The Actuary June/July 2017

68 Pages·2017·11.52 MB·English

THE
VOLUME 14 ISSUE 3
JUN
17
JUL
14 TAILORING GLOBAL
CAPITAL STANDARDS
An update on the Insurance Capital Standard
NAVIGATING
22 A VIBRANT
INSURANCE INDUSTRY
RISK Exploring trends in Chinese insurance regulation
28 TIME FOR CHANGE
The past, present and future of
A closer look at regulatory trends in Asia
actuarial model governance
34 BACK TO THE BEGINNING
The creation story of IFRS 17 for insurance contracts
50 EXTREME MEASURES
How the Florida “Cat Fund” provides funding for
catastrophic hurricane losses
54 THINKING BIGGER
Q&A with consulting actuary Dorothy Andrews

THE
VOLUME 14 ISSUE 3
JUN
17
JUL
WE ARE PLEASED TO
SHARE THE GOOD
NEWS WITH YOU THAT
THE ACTUARY WON A
PLATINUM HERMES
CREATIVE AWARD.
14 22 28
FEATURES
14 TAILORING GLOBAL CAPITAL 34 BACK TO THE BEGINNING
STANDARDS The creation story of IFRS 17 for
insurance contracts
An update on the IAIS’ effort to develop the
Insurance Capital Standard By Henry Siegel
By Liz Dietrich and Ian Adamczyk
42 NAVIGATING RISK
22 A VIBRANT The past, present and future of actuarial
model governance
INSURANCE INDUSTRY
By Mitchell Stephenson
Exploring trends in Chinese insurance regulation
By Hans Wagner 50 EXTREME MEASURES
How the design of the Florida “Cat Fund”
28 TIME FOR CHANGE fairly and efficiently provides funding for
A closer look at general and country-specific catastrophic hurricane losses
regulatory trends in Asia By Rade Musulin and Jack Nicholson
By Rob Curtis
54 THINKING BIGGER
Q&A with consulting actuary Dorothy Andrews
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60 64 CONTRIBUTING EDITORS
Richard Berger, FSA, EA, MAAA Sarah Hinchey, FSA, CERA, MAAA
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6 EDITORIAL A New Era of Global Insurance Regulation
8 FROM THE PRESIDENT The Global Actuarial Profession
10 AROUND THE GLOBE Symposiums and Celebrations: A roundup of news from the global community
12 NEW & NOTEWORTHY Industry Growth: Your source for industry briefings and SOA news
59 TOOLBOX Stay Connected: Useful tools and resources for actuaries
60 INNOVATE A New and Different Pathway: Exploring the certified actuarial analyst (CAA) qualification
64 RESEARCH Understanding Health Care Finances
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VISION
ACTION
2016-2019
OPTIMAL
DYNAMICS
2013-2016
STRONG
MOMENTUM
2010-2013
DYNAMIC
LIFT
2007-2010
MOVING
FORWARD
2004-2007
BACK
ON TRACK
2002-2004
SCOR LAUNCHES ITS NEW STRATEGIC PLAN
Thanks to its accelerated development in Life and P&C reinsurance, SCOR now belongs to the top tier of global reinsurers. The Group’s premium
income will reach around EUR 13.7 billion in 2016, an increase of 34% since 2013. Shareholders’ equity reached EUR 6.3 billion at 30 June 2016,
up 33% over the strategic plan, after the distribution of EUR 781 million in dividends. SCOR’s development has focused on the twofold objectives
of profi tability and solvency. All the targets of the “Optimal Dynamics” plan, which has come to an end, have been achieved. With the upgrade
of its rating in 2015, SCOR is now rated AA–(1). Plan after plan, the SCOR group demonstrates its ability to fi nd solutions to all the challenges
posed by a diffi cult and shifting economic and fi nancial environment. SCOR absorbs loss event shocks thanks to its active, state-of-the-art risk
management policy. Today, SCOR launches its new three-year strategic plan, “Vision In Action,” which is fully aligned with “Optimal Dynamics.”
Over the next three years, SCOR will pursue its dynamic combination of growth, profi tability and solvency with ambition and determination,
serving its clients and benefi tting its shareholders.
