I spent five years working for the industry regulators (FSA 2010-13, PRA 2013-14, FCA 2014-15). In all cases my main role was to provide actuarial advice to the supervisors allocated to a number of life companies.
At the FSA and PRA I would reviewed a number of (very diverse) firms’ ICA submissions. More often than not, this resulted in the regulator imposing add-ons.
I was co-leader of the PRA’s market risk specialism. I led the team through the development of an approach to reviewing market risk modules within Solvency II internal models.
At the FSA and PRA, I was involved in a number of corporate finance related exercises, including:
• The review of firms’ capital management policies. Were we as the regulators comfortable with the capital cushions held by our allocated firms? This was not a trivial question for complicated groups of firms with multiple insurance entities.
• Reviewing the ongoing solvency of an insurer with large amounts of outstanding debt within its parent company. Thinking through whether restricting dividends could, by increasing the likelihood of debt default, be harmful to the insurer.
• Considering the ongoing solvency of an insurer that was regularly needing capital injections from its parent but expecting to eventually “turn the corner” and start generating enough profits on its existing book to cover its new business strain. Digging deeper into the firm’s finances we found an interesting driver of profit volatility, which we helped the firm to eliminate.
• A long dialogue with a firm whose with profits fund included a large inadmissible strategic asset. The firm would soon be in a position where it needed to pay out unfairly low maturity values to maintain its solvency and where maturity values would suddenly jump to very high levels after the asset was sold. The situation was eventually resolved.
While with the FSA I participated in the thematic review of unit pricing practices. I was a member of the teams that visited three firms as part of this exercise and identified serious deficiencies within the unit pricing processes of two of them.
At both the PRA and the FCA I was involved in a number of Part VII transfers. Typically I would review the Actuarial Function Holder, With Profits Actuary and Independent Expert reports and challenge the authors on their assumptions, calculations and conclusions. My three areas of focus were typically:
• The impact of the transfer on policyholder security (mainly of interest to the PRA).
• The impact on expected policyholder benefits (FCA).
• Any changes to policy options, quality of customer service (FCA), etc.
While with the FCA I was involved in two exercises to transfer annuities out of with profits funds. For the transfers to be fair to with profits policyholders, I paid particular attention to:
• The price at which the annuities were to be transferred.
• The impact on expected with profits maturity values of the transfer for the first few years after the transfer.
• The benefit to policyholders maturing further into the future of being invested in a fund with a more appropriate risk profile.
Also with the FCA (2014-2015) I reviewed a number of with profits runoff plans. I was looking for plans that provided appropriate capital cushions within the with profits funds while avoiding tontine-like effects on maturity values. I also wanted to see evidence that the plans were resilient to future stresses.
At the FCA I put forward a straw man proposal on what the FCA expected to see within an ORSA. I also saw the first attempts at ORSAs by a number of firms, so have seen lots of examples of good and bad practice.