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TAS 400: Funeral Plans v3.0
The FRC's purpose is to serve the public interest by setting high standards of corporate governance, reporting and audit and by holding to account those responsible for delivering them. The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
The FRC does not accept any liability to any party for any loss, damage or costs however arising, whether directly or indirectly, whether in contract, tort or otherwise from action or decision taken (or not taken) as a result of any person relying on or otherwise using this document or arising from any omission from it.
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Introduction
1.1Technical Actuarial Standard 400: Funeral plans (TAS 400) v3.0 applies to technical actuarial work that is completed on or after 17 July 2023.
1.2Terms in bold are defined in the Glossary of defined terms used in Technical Actuarial Standard 400, appended to this standard.
Purpose
1.3TAS 400 promotes high quality technical actuarial work for funeral plans, supporting the reliability objective:
To allow the intended user to place a high degree of reliance on actuarial information, practitioners must ensure the actuarial information, including the communication of any inherent uncertainty, is relevant, based on transparent assumptions, complete and comprehensible.
Scope and compliance
TAS 400 is applicable to technical actuarial work in the geographic scope of FRC technical actuarial standards:
- concerning the determination, calculation and verification of the assets and liabilities of a funeral plan trust as required by legislation;
- required by the rules of the Financial Conduct Authority under The Funeral Plan: Conduct of Business Sourcebook (FPCOB); or
- concerning the determination, calculation and verification of the liabilities of a funeral plan for inclusion in the relevant funeral plan provider's corporate accounts.
1.4In applying judgement to the application of the TASs it is important to be guided by the reliability objective.
1.5Practitioners are encouraged to have regard to the relevant guidance that accompanies the TASs and, in particular, the guidance on proportionality, to inform how they will comply with this standard.
1.6Work in the scope of TAS 400 is also in the scope of TAS 100. This standard should be read in conjunction with Technical Actuarial Standard 100: General Actuarial Standards (TAS 100). Each of the provisions in TAS 400 must be followed where they are relevant to the work.
1.7TAS 400 must be applied by all members of the Institute and Faculty of Actuaries (IFOA) carrying out work under its scope. Wider adoption is encouraged, and other relevant regulators and contracting parties may require entities and individuals who are not members of the IFoA to comply with this standard.
1.8Actuarial information that is material must include a statement by the practitioner confirming compliance with TAS 100 and TAS 400. Any material caveat, qualification or limitation in that statement must be justified to the intended user. The evidence demonstrating compliance must be available to the intended user, if requested.
General provisions
1.9This standard consists of provisions which use defined terms 'must' and 'should'. The provisions which use the term 'must' set out mandatory requirements. The provisions which use the term 'should' set out regulatory expectations. Practitioners must have regard to these regulatory expectations; divergence may be acceptable but material deviations must be justified. The justification must demonstrate how compliance with the relevant provisions has been achieved despite not meeting regulatory expectations.
1 Assumptions
P1.1Where assumptions are required to be derived on a best estimate basis, practitioners must take reasonable steps to ensure that each of the assumptions broadly reflect their expectation that there is an equal likelihood of actual experience being greater or less than the expected value.
P1.2When applying P1.1, in circumstances where individual best estimate assumptions cannot be reasonably derived, practitioners may consider adopting individual assumptions which are not best estimates provided that in the practitioner's opinion, the overall set of assumptions would reflect a best estimate basis.
P1.3When applying P1.1 in circumstances where data is missing, the allowance to be made should represent the practitioner's best estimate of that missing data.
P1.4When applying TAS 100 Principle 4 Assumptions:
- practitioners must derive the discount rate, mortality (base rates and projections), funeral cost inflation, expenses, lapses/withdrawals, tax and other material assumptions, using as much relevant information as is sufficient;
- practitioners should consider the comparison between the actual experience emerging over the period since the previous exercise carried out for the same purpose (if one exists) with that assumed in that previous exercise;
- practitioners should use or propose assumptions for base rates of mortality which are consistent with the characteristics of the current plan holders of the funeral plan trust.
