set itself the ambition of developing into a source of practical knowledge and expertise on matters relating to reinsurance. Rather than looking at the theory behind reinsurance, the working party has been focused on the value that reinsurance can provide across the insurance industry.

Reinsurance is a very common and indeed powerful tool that insurers can use in many parts of the organisation. It is used for a variety of reasons, including risk management, capital management, access to technology and services, and alternative asset strategies. And more.

Ultimately, the purpose of an insurer is to help its policyholders manage their own uncertain future financial risks. It does so by taking on those risks, pooling them to achieve diversification, and earning a return on the capital required to back the business.

To this end, the reinsurance strategy and framework of any insurer may have a significant impact on its ultimate performance, its business and risk profile, its capital position, and its ability to remain solvent and grow, and thus continue to meet its policyholders’ needs well into the future.

However, as a working party, we believe that reinsurance is not always optimised to support an insurer’s objectives, and may even destroy value through poor design and implementation.

About

Chair: Greg Solomon
Established: 2014

The members of the working party include actuaries employed by insurers, reinsurers, and consultants. This diverse group allows the working party to present views from all angles of reinsurance transactions.

As of January 2022, the members of the working party include Alexandra Manion, Arminder Kainth, Benoit Rio, Craig Gillespie, David Lipovics, Greg Solomon (Chairman), Kyle West, Niall Kavanagh, Peter Mannion, Ruud van Doorn, and Tom Keel.

The IFoA Life Research Sub-committee formed three working parties in 2018 to analyse different aspects of IFRS 17. One of these working parties was the IFRS 17 Contractual Service Margin Working Party which delivered in line with its stated objectives and presented its work in a sessional paper in October 2020. During the course of its work, it was evident that a number of IFRS 17 topics will remain open for debate and that will continue to pose challenges to stakeholders. The working party has been relaunched following its brief hiatus with revised terms of reference that would look to cover wider areas of IFRS 17 from a life insurer’s perspective.

Key objectives

• Identify IFRS 17 implementation challenges faced by life insurers globally other than those covered by existing working parties
• Identifying possible interpretations and approaches to tackling those challenges
• Consider the operational as well as technical implications of the different approaches to ensure that recommendations are proportionate
• Provoke thought leadership and innovation within the industry through presentations at various forums to gain wider input.

View the terms of reference (25 KB PDF)

Previous objectives

• Analysing the technical, operational, and financial impacts that arise with respect to the calculation of the CSM at initial recognition and subsequent measurement. These include issues pertaining to:
  • contract boundaries
  • ‘locked-in’ financial assumptions
  • coverage units
  • reinsurance contracts held
  • loss components
  • with-profits funds
  • transition
  • the impact on management information and relevant KPIs
• In addressing these issues, the working party will also consider existing literature and research material produced by relevant stakeholders (e.g. IASB and TRG; EFRAG; IFoA and other international actuarial associations; ICAEW and other accountancy bodies; consulting and audit firms; regulators and national standard setters)

About

Chair: tbc
Established: 2018 / relaunched 2021

Life insurers face liquidity risks from numerous sources, including, inter alia, high policy surrender rates, mortality catastrophes, asset defaults, funding of Matching Adjustment portfolios under stress, requirements of asset securitisations, and collateral calls in stressed conditions.

The regulator has set out its expectations for a robust risk management framework in SS5/19. However, there has been an increase in regulatory scrutiny of firms’ approaches to liquidity management of late, not least resulting from the LDI crisis affecting pension funds in late 2022.

Our aim is to understand whether sufficient guidance or support exists to help practitioners with their liquidity risk management, and to help to fill any gaps that exist.

About

Chair: TBC
Established: 2024

This working party will consider the management of Matching Adjustment portfolios as a measure approved by PRA under Solvency II, but whose subsequent management is not laid down in all areas. The sums involved are very material but aspects of the future management and fluctuation in the measure is unclear.

Key objectives

Below are the current objectives of the Matching Adjustment (MA) Working Party. These will necessarily be adapted in light of developments in regulation and industry practices.

• Can the IFoA provide guidance on how new assets should be treated for MA purposes – other than by individual application by all MA holders to the PRA
• MA portfolios over time develop more complex excesses of assets, and/or need for replenishment as new business flows and assumptions change. What is a rational approach to this, their management, extraction, or timely reassessment?
• Under plausible changes how do the three PRA matching tests perform, and should there be wider limits, or timescales for action, over those tests to avoid volatile and costly micromanagement across a year?
• Are there more pragmatic ways to treat reassurance (as an asset) and separation of collateral arrangements for MA portfolios?
• How speedily do fresh insurance assumptions (updating a longevity table say) need application to avoid undermining MA portfolio compliance with PRA matching tests – particularly at the financial year-end?
• The nature of fundamental spreads (FS) and how approved internal models (and the Standard Formula) interact with the FS in order to appropriately capture the risks retained by a firm. How might firms manage this distinction in their profit and loss attribution?
• What monitoring would be deemed suitable to inform the governance functions in the entity holding the MA approval?

About

Chair: Ross Evans
Established: 2016

The goal of this working party is to support the life insurance, pensions and retirement industry with relevant research to support new product innovation by bringing together research on investments, products and consumers with the ultimate goal to increase consumer choice and value for money.

Key objectives

• This is an opportunity to produce thought leadership that can be used to influence
• Compile and review current literature in the pensions, investments and life insurance arenas to ensure access to up-to-date information.
• Perform modelling to show the impact of offering certain guarantees and explore the impact of missing products (e.g. deferred annuities).
• Perform modelling to consider a range of different investment strategies (e.g. long term investments from age 55 to 85 as a core illiquid strategy with shorter term bonds to provide cashflows for drawdown early on, alongside potential equity release cashflows).
• Provoke thought leadership and innovation within the industry through presentations and forums to gain wider input.

About

Chair: Esther Hawley
Established: 2018