2016–2019 TARGETS
› ›
HIGH RETURN ON EQUITY OPTIMAL SOLVENCY RATIO

ROE ≥ 800 basis points above the Between 185% and 220%
five-year risk-free rate over the cycle(2) of the SCR(3)
(1) Standard & Poor’s and Fitch Ratings. (2) Based on a 5-year rolling average of 5-year risk-free rates. (3) Solvency Capital Requirement.
scor.com
SCOR_PUb_FI_219,075x282,575_The Actuary_Plane.indd 1 02/05/2017 14:53
EDITORIAL
A new era of global
insurance regulation
BY VINCENT XUAN
s I write this editorial, my five-day-old daugh- side, the International Association of Insurance Supervisors
A
ter, Chloe, is sleeping in her nursery, adjacent (IAIS) continues to further clarify the technical details of
to my home office. Chloe, a word of Greek the Insurance Capital Standards (ICS) to heighten the rate
origin, means “blooming green shoot” and of adoption and implementation. On the financial report-
symbolizes the beginning of a new genera- ing side, 126 jurisdictions have adopted the International
tion. Just as newer generations will grow up and eventually Financial Reporting Standard (IFRS).
reshape the world that was developed by preceding ones, In this issue of The Actuary, I am excited to share insights
so does the actuary—with the creation of new theories and on recent developments within the context of insurance reg-
practices that will redefine and rejuvenate the profession. ulation and financial reporting, with a taste of international
This is true even for an actuary’s core area of practice— flavor, from some of the industry’s leading practitioners.
regulatory and financial reporting—although it has long Liz Dietrich, FSA, CERA, MAAA, and Ian Adamczyk,
been viewed as fundamentally static. Benjamin Franklin CPA, provide an
warned us, “When you’re finished changing, you’re fin- update on IAIS’ FINESAUTRUARNECE CAPITAL STANDARD
ished.” Compared to the technology industry that changes activities on the
people’s lives every second, the insurance industry usually technical devel-
gI ifveeesl pmeoorpel eo pa tsiemnisset ioc fb selcuagugsiesh i npsruorgarnecses iroeng.u Hlaotowresv aenr,d oICpmS einn t“ Tofa itlhoer ing Tcssfhrttauoiehamenrpaen dIpptt Adihe olnaIae eSrpssrm tus sdrsiiiunresesnap gnteacn e ktwinmcaprsdeivtl atte iihostoosseet in,tohrc h.itneaeor loir sr f
ttho Wocsaeitt cwhhih nuo pt hs ewet i ptthhas ett h sfetea wrna ddpaeirdcdlaysd hcehsa,va ienn gasiucnhrgaie nwvceoedr rl edmg.aujloart iporno ganreds s Gtoanll oSpbtaaaglne Cd 1aa4rpd. iAs-”n AETCFHNAAIooagTItCAneuvhflcaIoFc tPetIStiE pehnsbihUr virO ansvataoI niuaticiIlrrTePcai trlstNRecwa iati’SavscA ilDNno t i lpToSrdtaecnoeLiife eneAt pl taUtavas eTd hSrle,lSTt :oa eNu ewslRIOvor nptdeTIEdiianp det wAt t hntm(hrAe oDeIsvO dCseNa re,ti aN Snsha wMnEforN)aoenCtd.earD cVt odss uiyup Eo fe p(TfE s2ArnIotvodA h0oareH LvIaR1 enSlliion t6 dA )OIetEp n sDesiah usosmsden sPuronI udeeafrc Autrea n niihsa rt nt o.steI t ochf i S eofe nr’ EicsItsseooaaTTgasoeeunsnannlvtH hsoct hppatedacptiEteeb eiscreei ocrtrng t rtar IoaIiorn g oNgvlnwno slm marai vuasSrsrsbiotnuentuo poepiUoeuhrdordtqrpronndRpee sSmwcnay uottnfrymt csonAhu oaeoraois,e etou rlc(etpN .fborertnml cenIifenihRcyelnlnoeCAortmd iset rbe.c tCsglaAnoEr .Iiv ss hte ettm iGITlt iiacmhehCrecniwsArvptd spoiehdehsAetiiaIb iian)vr lr ro teStPtfp.e,iuatsehesa e1ronoe m tnoI tup edlri(TThrs dIe nldIi1r roe Snei aAeaA Iae h ct9 centlrts gAtnoLsysIIae9ahsueotle SA c I np oa4 Sfegrm