Insurance TAS Post-Implementation Review

1. Insurance TASPost-Implementation Review Yorkshire Actuarial Society Natasha Regan & John Instance 9 September 2013 Financial Reporting Council

2. Agenda • Introduction – the FRC • Actuaries and the public interest • Actuarial framework and TAS scope review • Questions for discussion • Survey results Financial Reporting Council 2

3. Introduction - the FRC • What is the FRC • the UK's independent regulator responsible for promoting high quality corporate governance and reporting to foster investment. • What does it do • sets the framework of codes and standards for the accounting, auditing, actuarial and investor communities • oversees the conduct of the professionals involved. Financial Reporting Council 3

4. Actuaries and the public interest • Actuarial work and the public interest • Risk mitigation and reporting • Advice for decision making • Importance of the technical quality of actuarial work • The reliability objective of the TASs: Financial Reporting Council 4

5. Actuarial Framework and TAS Scope Review • Insurance TAS applies to specified work from 1 October 2011 • FRC seeking feedback from practitioners and users • Publish results in December 2013 • Results feed in to a review of the TASs to be carried out in 2014 • we will develop and seek views on proposals to restructure the TASs so that we have: • high level principles which are recognised as applicable across all professional actuarial work; and • more narrowly focused specific standards where there is a need for additional requirements in the public interest beyond the high level principles and the requirements of the IFoA and the statutory regulators. Financial Reporting Council 5

6. Questions for discussion • What is actuarial work? • What obligations should actuaries have in relation to product quality and fairness? Financial Reporting Council 6

7. Survey - The impact of the TASs Yorkshire Actuarial Society Results – 3rd September 2013 Financial Reporting Council 7

8. Respondents’ fields of work Financial Reporting Council 8

9. How would you describe the main focus of your work? Financial Reporting Council 9

10. What proportion of your work do you estimate is covered by the TASs? • “Non actuarial risk identification and management” • “Reviewing technical actuarial papers (which are normally covered by the TASs but my review isn’t)” • “Running the financial side of a psychotherapy business” Financial Reporting Council 10

11. The scope of the Insurance TAS • “Wouldn't want it to be any wider.” • “Just covered what broadly was being done anyway.” Financial Reporting Council 11

12. Clarity of TASs • On a scale of 1 to 5, the TASs are: • “The root principles of TAS are sound but the way the standards are expressed is, in places, unclear.” • “The whole TAS documentation structure is horrible – it does not conform to TAS-R!” • “The difference between component reports and aggregate reports. The definition of what is actuarial work” Financial Reporting Council 12

13. Process change due to TAS M • “It was just tweaks to existing processes and peer review.” • “The main difficulty is encouraging others to sign up to the TAS M principles.” • “Main difficulties were in re-visiting documentation for legacy models and re-creating testing to demonstrate as fit for purpose.” Financial Reporting Council 13

14. Effect of TASs on reports • “There is a push to shorten reports, so TAS has not been helpful in that respect and we find ourselves being criticised for it by non-Actuarial colleagues.” • “I am not convinced that the extra information is actually being read by those for whom the reports are prepared.” Financial Reporting Council 14

15. Is it helpful to have a separate Transformations TAS? “Some of With Profit items cause unnecessary extra burden where there is already substantial governance” Financial Reporting Council 15

16. Wider issues Are there wider issues (eg - Product quality, fairness) that you consider we should include in our review of the TASs? Yes – 2 No – 25 • “Actuaries are not always the best placed to assess product quality or fairness (although they sometimes think they are), so TASs should be kept solely to the core areas of actuarial expertise” • “For the moment the workload of TAS is very onerous, so to extend it now would be difficult to manage” Financial Reporting Council 16

17. Users’ awareness of TASs Financial Reporting Council 17

18. Implementation of TASs Financial Reporting Council 18

19. Ongoing cost of TAS compliance • “Reports are generally longer (need to consider if over-complying) and additional documentation (although this has been a beneficial step-change, in my view)” • “The costs are a little larger, but that is mainly because TAS is not fully taken seriously in my view. If it was then the costs would be significantly greater.” Financial Reporting Council 19

20. Support on the introduction of the TASs • “More guidance on how to interpret and apply proportionality.” • “ Regular training and reminders to members, including examples of good and bad TAS practice - particularly with respect to reports.” Financial Reporting Council 20

21. Forthcoming review of the TASs • Bring the "scope of actuarial standards" piece into a concise page in each TAS • The situation with aggregate and component reports needs to be significantly clarified. Financial Reporting Council 21

22. Further comments / questions • “TASs could be very powerful in improving standards of work and documentation. However, lack of engagement on TAS with users of information means the value is not understood. In particular, the disparity between information produced by different professions (eg actuaries and accountants)” • “The whole approach to TAS should be looked at and a new standard produced that focus more on the real areas of risk / concern” • “I support principle based approach and less prescription, encouraging the actuary to think about what the "right" thing is - don't back down !” Financial Reporting Council 22

23. Questions and Discussion Contact details • John Instance (Life): j.instance@frc.org.uk • Natasha Regan (GI): n.regan@frc.org.uk • Robert Inglis (Pensions): r.inglis@frc.org.uk Financial Reporting Council 23