Stakeholder Letter on EBS Actuarial Opinions - Long Term (2019-03-29)

Summary

This is a feedback letter from the Bermuda Monetary Authority to insurers and actuaries on the quality of Actuarial Opinions (AOs) submitted on Economic Balance Sheet (EBS) Technical Provisions for long term business, following the second year of submissions under the 2016 Guidance Note on Actuary's Opinion on EBS Technical Provisions. It does not create new rules but highlights recurring gaps in submissions and clarifies the Authority's expectations for how each of the eight parts of the existing Guidance should be addressed.

• Main gap areas: Summary of Methodology, Relevant Comment, and Working Papers were identified as the three areas where Opinions most often fall short.
• Summary of Methodology (Part 5): Actuaries should describe reserving governance and peer review processes, reserving segmentation and characteristics with supporting summary tables, assumptions with supporting evidence and sensitivity testing, GAAP reserve derivation where relevant, and material areas of expert judgement.
• Relevant Comment (Part 6): Opinions should discuss material changes in assumptions or methods (with a table of resulting TP impacts), changes to 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 (Part 7): Where an Actuary relies on another actuary's opinion, the Opinion should evaluate the appropriateness of that reliance, describe the work performed to reach that evaluation, and assess the potential material impact on the overall AO.
• Working Papers (Part 8): Opinions should include a list of key supporting working papers with a short description of each.

The letter states it should be read alongside the published Guidance Note rather than as a standalone document, and is intended to help insurers and actuaries improve future submissions rather than impose new requirements.

Key obligations

• Insurers and their actuaries must continue to submit an Actuarial Opinion on EBS Technical Provisions together with their yearly statutory submissions, in line with the 2016 Guidance Note.
• Actuarial Opinions should address all eight parts of the Guidance Note, with particular attention to Summary of Methodology, Relevant Comment, and Working Papers where gaps were most frequently identified.
• Opinions should disclose both the actuary's own best estimate/range of technical provisions and the booked amount, explaining any deviations.
• Opinions should describe reserving governance, segmentation, assumptions with supporting evidence and sensitivity testing, and material areas of expert judgement per GN paragraphs 54c and 54d.
• Opinions should discuss material changes in assumptions/methods, changes in reserve risk profile, and major risk factors for adverse deviation per GN paragraphs 55a, 55b and 55d, including a table summarising TP impacts.
• Where relying on another actuary's opinion, the Opinion must evaluate the appropriateness of that reliance and describe the work performed to support the evaluation, per GN paragraph 56c.
• Opinions should include a list of key supporting working papers with brief descriptions.

Applies to

Commercial insurers (long term business), Insurance groups, Approved actuaries preparing EBS Actuarial Opinions