• Service: Advisory, Risk Consulting, Actuarial
  • Industry: Financial Services, Insurance
  • Type: Business and industry issue, KPMG information
  • Date: 22/05/2014

Reserving Requirements for Non-Life Insurers & Non-Life & Life Reinsurers 

The Central Bank of Ireland (“CBI”) has recently published the “Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers” (“Requirements”) following the Consultation Paper 73 (“CP73”) consultation process. Fourteen responses were received including a response from KPMG. The purpose of the Requirements is to improve the existing regime in non-life insurance companies and non-life and life reinsurance companies and comes into effect on 31 December 2014. We have summarised below the key requirements and changes from CP73.

Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers

Appointment of the Signing Actuary

Despite receiving significant feedback on the greater level of independence that might be achieved by an external Signing Actuary, the CBI stood firm on requiring High Impact companies to have an internal Signing Actuary. The CBI believes that the greater level of experience and knowledge of the company generally achieved by an internal Signing Actuary justified the requirement.


The new Requirements have relaxed some of the original proposals around the appointment of the Signing Actuary, notably where the Signing Actuary and the External Auditor are from the same firm, the company is required to satisfy itself that there is a “...proper separation of reporting lines, responsibilities etc. in place in that firm”. We consider that the relaxation should afford companies the ability to satisfy this requirement, given our understanding of how the responsibilities of the actuarial specialist as part of the external audit team are defined, and the nature of the internal and external reporting lines of the external audit team including actuarial specialist compared to the Signing Actuary responsibilities and reporting lines.


The requirement of the Signing Actuary and Reviewing Actuary not being from the same firm still stands, as well as the prescription of the Signing Actuary role as a Pre-approval Controlled Function (“PCF”) by the CBI. Individuals will need to submit separate PCF applications when taking up a new Signing Actuary role.

Where the Signing Actuary is outsourced, the board will formally review the position of the Signing Actuary where that person has been in the position for nine years and annually thereafter. The rationale for continuance will be documented and the CBI advised in writing within two months of this review. The requirement for formal review impacts companies of all Impact ratings and while not explicitly stated it is our view that the nine year period includes all Statements of Actuarial Opinion performed prior to, and including 2013 year ends. Such a review could coincide with the decision around Actuarial Function Holder (“AFH”) under Solvency II particularly if a change is required or envisaged.


Statement of Actuarial Opinion (“SAO”) Report

The SAO Report will need to include additional details such as company strategy and stability of the claims handling process over time. These additions are reasonable and not too demanding as they would normally be discussed as part of the SAO process but not necessarily previously included in the Report.


Data and the Signing Actuary

Consistent with CP73, data is a key area of focus. The Signing Actuary, Internal Audit Function and the External Auditor have data responsibilities (the latter already having clear responsibilities as part of its statutory audit role).


The Signing Actuary cannot solely rely on the Data Accuracy Statement (“DAS”) and will need to perform comprehensive data checks in order to be satisfied that the data used for reserving is appropriate, reliable, reasonable and complete. The SAO Report will need to include a description of how the Signing Actuary assessed the data quality and include any recommendations for improvement.

Where the Signing Actuary has material concerns in respect of data or any other matter with potential to affect the sufficiency of reserves they shall notify the company. Where these concerns are not satisfactorily remediated the Signing Actuary’s concerns should be notified to the CBI and any consequent limitations on the best estimate will be noted in the SAO Report.


The CBI has clarified that that the Signing Actuary is not expected to review individual case estimates. What the CBI may consider a comprehensive level of data checks has been left to the discretion of the Signing Actuary dependent on the nature of the business and the materiality of the segment.


Paragraph 40 of the Requirements states that External Auditor will need to demonstrate requisite experience and knowledge to adequately assess claims paid, case estimates and production of data provided to the Signing Actuary which suggests that the External Auditor has a duty of care to the Signing Actuary whether or not Signing Actuary is a member of the company’s management team.


Appointment of PCF to provide the DAS and accompanying report

In addition, non High Impact companies will need to appoint an appropriate PCF with responsibility for overseeing the preparation of data provided to the Signing Actuary. This designated PCF will be required to provide a statement affirming the accuracy and completeness of the data provided to the Signing Actuary and an accompanying report specifying how he/she is satisfied it is reasonable and appropriate to provide such a statement. There may be some challenges for companies to document more clearly the internal processes and controls around the data process however, we expect that it can largely be drawn from claims management, claims reserving polices, internal audit assessments and / or annual reconciliation of claims data. This will require further work to be performed at the reporting date.


