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Actuarial contribution to insurance reporting

Actuarial contribution to insurance reporting

Actuarial contribution to insurance reporting

Reporting processes still have the same fundamental goals they’ve had for the last twenty years – assess profitability, assess capital requirements, demonstrate solvency and enable management and shareholders to assess how the business is performing. However, the backdrop against which these goals have to be achieved has changed drastically.

Solvency II

The European Union’s Solvency II Directive created a significant implementation project and increased the amount of information that must be produced within a reporting cycle. Since the introduction of Solvency II, regulatory bodies have increased their focus on the governance and control processes around regulatory reporting. The efforts put in place within the Central Bank of Ireland (CBI) to assess, in greater depth than ever before, the quality of all submissions is testament to how seriously this issue is being taken.

IFRS 17

IFRS 17 is now upon the horizon and will again ask more of the reporting process. One of the goals of IFRS 17 is increasing the comparability of financial statements of insurers, meaning policyholders, shareholders and other market participants will have a greater focus than before on the output of the reporting process. Across all industries, not just insurance, increased focus on audit quality and the level of confidence in financial statements provides a backdrop against which the output of IFRS 17 projects will be assessed.

Against this backdrop of increasing demands and continued evolution, the fundamentals of what a good reporting process is remain unchanged; hence, it is important to bear in mind what good looks like and continually identify scope for even minor improvements in your own reporting process.

Key themes

When reviewing your own process, we’d suggest considering the following three key themes:

Firstly, the purpose of the process and the needs of stakeholders must be pinpointed – strive for clarity on what your process is trying to achieve and the insights you are trying to obtain. Then ask yourself – is your process actually achieving this?

Secondly, consider automation - improving efficiency by automating time intensive manual tasks can free up highly-skilled, high-cost resources to focus their efforts on activities that add real value to the business.

Lastly, simplify your process by removing unnecessary complexity, perhaps by avoiding excessive levels of granularity in reporting, or using visualisation tools rather than lengthy reports.

Within the key themes identified above (clarifying purpose, automating and eliminating unnecessary complexity), companies could consider actions in the following specific areas:

Assumption setting and experience investigations

Your reporting process begins long before the reporting cut-off date. Instead of using resource intensive, manual processes to produce experience investigations, automation gives the capacity to produce investigations in less time, with less effort, or to produce experience Management Information (MI) in real time.

Data preparation

For many companies, the actuarial skillset seems to add most value in preparing the data that goes into the reporting process, rather than adding insight to the results that come out of it. Data flow, from how it arrives, to how it is manipulated for model input and for reporting and validation, can be speeded up by automation. Structuring data downloads so they go directly to the model can also save time. Automation of error checking means time can be spent on reviewing errors, rather than searching for them.

Running models

Updating model parameters tends to rely on manual input, which does not leave a clear audit trail of what was updated, when and by whom. Simple spreadsheets and macros can be used to speed up the time it takes to do this, validate inputs and create an audit trail of the entire process. Many companies still use outdated computing techniques to run models; efficiencies are potentially easily achieved through better utilisation of existing frameworks to run reporting metrics in parallel, without the need for significant IT or software expenditure. 

MI and reporting

Any management information produced needs be timely and relevant, adding value to the decision making process. MI should speak to the issues at the heart of your business, making it more efficient and hopefully, more profitable. Ultimately, what we are trying to achieve is the delivery of insights that support the firm’s competitive edge and create capacity for greater value addition. If your existing suite of MI does not meet the above criteria, what changes can you make to improve it? 

Redundant processes

Solvency II may have resulted in some aspects of your reporting process growing organically – as needs were identified, processes were established to address those needs.

IFRS 17 will see similar demands placed on reporting functions; there is a danger of the same issue arising here. With the recent and imminent changes, it is worth taking some time for deep reflection and forming a holistic, end-to-end view of what the current process looks like, what it should look like and what redundant steps can be removed. 

Methodology documentation

If it’s not written down, it never happened. Any process is only as good as the documentation upon which it is based. This documentation must set out what you do and why, with methodologies, judgements and interpretations. Sound documentation ensures that there is a clear, internal understanding as to what exactly the methodologies are. It also speeds up training processes, knowledge sharing and external audit and review processes.

Process documentation

Following on from methodology documentation, process documentation sets out how things are done. It allows any team member to pick up the process document and complete the process. It gives clarity on what the processes are. By documenting the steps, it can be a powerful tool to identify areas for improvement.

Controls

Not all controls are good—but good controls are! Controls should identify possible errors and reduce the risk of errors arising. Controls should not exist as a list just to pacify auditors or reviewers. If there have been issues that your existing controls failed to capture, changes must be made. Likewise, if some current controls never find issues, they may be irrelevant. The cost/benefit balance, in terms of time spent on controls, versus the benefit in terms of risk reduction, must be optimised. 

Reporting process improvements

The joy of the above items is that even a small-scale project, taking a few days with only a few staff involved, can lead to significant improvements in your reporting process. Taken together, as part of a larger project, they can lead to complete transformation and revision.

David O’Shea is an actuary in KPMG Ireland’s life actuarial practice involved in the transformation of reporting processes.

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