The Solvency II matching adjustment (MA) is vitally important to UK insurers, UK pension schemes, and individuals. Without the MA, annuity prices would increase, and it would simply not be affordable for many pension schemes to buy out with an insurance company. The same is also true of individuals reaching retirement, where annuities are an important part of the retirement toolkit.
The IFoA fully supports the continued inclusion of the MA within Solvency II. The MA is based on a fundamental actuarial technique (and one employed under the previous regulatory regime) that ensures the valuation of annuity-style liabilities reflects only the market risks to which the firm is exposed when adopting a buy-to-hold investment strategy. Since 2016, the MA has successfully helped reduce procyclical investment behaviour amongst UK insurers, such as during the stressed conditions in early 2020.
However, we believe that the MA framework needs to incorporate more pragmatic flexibility, and we welcome the focus on the MA within HM Treasury’s review of Solvency II in the UK. Our desire for greater pragmatism does not mean a lowering of regulatory standards but means removing blockers created through a set of rules which are very black and white in nature.
The current interpretation of what it means for an asset cash flow to be ‘fixed’, and the lengthy and onerous approvals process for making changes, have meant that firms do not always have the right incentives to invest in long-term innovative assets. Removing these artificial barriers, and introducing proportionality considerations, can be a key enabler of long-term investment and support for the UK government’s climate change objectives.
Insurance provides households with protection against financial hardship in the face of income shocks such as unemployment, illness, and bereavement. However, the average household in poverty pays almost £500 a year extra for essential services such as credit, energy, and insurance.
In the case of insurance, this is because vulnerable and low-income consumers can present a higher risk to insurers. This is due to a range of factors often outside the consumers’ control. These individuals are quoted higher premiums, which they are less likely to be able to afford, or they are refused cover altogether. It is a problem the cost of living crisis has only exacerbated.
The IFoA believes that a number of reforms can be made to help address the poverty premium in the insurance sector. For example, we would like to see government determine a minimum level of protection needed by all, including low-income families. The aim would be for them to remain financially resilient to specific risks and unexpected shocks.
Our full poverty premium report (produced with the charity Fair By Design) and summary document are on our poverty premium webpage. The summary contains a detailed list of all recommendations.
The IFoA and Fair By Design continue to engage with HM Treasury and Financial Conduct Authority officials to encourage the implementation of these recommendations.
The Continuous Mortality Investigation (CMI) carries out research into mortality and morbidity experience and produces practical tools widely used by actuaries.
The CMI’s work is centred around 5 investigations. Each is led by a committee of volunteers from the actuarial industry and academics, with the majority of CMI materials accessible to Authorised Users.
4 of these consider areas of base mortality and morbidity, analysing data supplied by UK life assurance companies and actuarial consultancies. These investigations cover:
Each of these investigations analyse the claims (or deaths) experience observed in aggregated datasets containing data submitted by life insurance providers and consultancies (for pension scheme data). They periodically produce mortality and morbidity tables and other further research.
The fifth investigation covers mortality projections and considers future changes in mortality experience, an area of great importance to actuaries. It produces the CMI Mortality Projections Model, a tool used widely by actuaries for projecting mortality tables.
The CMI also produces its mortality monitor, a weekly update analysing mortality trends in the weekly deaths of the England and Wales population, which is made publicly available.
1 in 4 people in the UK are likely to experience a mental health condition each year. The insurance industry has been giving considerable thought around how to improve access and meet the needs of these customers.
The IFoA’s Mental Health Working Party was set up in 2020 to increase understanding and awareness of mental health among actuaries and insurance professionals. It has been working with mental health charities, medical experts, and insurers to better understand the insurance needs and experience of people with mental health conditions.
As part of its research, the working party is: