Stakeholder Letter on EBS Actuarial Opinions - General Business (2019-03-29)

Summary

This is a stakeholder feedback letter from the Bermuda Monetary Authority addressed to the general business insurance market, summarising the Authority's review of Actuarial Opinions on Economic Balance Sheet (EBS) Technical Provisions submitted with insurers' 2018 year end statutory filings. It does not create new rules but clarifies the Authority's expectations under the existing Guidance Note 'Actuary's Opinion on EBS Technical Provisions' (May 2016) and highlights recurring gaps in submitted Opinions.

• Methodologies and Assumptions: Opinions should provide detailed discussion of data sources, processing and checks (GN paragraph 54b), the reserving process, controls and validation (54ci), reserving characteristics and methods by segment (54cii to 54cviii), and expert judgement areas and materiality assessment (54d).
• EBS Conversion and Reserving Table: Opinions should clearly explain models and assumptions used for ENID, Credit Risk and Risk Margin, and include a reserving table breaking down held Technical Provisions by legal entity, business unit and/or reserving group (54e to 54o).
• Relevant Comment: Actuaries should discuss material changes in assumptions or methods, changes in the insurer's reserve risk profile, major risk factors that could cause material adverse deviation, and the reasoning behind the chosen materiality standard.
• Reliance on Other Actuaries: Where an Opinion relies on the work of other actuaries, it should evaluate the appropriateness of that reliance, describe the work performed to reach that evaluation, and assess the potential materiality of the reliance.
• Working Papers: Opinions should include a list of key supporting working papers with a short description of each.

The letter is intended to be read alongside the existing Guidance Note rather than as a standalone requirement, and is aimed at improving the quality and consistency of future Actuarial Opinion submissions.

Key obligations

• Actuarial Opinions should disclose both the actuary's own estimate (best estimate or range) of technical provisions and the booked amount, explaining any deviations between them.
• Opinions should describe data types, sources and processing steps in sufficient detail to demonstrate data integrity (GN paragraph 54b).
• Opinions should describe the reserving process, controls and validation performed, including peer review and sign off (GN paragraph 54ci).
• Opinions should discuss reserving characteristics, segmentation and methods used for each material reserving segment (GN paragraphs 54cii to 54cviii).
• Opinions should identify and discuss the main areas of expert judgement used and how materiality and subjectivity were assessed (GN paragraph 54d).
• Opinions should explain the models, scenarios and key assumptions used in EBS conversion (ENID, Credit Risk, Risk Margin, ULAE) and quantify material components where possible (GN paragraphs 54e to 54m).
• Opinions should include a reserving table showing held Technical Provisions broken down by legal entity, business unit and/or reserving group (GN paragraph 54o).
• Opinions should discuss material changes in actuarial assumptions or methods and in the insurer's reserve risk profile, and identify major risk factors for material adverse deviation, with reference to the materiality standard used (GN paragraphs 55a, 55b, 55d).
• Where relying on the Opinions of other actuaries, the actuary should evaluate and document the appropriateness of that reliance and its potential materiality (GN paragraph 56c).
• Opinions should include a list of key supporting working papers with brief descriptions.

Applies to

commercial insurers, insurance groups (general business), appointed/approved actuaries preparing EBS Actuarial Opinions