nnIGem)oatIidab, ATl to itCSdorienrtoaaesoaAstI hoe ab lrcdtnl o rSsNalasgh hedpaeeey smnu i uslaDe tee t snI (Grhtdc av tlfiknmnItAhe saoanoe htCsnvutrastRanhn ouedeoo iacaptnSidDsesrnlmoaurtunte diin) ai rs2 osItpcr dn Fcr. datihA0vjniasdsereguta roi0n eIisfvn-s al(rcooSr aa dseiCimttjosionesstr.ul htt nesdos o tnTayareaieuut iptlminb wpi c swepohpncAIsitrtdmoFlef,Ceeoegiii is iotrnr ortrtmrc sIhpSvvyhbknnacrotA.ilii i p oemi aacsnasssofApI illtdoeioutS ino elaeiseanriyrerpo’mt nns)nvds sasi,e nstc sio2u,fy fehrot n auoargrsn raovnofsejlgrmoltatui lfo at amteos ynma Sr anhbnpowdtf cisu ac odear src nehI aocodipyl eaa n seir iots bmi e rsnecosaaiacmettdrjvduhsuruuthaecmvsueil ri nttctne oyiotn arhohastoidhrd nafniinin1oro n mvaoe n cdst4rrtrae, ncheu oiiIu0d nstte Cer y -miod a- e Sf rs e BY LIZ DIETRICH AND IAN ADAMCZYK
financial reporting standards have experienced remarkable introduction was 14The Actuary theactuarymagazine.org JUN/JUL 17 15
change. This is a direct response to today’s sophisticated published previ-
product design, the ever-changing insurance market and ously in the May 2016 issue of International News.
the unforgettable financial crisis in 2008. On page 22, the article “A Vibrant Insurance Industry”
For instance, in the United States, the National Associ- by Hans Wagner,
ation of Insurance Commissioners (NAIC), alongside 46 FSA, introduces FINESAUTRUARNECE IN CHINA
states, adopted the policy of principle-based reserves (PBR) the overall
after a seven-year journey. With the valuation method insurance reg- (A VIBRANT INSURANCE INDUSTRY) ECXHPINLEOSREIN INGS TURREANNDCSE I NRE GULATION
BY HANS WAGNER
becoming effective Jan. 1, 2017, many insurers have already ulatory system
stgIrtIoaa dnrntiesre ietdthci otirminov uepp.gle eEhrmi voteehdnne. t iIfiinnnr gstEth iuyet r eaeoasapr st etohe, fert ehninxe hed iceunumssttuiirosrypan nhb oceenerge iitn,n hasde faut Se stroth rlpryver eheinc-aicysnye g a r aictnoun rrdCyr ehfirnniantimt ari,aee tegwixuvopelarlsak- i ns Ccs2(gpJeewseopbtmIpc(gmtsrGhhaiteu-cc0rrrefrienyi oplac nIeooooaaeitir1elt Dcrsonshramnriscmtnnhww 0ikeo et eFmn e n ePooeoi,t em tiin2 in Il 2dshnue ohummfClti)Gmi0)t t n0e s oimgnfm sitsg s U,ehi vyy0emet hr e pstn 2raaioe e ieerhu9Rgegteobhen cn0lacs n s2 rm eorEr6xtw ehaaeatg0 dahfimigv0o hcplce.hs n’nt og l9ane s1t7iresi1yw esoaedmrih donclrrbnea c ) naeennd6oboa o gp.ltal naetet naudaute hwn,d aabWn,teueh me2 u rscn belwidm dsabv mroatn sai0.tmphdigouhilcsaan iu hsiptn n iatwto trreeru ea eap stheelRpa9hcrdokCginnp ols stceen enkh oet .ew p u MUtotutwg9lrh4hatitet drteh, letrcyr2nltrs n1si7 teitaesnitaeihecnkBe no,u 0no nn hlsroti iinpCwnpnl t nsals u1 iatmgioug2efho3psondee etoil oc3h r an0 a t c l drredang eydw2aheiitylr.ilia1ccgsenn. isdnrn ir nplo0 Llfe nSeza6os diFora edt afsrnhm1l ennenda th.es ui’lft’we rs issc6auifdio ptrvtdorCnero s seotteo t.tais,ae araieto hr w t snem hgnedfhniSt lonrtnineitfftaes iskcrhs ni oiiu igrrsotc. taus( eicgo nno i1 y en,GenmeUrttrTnnnad rg lwa,nceht9d fo pao a td ipg hrr ersyihhSdr7 tternnwrtpbtoote4 r.e riaheioeDs -9c sc2soaeawsaimtrlG7gt glt hdueb ashtml0g etnadoi t r giio s lraupru4 rrrs1or oinoWaifle1rgianrnoe ggo ec 5t0ul nwogtdmi0neetldrtgsiewh5c,myawa at -. sssicsuea 6aaolni l, tttetll s lslnh r,g h - e ,.. biddioi211lnnleef,,,Ris 0505 TovvFlMpu0000ineeIhrfrB00000Gslleoaooi Usnp Sapp Reacno mm P reruEd ttr eer iryo1c hnnc2e pe lae0ttg:ee ssna1Cur .Cltp3d ahltTyHa nr hi nc ato hd I oaeni Nv e nss rdvi ue Ayds aiC uea I eu rnMa lwrs tet ssa hyA sguua n orainR o( cam rlP nKetn2 oy&we,c 0Ev p e,b1 o eTC o n u4Rr r se P)vetk s wgi si Ris eLs ub o spiw E lf l pma ereo M rt i o fo emof I fur r Uv cy ae Ct i o M urdcC ihv er oeHl Se eiyndm en2r t.a 0ama lg1’tsih5es s i o n A c c i d e n t 2016
