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The Actuary The magazine of the Institute & Faculty of Actuaries

FRC publishes new report update on risk perspectives for actuaries

The Financial Reporting Council (FRC) has published a new report as an update to the Joint Forum on Actuarial Regulation’s (JFAR) feedback statement released in July 2015.

High-level risks identified for actuaries ©Shutterstock
High-level risks identified for actuaries ©Shutterstock

The JFAR: 2016 risk perspective update includes the forum’s recent activities and current perspective on risks to the public interest where actuarial work is relevant.

Despite the evolving regulatory, political and economic landscape, the high-level risks identified previously remain broadly unchanged, although a new risk category has been identified, as have seven new high-risk ‘hot spots’.

JFAR chair, Stephen Haddrill, said: “Actuarial work is central to many financial decisions in insurance and pensions and is an important element in other areas requiring the evaluation of risk and financial returns.

“During 2016, the JFAR continued its work in considering the risks to the public interest where actuarial work is relevant.

“This update is written against a backdrop of an evolving regulatory, political and economic landscape, nonetheless, a key finding is that the high-level risks previously identified remain broadly unchanged.”

The JFAR is a unique collaboration between the FRC, the Institute and Faculty of Actuaries (IFoA), the Financial Conduct Authority, the Pensions Regulator and the Prudential Regulation Authority.

In light of the IFoA’s Risk Outlook report, ‘professionalism’ has been added as a new risk category, which highlights the risk that members of the institute may have their professional judgment put under pressure by the commercial environment in which they are working.

The seven new areas of potential high risk, referred to as “hot spots”, identified in the report, and which need to be reviewed in 2017, are:

• Actuarial issues around the embedding of the Solvency II framework for insurers
• Risks relating to actuarial work where low interest rates may have an effect
• Competitive pressures on insurers, especially the rate reductions and coverage expansion seen in the continuing soft market cycle in general insurance
• Implementation of pension freedoms legislation giving people more flexible access to their pensions savings
• Greater use of big data, granular pricing and price optimisation techniques to analyse and segment portfolios into highly defined risk groupings
• Risk surrounding the management of defined benefit (DB) pension schemes
• Risks to the supply of relevant actuarial support for the future management in the public interest of life assurance with-profits business.

“The JFAR remains committed to the ongoing consideration of risks relating to actuarial work, particularly those related to the management of DB pension schemes and the impact of the low interest rate environment,” Haddrill added.

You can read the latest report here: JFAR: 2016 risk perspective update