For High Impact firms there is no PCF with responsibility for overseeing preparation of data provided to the Signing Actuary and there is therefore no scope for the Signing Actuary to rely on data adequacy assurances.


Internal Audit

The Internal Audit Function will need to perform an Internal Audit Assessment focusing on the submission of data to the Signing Actuary and production of booked reserves. The purpose of the Assessment is to provide reasonable assurance that the data is accurate and complete and is required every two, three and five years for High, Medium High and Medium Low Impact companies respectively. It should be possible for all but High Impact companies to defer this requirement until post Solvency II implementation and consider data more generally given the more explicit data requirements under Solvency II.


Board Responsibilities

The board of Directors retain primary responsibility for the governance of the company and shall not abrogate its responsibilities in relation to reserving to the Signing Actuary.


The board shall ensure that the Signing Actuary acts independently of the company; does not rely on data quality assurances; notifies the company where he/she has any concerns that may impact the sufficiency of the reserves and prepares the SAO report in line with minimum CBI guidelines. The SAO is intended to inform and assist the board in its running of the company and will be a key source of information when justifying and documenting the rationale for the booked Margin for Uncertainty.


The board shall establish and implement a clear Reserving Policy and ensure that appropriate governance arrangements are put in place and complied with in respect of the setting of claims estimates and that there are appropriate processes in place to reconcile claims data between the claims function and actuarial function at least annually. As this is consistent with best practice, we don’t expect this reconciliation to be too burdensome for most companies.

The board should consider the Reserving Policy, risk appetite, accounting requirements and risks and uncertainties as outlined in the SAO Report and Margin for Uncertainty Report when considering the Margin for Uncertainty. In determining the Margin for Uncertainty the board should analyse material risks to reserve adequacy and analyse implications of emerging experience. The board is required to list, justify, quantify and document the booked Margin for Uncertainty and discuss how it is sufficient to address the risks and uncertainties identified by the Signing Actuary.


The board must be satisfied that the External Auditor has appropriate experience and knowledge to assess claims data and internal controls Reserving Requirements for Non-Life Insurers and Non-Life and Life Reinsurers / 2014 associated with production of data submitted to the Signing Actuary.



The Requirements set out reasonably onerous governance requirements.


  • All companies shall regularly review and perform quality assessment of all claims as well as having procedures for escalation of large claims within the company. Depending on the interpretation of regular review and all claims, companies may need to refine their claims handling processes.
  • All companies must implement a clear Reserving Policy covering reserving approach and objectives, an overview of the reserving process including roles and responsibilities, key reserving controls and the purpose of the Margin for Uncertainty (which is discussed below) and how it is calculated. The requirement to review and possibly amend and update current reserving policies during the transitional period to Solvency II is unwelcome given many companies are currently preparing and finalising reserving policies in line with Solvency II requirements.
  • High Impact companies will need to assess Reserve Committee terms of reference compared to the Requirements which include membership on the Reserve Committee of an Independent Non- Executive Director.


Peer Review

The level of review and the frequency of review will depend on the company’s PRISM Impact rating.


  • There is no Peer Review required for Low Impact companies.
  • For Medium Low Impact companies the review focuses on the reasonableness of the Signing Actuary’s approach and their conclusions.
  • In addition to these Medium Low requirements, the Reviewing Actuary for High and Medium High Impact companies will need to independently calculate the best estimate reserves, perform data checks, assess uncertainty and perform sensitivity analysis.
  • For High Impact companies the Reviewing Actuary will need to assess the company’s governance in relation to production of the Margin for Uncertainty Report.


Peer Review is required every two, three and five years for High, Medium High and Medium Low Impact companies respectively. The same Reviewing Actuary or another Actuary from the same firm cannot carry out more than three consecutive Peer Reviews with no scope for the board to formally review and document rationale for continuance of the same Reviewing Actuary. The board, where relevant, shall ensure that the Reviewing Actuary has independent reporting lines from the External Auditor and the External Auditor’s Actuary (which is commented on below). While not explicitly stated in the Requirements, the initial Peer Review following introduction of these Requirements will constitute, in our opinion, the first such Peer Review as the scope, particularly for High Impact companies, is significantly broader than what is generally accepted as current best practice or what would have been covered in previous actuarial Peer Reviews.


For High Impact companies, we believe that a Peer Review based on Solvency I regulatory returns as at 31 December 2015 (if the High Impact company waits two years) and presented to Audit Committee/board during Q1 2016 will be of little value in a Solvency II regulatory regime.