interest rates and investment allocation were liberalized, driven by the 22The Actuary theactuarymagazine.org JUN/JUL 17 23
China implemented the China Risk-Oriented Solvency State Council’s
System (C-ROSS), which resembles Solvency II. milestone paper and paints a possible trajectory of the govern-
Globally, international standard advocates are actively ment’s focus in the coming years.
coordinating with local regulatory bodies to enhance con- In “Time for Change” on page 28, Rob Curtis summa-
sistency and reasonability across countries. On the capital rizes recent changes and forward-looking steps in insurance
6 The Actuary theactuarymagazine.org
regulation of various Asian countries, with an emphasis on adherence. In the coming decades, whether insurance
capital and solvency, Own Risk and Solvency Assessment regulation across the globe will continue the path of unifi-
(ORSA), group supervision and consumer protection. cation or take a turn for separation, the result will likely be
In “Back to the Beginning” on page 34, Henry Siegel, an outcome of the current battle between globalization and
FSA, MAAA, tells a personalized account of IFRS 17 for nationalism. And no one has a crystal ball. We must wait
insurance contracts through his participation in the process and see whether new regulations, such as PBR and Sol-
and stresses the importance of actuaries’ involvement to vency II, will serve that purpose well.
ensure the technical correctness and clarity of standards. Obviously, we are now in a new era of global insurance
Mitchell Stephenson, FSA, MAAA, depicts a chrono- regulation. The regulatory environment today is strikingly
logical picture of the model governance evolution and different from the norm a few decades ago. Actuaries must
addresses the status of model governance in the actuarial stay abreast of upcoming changes and also constantly and
profession in his article, “Navigating Risk,” on page 42. actively engage themselves in the creation and ultimate
An old Chinese proverb says, “分久必合,合久必分.” implementation of such rules.
(“That which is long divided must unify; that which is
long unified must divide.”) Although everyone has seen
the fruits of globalization, the recent changes of the global
political arena may threaten to reverse that path. While
insurers in Europe face tighter regulation, their U.S.
Vincent (Xu) Xuan, FSA, CFA, MAAA, is
counterparts may see a push for significant deregulation
vice president and actuary at Prudential
from the executive branch. Even though IFRS garnered
Financial in Newark, New Jersey.
worldwide adoption, the two largest insurance markets—
the United States and China—neither require nor permit [email protected]
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S
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NAT BY JEREMY J. BROWN
The global
Jeremy J. Brown, FSA,
MAAA, is president of the
Society of Actuaries.
actuarial profession
[email protected]
LinkedIn: bit.ly/JJBrownSOA
s actuaries, we help represent the global analytics, health care and a variety of actuarial research.
