APRA discussion paper on the role of the Appointed Actuary

The Australian Prudential Regulation Authority’s most recent discussion paper and draft proposals are aimed at general and life insurers; however, the paper clearly articulates:

… some of the proposals in the discussion paper are likely to be relevant to private health insurers and APRA will consider applying them to private health insurers in due course.

Following APRA’s indication that it will look to phase in full prudential supervision for health insurers over a three-year period, insurers may be tempted to adopt a wait-and-see approach.

However we encourage your leadership team to review the discussion paper closely for its potential impact. Consultation is now open and outcomes may be difficult to change once APRA’s position is finalised.

We recommend health insurers consider:

• The proposed purpose statement and whether it poses concerns for your in-house actuarial team or external actuarial advice (AA)
• The balance of the AA’s responsibilities between compliance and strategic advice and how such tasks are defined
• The extent of requirements under the proposed actuarial advice framework including delegations model
• Managing potential conflicts of interest
• Division of the AA role between first, second and third lines of defence and the clarity of the roles under each line
• The existence and extent of any ‘dual hatting’ of incompatible roles within the insurer – APRA specifically refers to AA, CRO, CEO and Director roles
• Specified inclusions in the Financial Condition Report (FCR)
• Exemption from the requirement to provide the full Insurance Liability Valuation Report (ILVR) to the board
• APRA’s desire to align general and life insurance requirements by creating a new GPS340 Valuation of Insurance Liabilities – which it appears reasonable to expect will, in some form, become applicable to health insurers in future

We recommend health insurers consider whether individually or as an industry group, a submission to APRA may be warranted to ensure the potential impacts on your industry are brought to APRA’s attention and the final APRA position does not inadvertently disadvantage the Health Insurance industry.

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