Insurers have leaned on actuaries – Reserve Bank review

Reserve Bank deputy governor Geoff Bascand. Photo / File

Actuaries have quit rather than give in to pressure from insurance companies to change their advice and, in at least one case, an insurer sacked their actuary.

That's among the findings of the Reserve Bank's review into the role of appointed actuaries, who are tasked with measuring and reporting on material risks to an insurer's solvency and providing impartial advice to an insurer's board.

The actuary's role gained prominence in the fallout from the failure of CBL Insurance, where PwC's assessment as the appointed actuary was used by the Reserve Bank to shut down the insurer.

The Reserve Bank took another look at the role as part of its review of the seven-year-old insurance prudential regime.

"The review concludes the regime and appointed actuary role are largely effective, but improvements can be made across the board – with the actuaries themselves, insurers and at the Reserve Bank," deputy governor Geoff Bascand said in a statement.

"These improvements are important, and we will be working closely with the industry to support necessary changes."

He said key findings include the need for a clearer definition of the role from the Reserve Bank – something that was unclear in the CBL case – and the risk to actuaries' impartiality.

Appointed actuaries must meet the industry's fit and proper person test but are appointed by the insurers. They aren't required to be independent, but do have to maintain professional impartiality, the report said.

None of the actuaries interviewed for the review had felt pressured to change their advice in their current roles, the report said.

"However, on discussion there is clear knowledge of inappropriate pressure being applied in the past which has led to appointed actuary resignations or in a particular case the appointed actuary being pushed out by the insurer," the report said.

The Reserve Bank's review said only external actuaries of locally incorporated insurers volunteered examples of being pressured in the past. Most said that had come down to difficult management personalities, not being listened to, or advice being ignored to the point where the relationship broke down.

And because there has been limited engagement with the central bank in the past, actuaries have been reluctant to go to the supervisor.

The Reserve Bank review recommends setting up an exit interview with all departing appointed actuaries to remove the stigma of being summoned to see the supervisor.

The review found the regime and role had been mostly effective, but identified other weaknesses in appointment processes, crisis preparedness, managing conflicts of interest, and processes for following up recommendations.

Bascand said a number of recommendations will need new legislation, and the Reserve Bank will consult on those proposals when the wider insurance supervision regime resumes.