Actuarial Opinions and Reports on General Insurance Liabilities
Status
This Guidance Note has been issued by APRA as preliminary guidance for insurers and actuaries when determining the value of general insurance liabilities under GPS 210 Liability Valuation. The Institute of Actuaries of Australia (IAAust) is developing a professional standard and guidance notes on this issue, and it is intended that this Guidance Note will be replaced by the standards of the IAAust as they are developed.
Introduction
- In April 2000, APRA released a policy discussion paper entitled Proposed Reforms to the Prudential Supervision of General Insurance Companies in Australia. This paper provided some detailed proposals for modernising prudential supervisory requirements that were first explored in policy discussion papers issued in September 1999. APRA has subsequently released Prudential Standards on a range of issues; this Guidance Note is intended to support GPS 210 Liability Valuation.
- With respect to insurance liabilities, it was noted in the policy discussion papers that prudential regulation requires consistency, rigour and robustness in the estimation of such liabilities. Inconsistencies in the application of Accounting Standard AASB1023 compromise the integrity of the capital adequacy framework. These inconsistencies arise because of the standard’s silence on the issue of prudential margins. Industry practice with respect to prudential margins has been quite varied and depended on each insurer’s assessment and attitude towards risk, taxation and profit and loss implications.
- The Insurance Act 1973 (the Act) contains a requirement that general insurers appoint an Approved Actuary.[30] The Approved Actuary has the responsibility of advising the Board and senior management of the insurer on the value of insurance liabilities that is consistent with GPS 210.
- The nature of the advice required from the Approved Actuary, and from other actuaries assisting in the preparation of insurance liabilities for inclusion in this opinion, places a high level of responsibility on the actuarial profession. Actuaries accepting an appointment as an Approved Actuary, or being delegated the function of preparing an estimate of the value of insurance liabilities for inclusion in the Approved Actuary’s opinion, must consider in relation to the IAAust Professional Code of Conduct whether they have sufficient and relevant experience to justify acceptance. In addition, the actuary should have regard to this Guidance Note and any other relevant guidance issued by APRA or the IAAust.