IFSCA

IFSCA (Appointed Actuary) Regulations 2022: An overview

The International Financial Services centres Authority or IFSCA is a regulatory authority that manages and regulates financial products and services abroad. The ISFCA is headquartered at Gujarat International Finance Tech City. The IFSCA is a unified authority responsible for developing financial products and services in the International Financial Services Centre in India. It serves as an international financial platform for the entire region & the global economy as a whole. On the other hand, the appointed actuary is a professional an insurance company appoints, and its main role is to conduct a regular valuation of the reserves held to pay future policy benefits. An actuary is a person who holds expertise in the filed s of statistics, economics, and mathematics that helps in risk assessment & estimation of premiums etc., for an insurance business. The IFSCA, in order to regulate the appointed actuary, has laid down the specific framework for the persons who are engaged by the International Financial Services Centres Insurance Offices (IIOs) who perform the roles and discharge the function as “Appointed Actuary” or AA. The present article will briefly discuss the main provision enumerated under the framework.

Key definitions

The key definitions included in the appointed actuary regulations are:

1. International Financial Services Centre Insurance Offices (IIO): The IIO is a financial institution that is registered with the IFSCA that undertakes the permissible activities under the International Financial Services Centres Authority (Registration of Insurance Business) Regulations, 2021.

2. Professional Standards: The professional standards refer to the standards of practice specified by the ISAPs (International standards of actuarial practice) or ESAP (European Standards of Actuarial Practice) or IAA (International Actuarial Association).

Appointment of Appointed Actuary

The process of appointment of appointed actuary will include the following:

Appoint a Person: The IIO would appoint a person with the necessary Competency, qualification, expertise, and professional status who will perform the functions of an “Appointed Actuary”.

Eligibility Conditions: The eligibility conditions for an AA will include the following:

1. Fellow member of the IAA
2. Holds a valid certificate of practice issued by the Full Member Association
3. Holds a minimum experience of 2 years post fellowship experience in the insurance industry (including. Life, general, health or Reinsurance).
4. Not guilty of any professional or financial misconduct
5. Not acting as an AA for any other insurer, including an IIO. However, in the case of unincorporated IIOs, the AA of the parent entity can be appointed as an AA of the IIO.
6. Do not function in any capacity that may lead to a conflict of interests in performing its role as AA. However, in the case of an unincorporated IIO, the AA should be appointed by the parent entity norms issued by its home country’s supervisory or regulatory authority.

Reporting:  The Board of the IIO should authorise the AA to directly report to the authority in case of any non-compliance with any applicable law or regulatory requirement at the appointment time.

Communication of appointment: The IIO should inform the authority about the appointed AA within 7 days from the appointment date. In addition to this, the authority must be communicated of any change in the AA apart from submitting any information or document.

Any other conditions: The IIO must ensure that:

1. Adequate resources & support are provided to the AA to facilitate in performing its duties and obligations.
2. The AA reports directly to the individual who holds the top executive position in the IIO. In the case of unincorporated IIO, the AA must report to the individual holding a top executive position in the parent entity.

Powers of Appointed Actuary

The powers of an appointed actuary are:

Assessment of all the documents or information: The AA must have access to all the relevant information and documents that are possessed or under the control of IIO. In the case where the IIO is in the unincorporated form of the parent entity, the AA shall provide its advice in the following matters:

1. Gives actuarial advice to IIO or its directors
2. Affect the solvency of the IIO
3. Affect the ability to meet the reasonable expectations of policyholders.

Summoning of any information from the officers: The AA can ask for any document or information from any employee or officer of an IIO and the concerned officer or employee is responsible for proving such information.

