On 3rd May 2016 the PRA published Consultation Paper CP18/16. The CP is important to all non-Directive firms (those outside the scope of Solvency II) because it sets out future reporting requirements.
The CP deals separately with non-Directive Insurance Companies and non-Directive Friendly Societies so there will be two new sections to the PRA Rulebook. For the Insurance Companies the returns are broadly the same but there has been some simplification.
For non-Directive incorporated Friendly Societies the impact is considerable as there will apparently no longer be a requirement for them to appoint an Actuarial Function Holder and the reporting requirements change to a triennial valuation using Form FSC2 rather than an annual investigation reported on Form FSC1. There is no mention of the role of With-Profits Actuary which is currently a requirement for Incorporated Friendly Societies. For non-Directive Registered Societies there is very little change.
Non-Directive firms that are not Friendly Societies are still required to appoint an Actuarial Function Holder and to carry out an annual investigation which must be submitted within three months of the end of the financial year. The returns are similar to the current PRA return but a number of forms have been simplified or omitted.
Non-Directive Incorporated Friendly Societies
The changes here are significant. The requirement to produce an annual valuation and a full FSC1 Return has been removed and in future firms will have to carry out a triennial valuation and report it on Form FSC2, with a certificate in the form of Form FSC4 for the intervening years. The Society is required to have an Appropriate Actuary (rather than appoint an Actuarial Function-Holder or With-Profits Actuary) to carry out the triennial valuation. This brings these Societies into the same reporting regime as that applicable to Registered Societies.
The confusing element is that the requirement in Actuarial Requirements 2.1 for an Incorporated Society to appoint an Actuarial Function Holder and a With-Profits Actuary does not appear to have been repealed and we have asked for clarification from the PRA.
Non-Directive Registered Societies
For these Societies there is virtually no change in requirements. The one important change is that the draft proposals require all Societies to carry out a triennial valuation at the end of 2017. This means that a Society which was due to carry out such a valuation at the end of 2016 will only have to complete Form FSC4 in respect of that year and carry out the full valuation a year later.
These proposals seem very sensible. They are genuinely deregulatory, particularly for Incorporated Societies where the amount of reporting has always seemed burdensome compared to that of a Registered Society of similar size. We are not convinced that it is worthwhile to align the triennial valuation requirements of all non-Directive Societies. In practice this work is spread among a few actuarial firms and this proposal means a spike in the workload for those firms every third year while at present the work tends to fall evenly from year to year.
We are seeking clarity over the situation regarding the apparent continued need for Incorporated Societies to appoint an Actuarial Function Holder and a With-Profits Actuary. This seems to be at variance with the intention of the Consultation Paper.
What is there for firms to do?
The deadline for response to this consultation is very short - by 16th June - so if firms wish to respond they will have to do so quickly. Our view is that these proposals should be welcomed, except for the proposal to require all Societies to complete a triennial valuation at the end of 2017.
How can OAC help?
OAC has a number of recognised actuarial experts who have a lot of experience in this area of regulation. If you have any questions about the issues covered in this document, or you need leading actuarial support, we would be delighted to talk to you.
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