Communications
P1.5Practitioners' communications should explain the derivation of the assumptions covered in provision P1.1 and allow the intended user to understand why the practitioner considers the assumptions to be a best estimate basis, where applicable.
P1.6Practitioners' communications should explain any material difference between the actual experience emerging over the period since the previous exercise carried out for the same purpose (if one exists) with that assumed in that previous exercise.
2 Valuations of funeral plan trusts and funeral plans
P2.1Estimations of the liabilities of the funeral plan trust must reflect the obligations of the trust under the trust deed. Estimations of the liabilities of the funeral plan (whether secured by trust or otherwise) must reflect the obligations of the funeral plan provider under the relevant funeral plan contracts.
P2.2Where the practitioner relies on the opinion of, or information from, a third party for any assumptions, data or methodology, they should consider the reasonableness and supporting evidence for the third-party estimate and those matters on which the practitioner relied.
P2.3Where practitioners have made any allowance for discretionary elements in the amounts payable from the funeral plan in the estimate of the liabilities of the funeral plan provider (or funeral plan trust), practitioners should determine how the allowance has changed since the previous exercise carried out for the same purpose.
P2.4Where a valuation relates to a mixture of subsisting funeral plans and new funeral plans, practitioners' assumptions should take account of how conditions differ between the two.
P2.5When practitioners calculate the general solvency requirement of the funeral plan provider, or assets and liabilities for recognition and/or disclosure in the document containing the accounts, the value of assets and liabilities to provide funerals should be calculated on actuarial assumptions which are consistent with those used for the most recent Solvency Assessment Report (SAR) where applicable1.
P2.6For valuations for any purpose other than the SAR or the plan provider's accounts, practitioners should satisfy themselves that, where possible, the liabilities are no lower and assets no higher than would have been the case if assumptions consistent with those adopted for the most recent SAR had been adopted.
P2.7When estimating the assets and liabilities of funeral plans funded by insurance policies for inclusion in the accounts of the relevant funeral plan provider, practitioners should have regard to comparable figures from the funeral plan provider's most recent regulatory returns to the FCA submitted in accordance with the FCA Handbook. Where the current estimate of the cost of the agreed funerals exceeds the total sum assured for the relevant insurance policies, the practitioner should recommend an appropriate adjustment to the accounts.
Communications
P2.8Practitioners' communications must be clear on who is the intended recipient of all information provided. In particular, where reports contain information for parties who are not the intended user of the report this must be communicated clearly.
P2.9Practitioners' communications should include an explanation of, and a rationale for, the measures used to quantify the value of the assets; and if the measures used are not fair value measures, an estimate of the fair value of the assets.
P2.10Practitioners should take reasonable steps to ensure that their recommendations and advice in relation to communications provided to the intended user are not materially misstated or misrepresented by the funeral plan provider.
P2.11Where communications can be reasonably expected to be read by current or prospective plan holders, the practitioner should take reasonable steps to ensure the relevant material actuarial information is presented in a manner appropriate for the level of sophistication of such a user.
P2.12Where communications are in relation to a valuation of a funeral plan trust, the practitioner should explain the obligations under the trust deed underpinning the estimate of the liabilities of the funeral plan trust and describe where the liabilities of the funeral plan trust may differ from the liabilities of the trust-based funeral plan provider.
P2.13Practitioners' communications should state the assumptions, data or methodology for which the practitioner has relied on the opinion of, or information from, a third party. Practitioners' communications should include the justification for such reliance.
P2.14Practitioners' communications should explain any allowance for discretionary elements in the amounts payable from the funeral plan in the estimate of the liabilities of the funeral plan provider (or funeral plan trust) and how the allowance has changed since the previous exercise carried out for the same purpose (if one exists).
3 Risk Assessment
P3.1Practitioners must have regard to risks to the current and future financial position of the funeral plan trust.
P3.2Practitioners should consider risks to, and uncertainty in, the liability cash flows when estimating the liabilities of the funeral plan trust.
P3.3Practitioners should consider the liability cash flows expected to arise in each 12-month period following the effective date of the estimate of the liabilities of the funeral plan trust and consider the number of years of cash flow projections which are appropriate to communicate.
