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The Actuary The magazine of the Institute & Faculty of Actuaries

Corporate governance

The article in the January/February issue raised a number of interesting points about the relationship between actuaries and non-executive directors of life companies. Some of the conclusions were:

  • internal monitoring by non-executives may not be as effective as suggested;
  • i risk aversion of non-executives may actually be harmful to the business;
  • i non-executives may not command sufficient professional knowledge.

Elsewhere, references were made to the corporate governance role played by professional actuaries (is there some other kind?), and of the proportion of actuary/non-executive directors, which all seems to be based on the presumption that the terms actuary and non-executive director are somehow mutually exclusive.

Now, the Combined Code on Corporate Governance was reviewed in 2003 following the Higgs Report, but one of its key principles (A.3) still remains virtually unchanged in the new July 2003 version, viz: ‘The board should include a balance of executive and non-executive directors (and in particular independent non-executive directors) such that no individual or small group of individuals can dominate the board’s decision-taking.’

In the not atypical situation where most or all of the executive directors of a life company are actuaries, and none of the non-executives is, then I have long argued that this is in fundamental breach of Principle A.3, as well as, of course contributing to the authors’ conclusions above.

Putting all of this together therefore supports my plea that the non-executives of every life company, whether PLC or mutual, should be required to include at least one independent actuary.