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The Actuary The magazine of the Institute & Faculty of Actuaries
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Industry news

New insurance and pensions authority for EU
EIOPA is the new insurance and pensions authority in the European Union. The European Insurance and Occupational Pensions Authority (EIOPA) is likely to be of relevance to many actuaries across Europe and beyond, depending on the degree to which it creates and imposes reserving and funding requirements.

The management board largely comprises representatives of national supervisory authorities, such as Hector Sants from the UK Financial Services Authority. Chairing the Authority will be Gabriel Bernardino, currently the chair of the former pensions authority CEIOPS and director-general of the Directorate for Development and Institutional Relations at the Instituto de Seguros de Portugal.

EU supervision of insurance has until now been of greater standardisation than of pensions, where funding standards have varied considerably. For example, the possibility of higher funding standards than can currently be afforded by UK pension schemes has been resisted by UK governments in favour of the kind of active supervision conducted by the Pensions Regulator focused on corporate affordability. The development of EIOPA will be followed with interest and we hope to bring an interview with Mr Bernardino to these pages.

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Is 2011 a crunch year for Solvency II?
According to Towers Watson, 2011 is going to be a critical year of activity for insurers preparing themselves for the new European insurance capital regime coming in under Solvency II in 2013. As many in the actuarial profession have experienced, demand for actuarial, risk management and finance skills has risen, particularly where those people also have a particular application to Solvency II.

Towers Watson also points out that companies looking to have internal models approved by the start of Solvency II will face the dual challenges of developing and testing such a model and persuading supervisors that their model is robust and meets the approval criteria. This needs to be viewed in the context of the relatively short timescale remaining.

According to Neil Chapman, “Solvency II budgets are likely to rise significantly as the majority of insurers are expected to concentrate the bulk of their efforts over the next two years to tackle the more complex aspects”.

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Equitable — all over, including the shouting
The UK Coalition Government has passed the necessary legislation to provide around £1.5 billion in compensation to those who suffered losses at Equitable Life as a result of regulatory shortcomings. This is less than some action groups and Equitable itself were calling for at times but it appears to be final.

In a marvellously scripted comment, the Parliamentary Ombudsman, Ann Abrahams, whose enquiry started the compensation process going, told the All- Party Parliamentary Justice for Equitable Life Group that “the provisions in the Equitable Life (Payments) Act 2010 were not incompatible with her recommendations for compensation.” Whatever that was meant to mean, it clearly means an end to any quibble from her that the government is not contributing enough.

Payment arrangements will be revealed after the end of January, though policyholders have been warned that many of them have not in fact lost out and therefore are unlikely to gain any ‘compensation’.

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Retirement age looks set to be abolished
Despite strong opposition from business groups, which warned of the difficulty of abandoning default retirement ages in the current economic climate, the UK Government is pressing ahead with the abolition of the previously permissive retirement age of 65, at which an employer could bring employment to an end on the grounds of age. To be phased in from April to October of this year, it will become unlawful to bring employment contracts to an end solely because of the person’s age.

Groups representing students have also expressed fears that pressure to retain older workers in employment may be detrimental to the aim of increasing the level of youth employment. There is wide divergence of agreement on the economics of this point.

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What does the future hold for interest rates in the UK?

Base rate remains stuck at 0.5%, where it has lodged for nearly two years. Growing numbers of commentators are drawing attention to the way in which inflation is rising well beyond the Bank of England’s management target and suggesting that it is time for an increase in interest rates to try to stem inflation.

In the same vein, pensioner groups are pointing to the fact that low interest on savings comes at a time of such rising prices. Prominent in the period in January before the Bank again decided to leave rates unchanged, Ros Altmann of Saga called for an increase in interest rates for the sake of elderly savers.

Business commentators continue to caution against any rise, given their view as to the fragility of the recovery. But it is a testing time for anyone trying to make predictions — or carrying out valuations of pension schemes.