An Internal Audit Assessment might be more readily and efficiently built into and aligned to a broader program of Internal Audit work in respect of year end 2015.

The new Requirements have relaxed some of the original proposals around the appointment of the Reviewing Actuary, notably the Reviewing Actuary for High and Medium High Companies can be from the same firm as the External Auditor, once reporting lines are independent. Where the Signing Actuary is outsourced the Reviewing Actuary may be from a Group company. We consider that the relaxation should afford companies the ability to satisfy this requirement without significant additional burdens.


The CBI clarified that their intention is to continue to require Peer Review under Solvency II.


Margin for Uncertainty

Following a significant amount of feedback the CBI has changed the term “Risk Margin” to “Margin for Uncertainty” to avoid confusion with the Solvency II Risk Margin.


For High Impact companies the Chief Risk Officer, Chief Actuary or Signing Actuary will produce a Margin for Uncertainty Report to the board. The report will include documentation of the Reserving Policy, risk appetite, accounting requirements and the main risks and uncertainties. The report will need to be provided to the CBI on request. This report might reflect some of the characteristics of FLAOR/ORSA style reports with perhaps the exclusion of new business and management actions and the requirement to produce this during 2015 and 2016 in a Solvency II live environment will reduce the value of the report to both the board and the CBI.


The Peer Review for High Impact companies covers the Margin for Uncertainty Report and as indicated by the CBI is likely to be maintained under Solvency II.


Requirements for Life Reinsurers

The Requirements sets out specific areas which do not apply for Life Reinsurance business. The main requirements that are out of scope are those relating to:


  • Claims management.
  • Internal Audit.Reserving Committee (as set out under the ‘Governance’ section above).
  • Margin for Uncertainty (including report).
  • Most of the requirements around data (see section above on ‘Data and the Signing Actuary’) including designation of an appropriate PCF on responsibility for data.
  • The specific requirement for non-life (re)insurers that “companies shall ensure that the Signing Actuary calculates the Best Estimate” does not apply for life reinsurers.


Transition to Solvency II

Our understanding is that the CBI’s view was that CP73 represented a “glide path” to Solvency II. In KPMG’s response to CP73 we recommended further clarification on how CP73 may or may not transition into Solvency II be provided so that entities can plan accordingly.


The CBI has formally confirmed for the first time that it is their current intention to maintain some form of SAO and the Peer Review process as a statutory requirement under Solvency II (this is contained in the CBI’s feedback statement rather than the Requirements).


It is, however, unclear how these Requirements will transition into Solvency II post 1 January 2016. In particular: does the AFH need to be an employee of a High Impact company? Will the CBI make peer review mandatory under Solvency II and what will this peer review cover (e.g. annual AFH report and/or ORSA reports? Will re-calculations be required? Will High Impact companies be required to produce annual Risk Margin reports or its possible equivalent? Will capital calculations come into scope which becomes more complex with internal model companies?

As discussed in our response to CP73 we are still firmly of the opinion that any possible “gold plating” of Solvency II should be discussed at EIOPA level in the context of maximum harmonisation as envisaged by the Solvency II regime.


What next?

Companies need to consider:


  • The appointment of the Signing Actuary compared to the new requirements.
  • Appointment of a Reviewing Actuary (especially High Impact companies given the requirement to have this in the next two years).
  • Internal Audit Assessment as part of the Internal Audit plan (especially for High Impact ahead of Solvency II implementation).
  • Document how PCF can affirm on accuracy and completeness of data.
  • Documentation of the Margin for Uncertainty booked by the board.
  • Reserve Committee Terms of Reference will need to be compared to the Requirements.
  • board and Reserve Committee reporting may need to be enhanced to include further information, for example risks to reserve adequacy, emerging experience and Margin for Uncertainty.


Companies need to assess their current policies and processes to determine where gaps exist, for example updating claims management and reserving policies to include any additional requirements. High Impact companies will need to consider the Margin for Uncertainty Report including assigning responsibility to the Chief Risk Officer, Chief Actuary or Signing Actuary. Non High Impact companies will need to identify the appropriate PCF who will provide the report accompanying the DAS.


The CBI clarified that they would ideally like to see both the Peer Review and Margin for Uncertainty reports sent in conjunction with the regulatory returns and the SAO report. As a result the reporting calendar will become more crowded and complex than it is at the moment and this will place significant demands on Actuarial Functions.

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Hubert Crehan

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