Actuaries in Enterprise Risk Management/Solvency II
Risk management is a modern field that is currently evolving and transforming. The opportunities to shape and influence the field in its developmental stage, along with the wide range of tasks and applications, make risk management a significant and attractive area for actuaries.
Actuaries play a central role in risk management, being involved in all critical stages of insurance operations: product development, pricing, asset-liability management, reserving, economic capital assessment, and more. A key aspect of risk management is to anticipate, forecast, and prepare for future developments. Actuaries are well-equipped for these responsibilities due to the nature of their training.
Enterprise Risk Management (ERM)
ERM goes beyond traditional risk management, encompassing not only the risks faced by the company but also the income potential associated with risk-taking. It is therefore broader than the risk management tasks outlined in Solvency II. In addition to the usual quantification of risks, qualitative elements such as risk strategy, risk culture, and an adequate organizational structure and workflows within the company are becoming increasingly important.
Recognizing the growing demand for risk management experts, the German Actuarial Association (DAV) joined an international initiative for actuarial training in ERM. Upon completing this internationally standardized additional training, actuaries earn the title "Certified Enterprise Risk Actuary (CERA)," showcasing their specialized ERM expertise. This certification also prepares actuaries to take on the new risk management responsibilities under Solvency II.
Enterprise Risk Management Committee
The Enterprise Risk Management Committee addresses not only actuarial risk modeling but also the organizational and procedural aspects of risk management. Additionally, the committee promotes the professional interests of actuaries in Germany working in this area, whether in insurance, consulting firms, financial institutions, regulatory authorities, or academia.
The committee's mission is to advance the qualifications and expertise of DAV members in practical applications, advise DAV bodies—particularly the board—on professional matters, coordinate with other relevant DAV committees, and foster continuous exchange of information and experience with partner organizations, authorities, and other associations.
Moreover, the committee supports the DAA in all questions of education and training for actuaries in enterprise risk management. It also oversees the actuarial training in enterprise risk management and is responsible for the "Certified Enterprise Risk Actuary" (CERA) qualification.
The committee’s members represent the full range of skills and fields of expertise of actuaries working in property and casualty insurance. Emphasis is placed on ensuring diversity across insurance sectors, institutions, and specialized methodological expertise.
Risk Book of the International Actuarial Association
The International Actuarial Association (IAA), with contributions from DAV members, has developed a comprehensive Risk Book available to all interested individuals on the IAA website. The Risk Book provides professional insights into the field of Enterprise Risk Management, designed to be accessible not only to a specialized audience. It also serves as an introduction for actuaries with different areas of focus. The Risk Book is continuously updated and expanded with new chapters.
The Committee's working groups
To address the wide range of topics in risk management, the committee has established the following active working groups:
The working group focuses on risk management related to the economic valuation under Solvency II. Its tasks include developing guidance for Actuarial Functions (VMFs) across all insurance lines, specifically regarding sustainability in underwriting and acceptance policies, integration of taxonomy aspects, the impact of inflation on VMF activities, and initiating scientific research into investment management costs to establish an appropriate parameterization.
The working group examines the scientific foundations of climate change and provides an overview of common scenarios and models used to assess the impacts of climate change on insurance companies. It plans to address topics such as tipping points, biodiversity, and the effects of climate change on mortality, morbidity, and natural hazards. Additionally, the group will develop guidance on the specific modeling of climate scenarios for actuaries.
The working group is responsible for systematically addressing upcoming consultations. It informs members about relevant consultations and decides whether a statement should be prepared. The group then collaboratively drafts the commentary, which is reviewed and approved within the ERM committee. After final approval, the statement is submitted to the relevant contacts at the AAE or directly submitted.
The working group focuses on all aspects of risk management related to the ORSA process. Additionally, it addresses the tasks of the risk management function, including the Independent Risk Controlling Function, in accordance with the requirements of the Solvency II framework directive.
The working group focuses on risk management during a pandemic and continuously analyzes developments related to the COVID-19 pandemic. It prepares outcome reports to document potential lessons learned from the current situation, with the current focus on assessing the available data on the pandemic
The working group focuses on actuarial issues related to risk models in life insurance and participates in national and international consultations. It creates technical papers on selected topics when necessary and is currently examining the proposals for Volatility Adjustment. Recent reports have addressed key figures, the impact of inflation, portfolio segmentation in the calculation of insurance technical stress tests, as well as the determination of future profit participation and surplus funds for novel products.