A
profession. The role of actuaries continues I also was a keynote speaker and participated in several
to grow geographically, and new applications panels at the Asian Actuarial Conference in Gurgaon,
of our skills are being utilized in a variety of India, where I enjoyed meeting actuaries from many parts
industries. Now I recognize in your day-to- of Asia. There, we discussed education, the SOA Learning
day work it may not reach every continent. However, I’m Strategy and much more.
proud to see the international span of both the overall This spring, SOA members traveled to China to partici-
profession and that of the Society of Actuaries (SOA). pate in the second Executive Education Exchange program
From education and research projects to continued part- jointly programmed with the China Association of Actuaries
nerships with universities, employers and other actuarial (CAA). It provided a unique opportunity in sharing and
organizations, we are part of this global profession. learning. Delegates from North America met with their
Our 2017–2021 Strategic Plan taps into the global counterparts from leading companies, met with academic
nature of our profession, our credentials and, of course, leaders and also discussed actuarial career strategies with
the knowledge base and perspectives around the world. students at a leading university. The delegates networked
We have the SOA’s International Committee, whose with many local members at two receptions, in Shanghai
activities involve four pillars: support for members and and Beijing, and gave presentations on areas of interest,
candidates, university relations, employer relationships including international capital standards, cyber product
and relationships with regulatory authorities. Our work delivery and U.S. group insurance practices. This program
includes activities in China, greater Asia and Latin is a continuation of our collaboration with the CAA, as we
America. For instance, volunteer fellows who practice jointly planned the first exchange for Chinese actuaries in
in the local regions help guide development of tailored New York, Hartford and Washington, D.C., in 2016.
approaches to professional development, research, mem- As you read this column, our members are enjoying two
bership support and other activities via their membership blue-chip professional development events in Asia, the
in the China, Greater Asia and Latin America Committees. second SOA China Annual Symposium in Shanghai, and
From my international travels, I appreciate hearing first- the SOA Asia-Pacific Annual Symposium in Kuala Lum-
hand about similar and differing challenges, in addition to pur, Malaysia. This year marks the 30th anniversary of our
the emerging opportunities for the profession. At the start relationship with Nankai University, and we celebrate our
of my presidency last fall, I attended the Caribbean Actuarial history of helping to establish an actuarial science program
Association Conference, which provided a great way to so many decades ago by arranging for Western actuarial
connect with local actuaries. We discussed predictive professors to teach the first generation of actuarial students
8 The Actuary theactuarymagazine.org
in modern China at Nankai University. Now hundreds organization. CAA Global oversees, delivers and promotes
of candidates graduate from dozens of universities across the certified actuarial analyst (CAA) qualification, which is
China each year. for individuals working in actuarial support roles and in the
I had the privilege of attending the International Actuarial broader financial services sector.
Association (IAA) meetings in Budapest this past spring. In conclusion, as the actuarial profession grows, so too
The SOA, along with the Casualty Actuarial Society (CAS), do our organization’s offerings and capabilities. Our pro-
the Conference of Consulting Actuaries (CCA), the ASPAA fession is stronger based on the different connections and
College of Pension Actuaries (ACOPA) and the American insights gathered in working together to address and solve
Academy of Actuaries (the Academy) are planning the emerging challenges affecting businesses and the public.
President’s Forum as part of the IAA Council and com-
mittee meetings in Chicago this Oct. 4–8. The SOA, CAS,
CCA and ACOPA are also hosting the IAA gala dinner.
