The Financial Reporting Council (FRC) has today published two major discussion papers on actuarial practice and regulation.

The FRC has issued a discussion paper, ‘Promoting Actuarial Quality’, to support the work of its operating bodies the Professional Oversight Board and the Board for Actuarial Standards. The paper is aimed at creating a wider understanding of actuarial quality and how it can be improved, and thereby helping achieve one of the FRC’s main objectives: that users of actuarial information can place a high degree of reliance on its relevance, transparency of assumptions, completeness and comprehensibility.

The FRC has developed for consideration six proposed drivers of actuarial quality:

• Reliability and usefulness of actuarial methods
• Technical skills of actuaries
• Communication of actuarial information and advice
• Ethics and professionalism of actuaries
• Working environment for actuaries
• Other factors outside the control of actuaries

To understand these drivers and the threats to those drivers in practice, the FRC has considered the main areas in which actuaries and actuarial methods are employed, namely life insurance, general insurance and pensions, and seeks views on its analysis and on the priorities the FRC and its operating bodies should address to promote actuarial quality. The FRC plans to use this consultation to develop a new framework for assessing actuarial quality and measuring progress against its objective.

The FRC has also published the Professional Oversight Board’s review ‘Monitoring and Scrutiny of Actuarial Work’, which builds on the drivers of actuarial quality and develops regulatory options arising from its assessment of the effectiveness of the existing arrangements for monitoring compliance with actuarial standards and scrutiny of actuarial work. The Oversight Board paper responds to a recommendation by the Morris Review of the Actuarial Profession to consider whether appropriate monitoring of actuaries’ compliance with professional standards and independent scrutiny of actuarial advice are occurring through direct supervision by the regulator, audit or external peer review. It includes a survey of quality assurance arrangements adopted by actuarial firms, and seeks views on regulatory strategies which the Oversight Board might recommend to the Profession.

Sir John Bourn, Chairman of the Professional Oversight Board, commented:

“The FRC’s discussion paper on actuarial quality provides us with a unique opportunity to develop and share our understanding of the drivers of actuarial quality. Our interest inevitably focuses on the three main regulated areas – life insurance, general insurance and pension – but we are anxious not to constrain our approach. We have tried to understand and develop descriptions and drivers of actuarial quality in the round, based on the development, use and interpretation of actuarial models.

In our accompanying discussion paper on monitoring and scrutiny, we report that levels of scrutiny of actuarial work have increased significantly since the Morris Review in 2005. However, our paper raises some fundamental questions about the role of the Actuarial Profession in monitoring the activities of its members and about the increasingly important role of actuarial firms. We are grateful to the many firms and other stakeholders who have contributed to our review, and we now invite comments from anyone with an interest in the quality of actuarial work.”

Paul Seymour, Chairman of the Board for Actuarial Standards, commented:

“It is important for all of us to have a shared understanding of what actuarial work is and the factors which can make it of high quality. Having consulted on our conceptual framework and set out proposals for technical actuarial standards, we can now put this work into the context of a wider framework for actuarial quality. Responses we receive to the discussion paper on actuarial quality will help us further align the BAS’s priorities to the FRC’s strategic outcomes in relation to actuarial work.”

The consultation period for both discussion papers ends on 30 September 2008. ‘Promoting Actuarial Quality’ can be downloaded from: http://www.frc.org.uk/publications/pubs.cfm  and ‘Monitoring and Scrutiny of Actuarial Work’ can be downloaded from: http://www.frc.org.uk/pob/actuaries/reviewmonitoring.cfm.

1. The Financial Reporting Council (FRC) is the UK's independent regulator responsible for promoting confidence in corporate reporting and governance.
2. The FRC’s functions are exercised principally by its operating bodies (the Accounting Standards Board, the Auditing Practices Board, the Board for Actuarial Standards, the Financial Reporting Review Panel, the Professional Oversight Board and the Accountancy and Actuarial Discipline Board) and by the FRC Board. The Committee on Corporate Governance assists the Board in its work on corporate governance.
3. The central recommendation of the Morris Review of the Actuarial Profession (published in March 2005) was that self-regulation by the actuarial profession should be subject to independent oversight and standard setting by the Financial Reporting Council. The FRC assumed this responsibility in April 2006 and agreed a Memorandum of Understanding with the Actuarial Profession in May 2006.
4. The Board for Actuarial Standards (BAS) has a primary objective of promoting high quality actuarial practice by establishing and improving actuarial technical standards and ensuring that they are coherent, consistent and comprehensive.
5. The Professional Oversight Board oversees the regulatory activities of the professional actuarial bodies (the Faculty of Actuaries and the Institute of Actuaries, collectively known as the Actuarial Profession) in relation to their members. This includes education, training, continuing professional development, standards (except those which are the responsibility of the BAS), ethical matters, professional conduct and discipline, issuing practising certificates and monitoring, as well as making recommendations on how these activities might be improved.
6. Media enquiries should be addressed to Paul George on 020-7492 2340, Paul Kennedy on 020-7492 2347, Paul Seymour on 020-7492 2350, Ian Rodger on 020 7492 2395, or email at i.rodger@frc.org.uk