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The Actuary The magazine of the Institute & Faculty of Actuaries

Is control cycle wobbly?

A new survey by Deloitte of how UK life insurance firms operate a financial control cycle suggests many firms will have to adapt and automate their accounting processes to deliver their commitments to both policyholders and shareholders. Key challenges for firms included:

  • To clearly identify assets and their investment flows corresponding to different groups of policyholders so that their contribution to policyholder bonuses and shareholder profits may be calculated. For the first time last year, life companies were required by the FSA to publish their principles and practices and financial management (PPFM). These have shown that many with profits firms either use, or give themselves the right to use, different asset mixes for different groups of policyholders. Without a clear mapping of assets to the groups of policyholders it may be difficult to prove companies have dealt with customers fairly.
  • Develop tax management and the understanding of tax variance to improve shareholder value management.
  • Develop a better understanding of the impact of lapses of policies on shareholder value and also upon remaining policyholders. Understanding what causes customers to lapse policies is also an important step to treating them fairly.
  • Improve the use of the general ledger for management information. The current inability to compare actual performance with actuarial predictions creates difficulties in managing the business effectively.