New reserving requirements for insurance
On May 7th the Central Bank published its new reserving requirements for non-life and reinsurance companies following on from its Consultation Paper No. 73 issued last September.

By John Lyons
CP 73 addressed a perceived need to strengthen the regime for ensuring the adequacy of both reserving and pricing in non-life and reinsurance companies which had been identified by the Bank as the two key reasons for failures of non-life companies. However the requirement to have a written pricing policy is dropped from the new Requirements although still recommended as best practice.

The Requirements, which will have statutory force, put the Board of the company at the centre of responsibility for reserving adequacy and it will be expected to review and challenge the SAO (Statement of Actuarial Opinion). The Requirements vary depending on the Bank’s Prism rating of the firm. The requirement for the SAO to be peer reviewed for Medium Low and higher impact companies on a periodic basis is confirmed as is the need to have internal audit review the reserving process. For High Impact firms a peer review will be required at least every two years with an internal audit review required in the alternate years.

The reviews will be required every three and five years in the case of Medium High and Medium Low firms. There is some relaxation in the requirement that the Reviewing Actuary, Signing Actuary and External Auditor be from separate firms. The Reviewing Actuary can now be from a group company if the Signing Actuary role is outsourced but the requirement that the Signing Actuary in High Impact companies be an employee is retained. The Signing Actuary becomes a PCF (Pre-approved Control Function) role and, although not covered by these regulations, it has been signalled that the Head of Claims will also become a PCF role.

The requirement that High Impact companies have a Reserving Committee, and that it has at least one INED, is also confirmed. The Consultation Feedback statement, issued at the same time, shows that the Central Bank has taken account of the submissions received on CP 73 and the transparency of this process is to be welcomed. The new rules come into effect from 31st December 2014 and the first peer reviews for High Impact firms will be due in respect of the year ending 31st December 2015.