Duties and obligations of Appointed actuary

The duties and obligations of the appointed actuary will include the following:

• Providing actuarial advice to the IIO in the field of product design & pricing, insurance contract wording, investments & reinsurance.
• Ensure that solvency and required control of solvency are maintained at all times.
• Comply with the provisions of the IA 1938^[1] regarding other clarification of the assets and liabilities valued at the specified authority.
• Ensure that the overall pricing policy is in line with the overall underwriting & claims management policy of the IIO.
• Ensure that the premium rates of the insurance products are fair.
• Ensure that the reinsurance agreements are adequate.
• Contributes to the effective implementation of risk management systems.
• Certifies the actuarial report, abstracts and other returns required by the authority.
• Coordinates with calculating mathematical reserves and certifying that such reserves are determined as per the requirement determined by the authority and in case there are no directions available. It shall take place as per the professional standards discussed above.
• Ensure that the methodologies used are appropriate and the underlying models used and the assumptions made and the sufficiency quality & quality of the data used in the calculation of mathematical reserves for IBNR (Incurred But Not Reported) claims, including Incurred But not Enough Reported (IBNER) claims & Premium Deficiency Reserve (PDR) are applicable.
• Inform the board about the reliability & adequacy of the calculation of reserves for IBNR, mathematical reserves and other reserves IBNER & PDR.
• Inform the board where it is in the professional opinion of the AA that the action needs to be taken by the IIO in the matters:
• Contravention of the applicable laws
• Prejudicial to the interests of the policyholders.
• Any default on the part of the directors, employees or officers of the IIO that do not allow the AA to perform its & obligations.
• Non-compliance with the directions of the authority
• Directly inform the authority about the non-compliance with any regulatory requirement, professional practice and applicable laws as per the directions or any other relevant information.
• Ensures the business-specific requirements in respect of:

1. Life Insurance Business:

1. Recommend the bonuses payable to the policyholders.
2. Ensures that the valuations and distribution of surplus to participating policyholders are done in a fair manner
3. Ensure pricing adequacy of insurance products

2. General Insurance business or Health Insurance Business

1. Determine the liabilities as per the actuarial principles.
2. Calculate the IBNR, including IBENR and PDR, as per the actuarial principles.
3. Ensure pricing adequacy is maintained for all the products

Actuarial Reports

The AA shall submit the actuarial in accordance with the guidelines issued by the IFSCA and is in compliance with the applicable professional standards, practice standards and guidance notes issued by the Actuarial Association of which AA is a member. However, for unincorporated IIOs, the applicable professional standards for AA should be specified by its parent entity’s supervisory or regulatory authority. The appointed actuary is required to submit the following to the authority:

• An actuarial certificate of the valuation of Assets & liabilities and the adequacy of capital in respect of the parent entity of the IIO.
• The actuarial Valuation Report in respect of the IIO should contain the following:
• Detailed methodology used for computing the reserves.
• Capital requirement
• Any variability associated with the estimates
• Disclaimers and qualifications
• Actuarial certificate of the value of Investments of IIO
• Statement of admissible assets, liabilities and capital adequacy.

The AA must submit the required forms to the authority on a quarterly basis for the need of the reference period or at such periodical intervals as specified by the authority.

Powers of the Authority

The powers of the authority are as follows:

1. Power to specify procedures etc.: The authority can specify norms, processes, procedures and manners for compliance by IIOs for implementing, facilitating and regulating the functions of the appointed actuary.

2. Power to remove difficulties and relax strict enforcement of the regulations: The authority may issue clarification by way of guidance notes or circulars in order to remove any difficulty in the application or interpretations of the provisions of the regulations. Moreover, the authority may relax the strict enforcement of any of the provisions of the regulations by recording the reason in writing on a receipt of the application.

Conclusion

The IFSCA is aimed to regulate the financial product and services in the centre. In order to regulate the insurance activities taking place in the International Financial Centres, the authority has notified the current regulatory framework for the person who the IIOs appoint as an appointed actuary. The regulatory framework has specifically identified the eligibility conditions, reporting requirements and the communication of appointment to the authority. In addition, the AA and the authority hold certain power that will help them carry on their work easily.

Read our Article: Procedure for Appointment of an Appointed Actuary: IRDAI Notification