P3.4Practitioners should consider the liquidity needs of the funeral plan provider and funeral plan trust as appropriate, assuming that funerals are provided in line with the assumption of deaths in the most recent Solvency Assessment Report.
P3.5Practitioners should determine quantitively and/or qualitatively the impact on the current and future financial position of the funeral plan trust of the following:
- risks arising from closure of the funeral plan trust to new business and of lapses of current policies;
- risks arising from differences between the nature, term and characteristics of the liability cash flows and the nature, term and characteristics of the cash flows from the assets of the funeral plan trust; and
- all other material risks of which the actuary would reasonably be expected to be aware of at the time of carrying out the work.
P3.6When practitioners value either the funeral plan trust or the funeral plan provider (or both) the practitioner should consider the suitability of the assets to the liabilities by virtue of duration, currency, risk, accessibility and liquidity.
P3.7Practitioners should consider plausible circumstances which could lead to the failure of the funeral plan to deliver on its obligations to the funeral plan holders, and consider which of these circumstances are sufficiently material to communicate.
Communications
P3.8Practitioners' communications must include sufficient actuarial information so that intended users can reasonably be expected to understand the material risks to the current financial position and the potential future development of the financial position of the funeral plan trust.
P3.9Practitioners' communications must include sufficient actuarial information to enable intended users to understand the sensitivity of the current financial position and the potential future development of the financial position of the funeral plan trust to the items covered in P3.5 above and the scenarios identified in P3.7.
P3.10Practitioners' communications should explain how risks to, and uncertainty in, the liability cash flows have been taken into account in the estimate of the liabilities of the funeral plan.
P3.11Practitioners' communications should quantify the liability cash flows covered in P3.3 and include an explanation of why the number of years chosen is appropriate.
P3.12Practitioners' communications should explain how the estimate of the liabilities of the funeral plan are consistent with the liability cash flows.
4 Actuarial approvals
P4.1Where a practitioner is asked to provide approval for a decision or transaction either where required by legislation or on the request of the decision-making entity/intended user, they must have regard to the material risks the decision or transaction poses to agreed funerals being provided to plan holders.
P4.2When applying P4.1, a practitioner must consider the following:
- the impact of the transaction on the expected level of future solvency of the funeral plan trust and its ability to make payments when they fall due;
- past history of funeral plan provider requests for withdrawals and the decisions made in respect of these;
- the size of the liabilities under the funeral plan trust compared to the contractual obligations of the funeral plan provider to plan holders;
- known experience since the most recent valuation of the funeral plan.
P4.3When applying P4.1 and P4.2 practitioners should use reasonable endeavours to obtain relevant information from previous practitioners in respect of the plan where necessary.
P4.4Practitioners must use reasonable endeavours to assist another practitioner to comply with provision P4.3.
P4.5Where the practitioner is asked to authorise a payment to the funeral plan provider the practitioner should satisfy themselves that:
- there remain sufficient realisable liquid assets to pay liabilities as they fall due over the next year;
- the funeral plan provider or funeral plan trust is aware of plausible scenarios in which the trust solvency may fall below 100% over the next year.
Communications
P4.6Practitioners' communications of actuarial approvals must be sufficient, so that the intended user can reasonably be expected to understand the factors the practitioner has considered when making the decisions and the reasons for the ultimate decision.
5 Transfers
P5.1Where a practitioner is certifying the sufficiency of transfer arrangements they must have regard to the ability of both contracts being transferred and any contracts which are not transferred to provide the agreed funerals under the funeral plan.
P5.2Practitioners should consider the following items:
- the impact on different classes of plan holders' benefits of adopting alternative assumptions;
- any changes in the material risks to the benefits of the different classes of plan holders;
- the potential reduction in the value of the benefits of the different classes of plan holders.
Glossary of defined terms used in TAS 400
Terms in bold in the text of this TAS 400 are used with the definitions set out below. These terms may also be used in the other TASs with the same meaning.
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FPCOB 3.2 ↩