Many UK-based general insurers could benefit from outsourcing their actuarial function as they prepare for Solvency II to avoid the cost of the extra expertise needed, actuaries and consultants OAC has said.
The European Union's upcoming Solvency II capital rules require all insurers to have an actuarial capability to help them assess their liabilities.
However, OAC warned many firms will not have enough assets under management to allow them to meet the cost of the extra regulatory obligations. Its examination of a sample of 28 firms and found 17 had assets under management - the market value of the firms' assets - of under £150m.
Speaking to The Actuary, Christopher Critchlow, consultant actuary at OAC, said: 'Actuaries are not cheap and the work that needs to be done is such that you need a cross section of skills to ensure you can provide the breadth and depth of an actuarial function for any insurer, no matter how big or small the needs.
'For smaller firms therefore, it makes greater economic sense and makes for a more well-rounded actuarial service to outsource the function to specialists.
'As such it makes sense for smaller niche insurers to outsource their actuarial function to ensure they can call on all the skills and experience needed to fulfill such a role in a cost-efficient manner. As the scale and complexity of a business increases, more of those functions can be brought in-house to the point where all the actuarial function may be handled within the business.'
Critchlow told The Actuary that larger firms would typically be able to afford a full-time actuarial team in-house capable of undertaking the necessary investigations and valuations for the management of their business.
'Whether companies choose to go in-house or outsource this requirement will ultimately be a decision for the management team. However, I would urge companies to start making preparations for these changes now, as the deadline [January 1, 2016] is just around the corner and firms can't afford to fall behind,' he added.