Update on Solvency II and Pensions from the President, Philip Shier

November 2007 The Society of Actuaries in Ireland Update on Solvency II and Pensions from the President, Philip Shier and when Commissioner McCreevy The key questions which need to be introduced the proposal for a Directive addressed are: in July, he made it clear that it would ᭤ Is it appropriate to require the not necessarily be copied across to the same level of security for a pension occupational pensions regulatory promise as for an insurance contract? regime. There is a strong lobby, including the UK Government and ᭤ Should the same actuarial principles the European Federation for Retirement be used to determine technical Provision, to have a separate framework provisions for occupational pensions for pensions. Nevertheless, there are as for insurance contracts? many influential people, including the former and current chairmen of CEIOPS, ᭤ Should occupational pension who have expressed the view that schemes be permitted to take credit occupational pensions should be treated for capital held outside the scheme in the same way as insurance contracts. e.g.contingent assets, employer debt, state pension protection or In my President’s Address, I noted guarantee funds? that if the Solvency II reserving requirements were applied to an Weblinks: occupational pension scheme, it European Commission Solvency II page: would be required to hold technical http://ec.europa.eu/internal_market/ Philip Shier provisions calculated on a best estimate insurance/solvency_en.htm A very significant milestone in the basis, with an explicit risk margin, and development of the Solvency II regime additional solvency capital calculated Groupe Consultatif Solvency II page: was reached on 10 July with the using Value-at-Risk techniques to limit http://www.gcactuaries.org/solvency.html publication by the European the likelihood of short term insolvency Commission of its proposals for the to no more than 0.5%. I commented CEIOPS: http://www.ceiops.org text of the Solvency II Directive. that this would undermine the viability Meanwhile the European insurance of many if not all of our current defined supervisors (CEIOPS) continue to benefit pension schemes. analyse the results of the most Contents: recent Quantitative Impact Study The Groupe Consultatif, which has (QIS3) and it is expected that their played a major role in the development Solvency II & Pensions Page 1 summary report will be published of the Solvency II framework to date, Education Update Page 2 in mid-November. This should give the is preparing a position paper for the first meaningful view of how insurers’ European Commission on the possible First Irish Annuitant balance sheets might look under the application of Solvency II to pensions, Mortality Study – Results Page 3 proposed Solvency II framework. which will attempt to focus on the Attention will then immediately turn technical rather than the political SAI Student Society Pages 4 & 5 to the next such Study (QIS4) which issues. However, it is a reality that Question Time will build on the findings of QIS3 and is pensions are very different across expected to take place in Q2 of 2008 Europe (much more so than insurance), with David Coldrick Page 6 (following a consultation with different social contexts from Question Time process in Q1). country to country, and that it may not be practical to have a single framework with Maurice Lyons Page 7 To date, the Solvency II regime has to apply across the EU. Back Page Page 8 application to insurance companies, November Newsletter 2007 · 1 · SAI Education Update CA2 (modelling) exam and CA3 (communications). UCD ᭤ Download the example assignments and the other Irish universities do from the Institute website – you The Institute decided last year to not currently offer CA2 courses, and will get instructions on how to do centralise all CA2 exam sittings to therefore our options in outsourcing this when you apply for the exam. Oxford and Edinburgh. This was the CA2 examining were limited. Pay particular attention to the “L3” unavoidable given the nature of the example, this is in fact a past exam CA2 exam. As you may know, CA2 is Why am I telling you all this? Two from the Institute and it shows that a 2 day attendance course with the reasons – firstly, please be aware that the other sample assignments were need for computer facilities and the we may not be able to cater for all in fact not as stretching as the necessary controls on systems to the Irish students that may wish to actual exam. ensure exam conditions can be avoid having to go to the UK for the maintained. The Institute & Faculty CA2 exam. We have already run three ᭤ Complete the pre-exam assignment. run CA2 exams throughout the year CA2 exams (February 2006 for the You will get details of this when to cater for the demand from Institute, February 2007 and July you apply and are confirmed for students – both from the UK and 2007) and at the moment we have the exam. Don’t leave this until the abroad including Ireland. one further date at the end of January weekend before the actual exam. 2008 in place. But we have a waiting The Society of Actuaries wished to list longer than our capacity for any ᭤ Answer all questions on the exam! do something for Irish based students. one sitting as we can only This means it is not enough just to We have just over 300 students here accommodate 20 candidates per produce an Excel model on the in Ireland, and we estimate that sitting. We are trying to agree a date day, you will also need to “answer” between 40 and 60 students per year mid 2008 for another CA2 in DCU. your conclusions, summary, self will need to sit the CA2 exam. We Secondly, don’t underestimate the checks and audit trail questions. therefore decided to become an CA2 exam. It is not simply an examining body ourselves, and attendance event as recent attendees Finally, please put Monday the 3rd outsourced the actual exam to Dublin are painfully aware. We had 60% pass of December in your diary. We have City University (DCU) in Glasnevin. rate for our 20 attendees this July, and Trevor Watkins, Head of Education The Institute was very supportive of these pass rates are consistent with and CPD from the Institute coming this initiative and it has agreed to the UK sittings recently. This similar to Dublin to address students and supply the exam materials to the trend is not a surprise as the exams employers on various aspects of Society, and also confirm exemptions are from the same source and the actuarial education. for each candidate as part of the exemptions process effectively ensure results process. But the Institute does the pass level is similar for both Irish If you have any queries please contact view our CA2 exam as effectively and UK courses. Therefore some Mary Butler in the Society. “external” and successful Irish advice for future attendees to any candidates have to apply and pay CA2 exam: Mike Claffey for an exemption when they pass Education Chairman the Irish CA2. ᭤ Buy some additional materials and study them. ActEd sells course We were lucky to have DCU able to materials for CA2, and given most provide this service. DCU already employers are very generous in offers a 12 month postgraduate their study packages, some internet certificate in actuarial studies that shopping for reading materials is covers the syllabus for CA1 strongly recommended. (assets/liabilities), CA2 (modelling) SAI · 2 · November Newsletter 2007 First Irish Annuitant Mortality Study – Results With the ever increasing topicality of All that is needed for a Lite study is The standard table used for Expected longevity, the Life Committee has for all participants to agree a common deaths is the 2000 series UK Table been aware of the value of producing basis for the Expected and to pool (“PNMA” & “PNFA”) from the CMI. an all office experience for annuitant their Actual and their Expected results The experience at young ages is quite mortality. However the difficulties that to a neutral (confidential) central severe and this is almost certainly due the Critical Illness Working Parties resource (the Society’s Director of to an elective factor in early retirement have undergone did not augur well. Professional Affairs). She adds up all being ill health. Some contributing The huge effort required even when the A’s and all the E’s and divides one companies claimed that they were the number crunching is outsourced by the other. able to remove early retirements from (at the life offices’ expense) to the data, others could not. At later ages CMI means that it has taken four Of course this method has some the pattern of improvement being years apiece to produce results and drawbacks. It is quite likely that there more marked in the 60-70 age range participants swearing “never again” are different treatments of exposure has been seen elsewhere. The greater at the end. There is simply not the periods, handling of joint lives and improvement for males and females resource in Ireland to handle a other minor details. But the effort is another factor well known from full study. required to sort all this out means elsewhere, though the gap looks that the alternative is realistically to smaller than some other studies. However there is a solution in the have the quick and easy Lite results form of a new approach to or nothing. In any case it would appear from this cross-office studies - the new “Irish data that the 2000 series table cannot Lite” method, which seems to be The table below shows the A/E by be regarded as conservative for a model for all such studies going annuity amount split into broad age aggregate experience.

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