Actuaries in Life Insurance
Actuaries are traditionally very active in the field of life insurance. Among other things, they concern themselves with the following activities:
Product Development / Product Controlling
The variety of tasks involved in the field of product development in life insurance demands mathematical and economic thinking as well as intuition. Using market analyses of the needs of insurance customers, actuaries gain insights into the necessity to adjust existing tariffs and to introduce new ones. Using these insights they then work on the calculation of the premiums and the technical actuarial reserves as well as technical specifications for the tariff in question. In so doing, they use appropriate actuarial assumptions. One means of overseeing these conditions is so-called contribution margin calculation. Thus, the field of mere product development has expanded into the more comprehensive one of product controlling.
Business Plans
One key field of activity for life actuaries is the business plan for the company's products. These are drawn up by actuaries in accordance with legal regulations and the standards for calculation stipulated by the DAV. Actuaries are accountable for compliance with the business plans, and thus for the integrity and probity of the company's mathematical bases for calculation, as well as for ensuring that the business plans comply with prevailing legal regulations.
Pricing
An important task for actuaries is pricing, that is the individual valuation of the risk and the inclusion of the risk features within the insurance premium. In life insurance, for example, the risk premiums or loadings are derived from this task.
With-profits bonus participation
After the company's annual financial accounts have been produced, life actuaries have to make a recalculation. The business results are broken down into their various origins: risk, investment income, lapses and cancellations, costs, reinsurance and others. This gives rise to the actuaries' proposals concerning the level of with-profits bonus participation for policyholders as well as to suggestions and feedback for the further development and enhancement of the company's products.
One particular responsibility that is incumbent on actuaries in life insurance is that of their function as the
Responsible Actuary under § 141 of the Insurance Supervision Law (VAG)
Under § 141 of the German Insurance Supervision Law (VAG) a life insurer must appoint a so-called Responsible Actuary, who must have an appropriate specialist education as well as at least three years of professional experience as an actuary. He or she is appointed by the Supervisory Board and may also, if appropriate, be dismissed by the Supervisory Board. The duties of the Responsible Actuary are as follows:
- To ensure that the calculation of premiums and the premium reserve is in line with legal regulations and that the life insurance undertaking is in a position to fulfil its liabilities under the insurance contracts at all times;
- To certify at the end of the balance sheet that the premium reserve has been established correctly and to specify in a report to the management board of the insurance undertaking the calculation basis and any additional assumptions upon which the certification is based;
- To inform the life insurance undertaking's management board and the Supervisory Authority (BaFin) if, in the performance of his or her assigned duties, the Responsible Actuary recognises a possibility that circumstances will preclude the granting of a certification in accordance with number 2, or allow only a qualified certification;
- To submit to the life insurance undertaking's management board proposals for suitable with-profits bonus / surplus participation. The life insurance undertaking's management board must provide the Responsible Actuary with all necessary information.
DAV's Life Insurance Committee
The DAV Executive Board has set up a permanent Life Insurance Committee. This committee is primarily concerned with the following tasks:
The committee advises the DAV Executive Board on all technical issues relating to life insurance. It represents the DAV externally on behalf of the Executive Board in technical matters relating to life insurance, for example in the form of statements on current issues.
The committee's tasks include promoting the qualifications of DAV members and professional expertise in practice, as well as providing guidance to actuaries working in life insurance for their activities. To this end, the Committee develops in particular professional principles and reports on results, which set out the principles for the proper performance of actuarial activities.
In addition to the traditional actuarial disciplines, e.g. the derivation and ongoing review of actuarial bases such as biometrics and actuarial interest rates, the Life Insurance Committee has established issues relating to the valuation and management of life insurance companies as an important field of actuarial analysis. In particular, the monitoring of the developments of Solvency II and IFRS, in which the stochastic valuation of liabilities plays a significant role, should be mentioned here.
Last but not least, the Life Insurance Committee ensures the transfer of expertise between the other specialised committees. To this end, the Life Insurance Committee co-operates with the other committee(s) concerned, particularly in matters relating to occupational pensions and private health insurance.
