Revisions to Technical Actuarial Standard (TAS) 200
Published: 20 September 2024
7 minute read
In our latest in-conversation, David Young, the FRC's Stakeholder Engagement Manager is joined by Vanessa Leung, Head of Actuarial Regulation, and Alice Piper, Senior Project Director in the FRC's Actuarial Regulation team, to discuss our recently published revisions to Technical Actuarial Standard (TAS) 200.
You can also listen on Apple Podcasts and Spotify.
Transcript
0:09
Hello and welcome to this In Conversation podcast with the FRC.
0:13
My name is David Young, I'm Stakeholder Engagement Manager, and I'm here today with Vanessa Leung, Director of Actuarial Regulation and Alice Piper, who is Senior Project Director in the FRC's Actuarial Regulation team.
0:24
I'll just remind listeners that the FRC is responsible for setting and maintaining technical actuarial standards and the oversight of actuarial professional bodies in the UK.
0:33
We also provide independent investigation and disciplinary hearings in public interest actuarial cases.
0:39
But now I'll just say welcome to you both.
0:41
Thank you, Dave.
0:41
Thank you for having us.
0:42
Yes, thank you, Dave.
0:44
So we're here today as the FRC has published version 2.0 of Technical Actuarial Standard 200, otherwise known to us as TAS 200, which we're going to talk through in a little more detail today.
0:55
I think a great place to start would be for us to hear about what prompted the recent consultation on TAS 200 and what are the main objectives of the review have been.
1:03
So Vanessa, can I leave that with you?
1:06
Thank you, Dave.
1:07
Yeah.
1:07
So to maintain the quality of technical actuarial work, it is important to ensure that the technical actuarial standards are up to date and appropriate for the work which is being carried out.
1:18
So TAS 200, which is the standard for insurance sector, was last issue in December 2016.
1:25
The FRC keeps the tasks and other actuarial standards under regular review and aims to reconsider them in detail at least once every five years.
1:35
And there have been a number of key regulatory developments, that of technical actuarial work carried out in the insurance sector since TAS 200 was last issued in 2016.
1:45
So the main objective of this review is to ensure that the standards is still fit for purpose given where the industry is now and also until the next review.
1:54
Great.
1:54
Thanks, Vanessa, that's been really helpful overview of the drivers behind the review of TAS 200.
2:00
I wonder if we can touch a little bit more on the changes to the insurance industry and the impacts on actuarial work.
2:07
So how does the revised TAS 200 reflect the evolving landscape of actuarial work and the regulatory requirements in the insurance industry?
2:15
Yes, though there have been quite a few regulatory developments since 2016, as I mentioned before.
2:21
But because the tasks are principles based standards, it does not necessarily mean that it has resulted in a large amount of changes to TAS 200 itself.
2:31
And in fact there are a number of aspects of the standard that we have not changed in this round of review.
2:37
For example, the principles based approach which allow practitioners to apply judgements and proportionality.
2:43
We have not changed that and we have not amended TAS 200 in light of the implementation of IFRS 17 and the Somerset UK reforms.
2:52
But there are areas that we have made changes to the standard to reflect the changes in the industry.
2:56
So, for example, we introduced a new provision to support practitioners in considering the implications for technical actuarial work related to products that are within the scope of regulatory applications relating to customer outcomes.
3:11
So this is to reflect the introduction of the consumer duty principles by the FCA to the Handbook.
3:18
We have also introduced new professions in relation to assumptions given some of the findings from the Apras thematic review of general insurance reserving and capital modelling.
3:28
We've also revised the provisions in relation to insurance transformation given the PR as and the FC as updated approach to the Part 7 transfers.
3:37
And finally, we have also shortened and simplified TAS 200 by removing professions that have already been addressed in the new version of TAS 100 which came into effect in July last year.
3:49
Thanks Vanessa.
3:49
That's been a really helpful explainer.
3:51
Perhaps if I can turn to, you know, Alice, can you walk us through the key changes in relation to consumer duty?
3:56
Yeah, sure.
3:57
So before I actually cover the changes made to the standard, I'll just provide a bit of background for those of you who are less familiar with the consumer duty principle.
4:06
So the FCA introduced the consumer duty principle and it came into effect on 31st July 2023.
4:13
The FCA recently introduced a consumer duty principle that requires to deliver good outcomes for to tell customers.
4:20
The rules and guidance came into effect on 31st July 2023 for new and existing products or services that are open to sale or renewal and it came into effect on 31st July 2024, so very recently for closed products or services.
4:36
The consumer duty is expressed in terms of four desired outcomes relating to governance, products and services, and price and value, consumer understanding and consumer support.
4:49
The FRC considers that implications of the FCA requirements that could be significant for practitioners carrying out technical actual work in many areas.
4:59
One example of such area is practitioners undertaking M&A work.
5:04
They will need to be mindful of potential unforeseen consequences of acquiring a product book.
5:11
For example, a product considered for purchase may have very similar benefits to one existing in the purchasing entity but with different pricing.
5:19
And the margins of one or both products may need to be amended following the purchase, for example, in response to a fair value assessment.