The working group examines actuarial issues related to internal models using the example of the fictional Feldafinger Brandkasse. It has already published numerous technical articles on this topic, which are regularly featured in the members' journal "Der Aktuar."
Publications of the Committee
The Enterprise Risk Management Committee of the DAV closely monitors and analyzes developments and risks in the field of risk management. It continuously produces works in the form of technical principles and reports to provide actuaries working in this area with guidance to support the execution of actuarial tasks.
To learn more about the technical principles and reports of the Enterprise Risk Management Committee, please visit the corresponding section of the website and select the "Risk Management" category.
Actuaries in Solvency II and Sustainability
Solvency II
Solvency II is a European project aimed at harmonizing supervisory regulations for insurance companies across the EU and aligning them with the supervisory rules for credit institutions. The goal of Solvency II is to evolve the current solvency requirements for insurance companies—specifically, the capital requirements—into a risk-based supervisory system.
The Three-Pillar Model
A comprehensive system that takes into account the overall solvency of companies is to be established in the form of a Three-Pillar Model. The first pillar includes the quantitative solvency requirements, such as the valuation methods and models used to calculate the Solvency Capital Requirement (SCR). The SCR can be calculated either using a predefined standard formula or an internal model developed by the company itself. The first pillar further defines the requirements for the own funds that insurance companies must hold to cover the risks they have assumed at all times. The second pillar also sets requirements for internal risk management, with the centerpiece being the company's own risk and solvency assessment (Own Risk and Solvency Assessment, ORSA). This is complemented by extensive reporting and disclosure requirements in Pillar 3. Furthermore, the European Insurance and Occupational Pensions Authority (EIOPA), the European supervisory authority, aims to achieve the convergence of national insurance systems.
The actuarial function
Solvency II introduces the actuarial function, which is responsible for fulfilling numerous calculation and valuation requirements. Actuaries are particularly well-suited for this role due to their professional qualifications and membership in an actuarial association, such as the DAV. Additionally, the risk management function defined under Solvency II provides a challenging area of responsibility for suitably trained actuaries.
For the DAV, it is of particular importance to participate actively in discussions regarding the design and implementation of Solvency II at all levels. To this end, the DAV coordinates and issues statements and working papers, primarily for the Actuarial Association of Europe (AAE). Within the AAE, which is an important stakeholder group and a key contact for EIOPA in the implementation of Solvency II, this topic is being addressed in a dedicated Solvency II project. The DAV has been closely involved in this work from the beginning and has been providing one of the two project leaders since spring 2013.
Sustainability
The Coordination Group on Sustainability was established on February 3, 2021, by the Enterprise Risk Management Committee to serve as the interface between the working groups within the DAV committees focused on sustainability and climate change.
The Coordination Group consolidates the DAV's efforts on sustainability and climate change. It monitors current national and international publications and develops positions on sustainability-related consultations from national and international stakeholders.
The goal of the Coordination Group on Sustainability is to advance the DAV's work on this important and forward-looking issue and to ensure that all DAV reports on sustainability and climate change are aligned. Effective communication with the membership is a key focus for the Coordination Group.
Within the Coordination Group, all relevant positions are to be represented, ensuring a broad composition. Specifically, the Coordination Group on Sustainability includes representatives from (sub-)working groups of the following DAV committees:
- The Pensions Committee Provision (WG Capital Investments, WG Solvency and Risk Management)
- The Enterprise Risk Management Committee (WG ORSA and Risk Management Function, WG Atuarial Function, WG Climate Scenarios, WG Risk Models Non-Life Insurance)
- The Investment Committee (WG Sustainable Investments, WG Sustainable investments)
- The Life Insurance Committee
- The Accounting and Regulation Committee (WG Mandatory Reporting on Sustainability)
- The Non-Life Insurance Committee (AG Climate Change)
In addition, the Coordination Group on Sustainability includes representatives from the IAA Climate Risk Taskforce, the IAA Insurance Regulation Committee, the AAE Working Group "Sustainability and Climate-related Risks", the German Insurance Association, and Federal Financial Supervisory Authority.
Additional qualification CERA in Enterprise Risk Management
By participating in an international initiative for the further education of actuaries in the field of Enterprise Risk Management (ERM), the DAV has responded to the growing demand for experts in risk management. Upon completing this internationally standardized additional training, actuaries earn the title "Certified Enterprise Risk Actuary (CERA)" to demonstrate their specialized expertise in ERM. This qualification also prepares them well to take on the new risk management tasks under Solvency II.
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