RELATED LINKS
In addition to all of this work, we are part of the North
American Actuarial Council (NAAC), where we recently
discussed predictive analytics and inclusion and diversity in SOA 2017–2021 Strategic Plan IAA Council
the profession. I also want to mention that beanactuary.org bit.ly/SOA-StratPlan bit.ly/IAA-Chicago-Mtg
is now available in Spanish. This website is geared toward
students exploring actuarial careers, and we jointly devel- 2017 China Annual Symposium Be an Actuary
oped it with the CAS. bit.ly/2017-SOA-China beanactuary.org
From a global standpoint, our organization and the
Institute and Faculty of Actuaries (IFoA) established 2017 Asia-Pacific Annual Symposium CAA Global
CAA Global, a not-for-profit, public interest joint venture bit.ly/2017-SOA-AP caa-global.org
2016 Centers of Actuarial Excellence (CAE)
Summit in Chicago
S
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AROUND THE GLOBE
Symposiums and celebrations
A ROUNDUP OF NEWS FROM THE GLOBAL COMMUNITY
NANKAI UNIVERSITY 30TH ANNIVERSARY SOA President-Elect Mike Lombardi offered the
In October 1987, the Society of Actuaries (SOA) Board of welcome remarks and was followed by two keynote
Governors unanimously passed a resolution approving a speakers, Songchen Sheng, former head of statistics
proposal for the SOA to assist in establishing an actuarial and survey department at the People’s Bank of China,
science program at Nankai University in Tianjin, China. and Yulong Zhao, general director of the finance and
This visionary exchange of actuarial teachers from Canada accounting solvency department for the China Insurance
and the United States fostered the rebirth of one of China’s Regulatory Committee.
most esteemed university programs. On July 3, Nankai Sheng explored China’s economic development stages
University organized a celebration to commemorate the and the expansion of insurance in China, comparing
30th anniversary of the agreement. Chinese and foreign macro data and expanding on
The SOA-Nankai program was inaugurated in September the future of the insurance industry in the region.
1988 and had the first class of graduates in 1991. Dr. Kailin Zhao explained the opportunities and challenges
Tuan, who initiated the process to establish the program in that the booming insurance market presents and
Nankai, and then-SOA President Harold G. Ingraham Jr., focused on C-ROSS Phase II and the indispensable
FSA, MAAA, delivered the commencement address during role macroprudential regulation plays in enhancing
the graduation ceremony. capital efficiency, strengthening risk management
Over the last 30 years, actuarial education at Nankai awareness, protecting both the insured and insurer,
University has continued to grow and evolve, and the uni- and ultimately maximizing the possibilities for the
versity now offers undergraduate and master’s degrees for potential of the Chinese insurance market.
its actuarial programs.
SOA President-Elect Mike Lombardi, FSA, CERA, THE SOA ASIA-PACIFIC ANNUAL SYMPOSIUM
FCIA, MAAA; Greg Heidrich, SOA executive director; The 2017 SOA Asia-Pacific Annual Symposium took
Ann Henstrand, SOA senior director, Asia and Latin place July 6–7 in Kuala Lumpur, Malaysia, under the
America; Stuart Klugman, FSA, CERA, Ph.D., SOA staff theme “Beyond Traditions—A World of Opportunities.”
fellow; Harry Panjer, FSA, CERA, FCIA, HONFIA; and The SOA was honored to receive support from the
Jessie Li, FSA, SOA’s lead China representative; attended Actuarial Society of Malaysia (ASM) and Persatuan
the event organized by Nankai University. Insurans Am Malaysia (PIAM). During the first day,
Gary Hoo, FSA, FCAS, president of ASM and delegate
THE SOA CHINA ANNUAL SYMPOSIUM of PIAM, offered the welcome remarks, followed by
The 2017 SOA China Annual Symposium took place June keynote speakers Yew Khuen Yoon, FIA, FASM, director
29–30 in Shanghai, China. This symposium provided a of insurance and development of the Bank Negara Malaysia
platform for attendees to meet with industry leaders and (BNM), and SOA President Jeremy Brown, FSA, MAAA,
share their experiences in the fields of actuarial science, who offered attendees insights into important issues facing
finance and insurance in China. the SOA and its members.
Presenters from a variety of industries explored issues The first day closed with a networking reception
in financial environments, insurance regulation, Interna- where attendees shared their experiences in the actuarial,
tional Financial Reporting Standards (IFRS) management, finance and insurance industries. Members exchanged
product development, asset-liability management (ALM) stories about practicing in interesting roles, including
and investment. New techniques in actuarial practice were Takaful and general insurance.
also discussed.
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