5:28
So in light of this, we've introduced a provision to require practitioners to consider whether to make allowance for material factors arising from obligations relating to customer outcomes in so far as the practitioner might reasonably expected to know about these factors at the time of carrying out the work.
5:47
Thanks, Alice.
5:48
Again, really helpful to provide some background into your considerations for the changes.
5:52
Going back to the consumer duty points you mentioned, I know the consultation revealed varied stakeholder perspectives on consumer duty.
5:59
How did you balance these different views in the final version of TAS 200?
6:02
Yes, that's right.
6:04
So the introduction of the new provision was in principle supported by most respondents to the consultation and also by stakeholders we engaged with.
6:13
But one key issue we uncovered as part of the consultation was that based on the wordings used in the exposure draught, the scope of the provision, how materiality should be applied and the role of the practitioner were not clearly understood by some of our stakeholders.
6:28
Therefore, in finalising the standard, we've made a number of amendments to the wording of the provision to bring greater clarity and of course, we would be happy to speak to practitioners further where this is considered helpful.
6:41
Some stakeholders also queried whether the introduction of a new provision specific to the FCA's consumer duty principle was actually necessary.
6:51
Other stakeholders, including in particular consumer advocates, expressed the view that TAS 200 should include more specific requirements and suggested that the standard should encourage Actress to actively engage in ensuring good outcomes for customers, in particular in relation to consumer communications.
7:09
On the point of whether a new provision in TAS 200 is necessary, we did observe through our outreach that the potential impact from the applications of the FCA's consumer due to requirements on technique actuarial work were not prominent in practitioners considerations, particularly where the impact was less direct.
7:28
So we do consider this be a strong indication that a specific provision to support the TAS 100 risk identification principle is necessary.
7:37
And coming on to the point on whether we need further requirements in particular around communications to retail customers, once we agree that Actress can play an important role in supporting effective communications to retail customers, we consider the requirements of the communications principle of TAS 100 version 2 and where applicable also the risk identification principle in the same standard to be sufficient in this regard.
8:05
So we decided not to add anything further to the standard in this regard.
8:11
And I know alongside those changes relating to consumer duty, there have been a number of other technical improvements.
8:17
Would you be able to run us through some of the specific improvements that have been made in the areas of insurance transformations, audit and assumption setting?
8:25
Yes, sure.
8:26
So in relation to assumption setting, there are two specific areas where we introduced new provisions.
8:33
1 relates to the consistency of assumptions and the other is the appropriateness of assumptions in the context of emerging experience.
8:42
We've become aware that practitioners sometimes don't consider whether exceptions are consistent between pieces of work carried out for other relevant purposes within the same entity that all do not respond to emerging experience and fails to take account of a pattern of over underestimation over multiple time periods.
9:01
So the new provisions were introduced to address these findings.
9:05
In the area of insurance transformations, we made changes to the provisions to simplify, clarify or amplify the existing requirements.
9:14
We also introduced new provisions to encourage practitioners to approach their work with a questioning mindset, to consider the use of stresses and scenarios, including those that may be outside of the scope of prudential regulatory capital requirements, and to communicate where the classes of policyholders include subgroups that are affected differently by the transformation.
9:37
Finally, on technical actual work to support an audit opinion, it's critical that the actuarial specialists and or actuarial experts plan and perform their work with professional scepticism.
9:49
As previously noted, in our Dear Audit Partner letters, we've noted instances where actuaries are performing work to support an audit and they did apply an appropriate level of professional scepticism didn't make it sufficiently clear through evidence in the technical actuarial working papers or actuarial reports within the audit file.
10:11
So we've therefore introduced a new provision requiring that the exercise of professional scepticism must be evident from the documentation.
10:20
All right, thank you, Alice.
10:21
Now that we've heard about the changes that have been made and the rationale behind them, it'll be really great for us to sort of take a look forward, talk a little bit more about the impact you anticipate these changes having on the actuarial practise and also how actuaries can best prepare for the January 1st, 2025 implementation date.
10:37
Vanessa, can I hand over to you?
10:38
Yes.
10:39
So our aim is very much that the changes we've made to the standard will make the standard more relevant and accessible to apply and in turn promote high quality actuarial work carried out in the sector.
10:51
So in terms of how best to prepare, firstly have a read of the TAS 200 version 2 and also the feedback statement as well.
11:00
The feedback statement summarises the responses we've received through the consultation and also what we've done in light of that.
11:08
You may also wish to read the proportionality guidance issued with TAS 100 version 2 last year if you haven't already done so.
11:16
That will give you insight as to how we see the tasks being applied in a proportionate way.
11:22
Another thing you could do is to inform your colleagues about the revised standard and encourage them to listen to this podcast.
11:28
And finally, we intend to arrange some outreach sessions.
11:32
And so if you would like us to come and speak to the actuaries in your firm about this, then please get in touch via e-mail to let us know and we'll look to arrange.
11:41
Fantastic there.
11:42
So thank you.
11:42
I guess that just leaves it for me to say thank you to both sharing some really useful insights there and having a really great discussion and also remind listeners that the revised standard is now available on the FRC’s website.
11:55
Thank you all for listening today.
11:57
Thank you, Dave.
11:58
Thank you, Dave.