Working Groups of the Committee
The Committee has set up the following active working groups to deal with the wide range of issues in the area of life insurance:
The Biometric Calculation Bases working group of the Life Insurance Committee deals with the derivation of the biometric calculation bases in life insurance (in particular mortality, longevity and disability), draws up the corresponding rules of elimination and regularly reviews its results.
The actuarial interest rate working group of the DAV Life Insurance Committee annually reviews the extent to which the maximum interest rate specified in Section 2 (1) of the German Actuarial Reserve Ordinance for calculating the HGB actuarial reserve is also appropriate for the following year. The working group, headed by Dr Marco Schnurr, derives a recommendation from a series of analyses in the autumn of each year, which is made available to the BMF and BaFin at the beginning of December following approval by the Life Insurance Committee and the DAV Executive Board and is also communicated publicly.
Against the backdrop of low and falling interest rates and a possible reduction in the maximum actuarial interest rate, the working group is looking at the question of how a very low actuarial interest rate would affect the financial viability of guarantees. Calculatory challenges and aspects of risk management will also be taken into account.
The working group analyses the possibilities for using big data in life insurance and its limitations. In addition to general questions on the quality and sufficient statistical significance of data, the working group is also looking at the implications of the new possibilities for proven actuarial methods in life insurance (e.g. product development, reserving). In addition, the assessment of actuarial risks in general (e.g. for forecast calculations and modelling in the context of Solvency II) is also analysed with a view to big data. This also involves the question of which new methods and approaches make sense in the actuarial context through the use of big data and enable actuaries to better assess underwriting risks.
The working group deals with the topic of cross-pillar pension information. Particular attention is being paid to the corresponding plans currently being promoted by politicians. The working group will monitor these developments and, if necessary, draw up statements from an actuarial perspective.
The aim of the working group is to analyse consumer protection issues from an actuarial perspective. The working group should therefore support legislative initiatives at national and international level on the subject of consumer protection and structure the dialogue between consumer advocates and actuaries.
The working group Aspects of the financial situation from the perspective of the VA of the Life Insurance Committee deals with topics that arise in connection with the assessment of the financial situation from the perspective of the responsible actuary. Currently, these are actuarial procedures for determining a suitable guaranteed interest rate and a general categorisation of Section 138 (1) VAG.
The working group on portfolio migration in life insurance focuses on collecting and structuring approaches for systematising and simplifying migrations with a view to reducing risk and increasing the efficiency of migration processes. The working group is also investigating the potential of advanced data methods and technologies, taking into account the interests of all stakeholders.
The qualification working group is responsible for the independent quality assurance of the specialised knowledge examinations in the subject of life insurance. Its tasks include, in particular, checking and approving the corresponding draft examinations with regard to content, level of difficulty, scoring and suggested solutions. The working group is also involved in the regular review of the underlying learning objectives to identify any need for adjustment or updating.
LIFE Section
The DAV's and DGVFM's section meetings enable their members to keep their required specialist know-how and expertise up to date as well as enabling the transfer of the results of fundamental scientific and/or academic work into everyday actuarial practice. In addition, they also promote and foster the exchange of experience and knowledge and, at a personal level, enable networking with peers.
The LIFE Section deals with the full range of actuarial problems and issues that are relevant in practice for life actuaries. It was convened in order to foster actuarial research and exchange of specialist know-how and expertise on the subject of life insurance. The issues it focuses on include, for example, the further development of biometric calculation principles, the management and steering of investments, valuing guarantees and options as well as implementing the requirements arising from the European Framework Directive, Solvency II.
The LIFE Section meetings take place twice a year during the Annual Meeting of the DAV and DGVFM at the end of April and the Autumn Meeting in November. Participation in the meetings is open to any interested party and not restricted to members of the DAV or the DGVFM.
Publications
The Life Insurance Committee develops professional standards, supports actuaries in their specific activities and provides them with authoritative guidelines for their work.
Find out more about the Life Insurance Committee's professional principles and results reports by selecting the Life Insurance category in the relevant section of the website.
