Assessment of investment risks in the explanatory report of the Responsible Actuary

Abstract

Pursuant to Section 141 (5) No. 1 of the Insurance Supervision Act (VAG), the responsible actuary must review the financial position of the company to determine ‘whether the ongoing fulfilment of the obligations arising from the insurance contracts is guaranteed at all times’. Furthermore, pursuant to Section 4 (4) No. 4 of the AktuarV, the responsible actuary must ‘demonstrate in the explanatory report that the principle of prudence was also applied in the valuation of the assets used to cover the provision for future policy benefits’.

Based on these legal principles, the DAV, in its guideline ‘Review of the financial situation by the responsible actuary’ dated 27 January 2025, has, among other things, demanded – in addition to examining the medium-term development of the financial situation and the long-term fulfilment of guarantee obligations – that the effects of extreme, short-term capital market fluctuations on the balance sheet coverage at the end of the next financial year. A sole reference to statements made by the actuarial function does not appear to be sufficient.

A possible approach to the review is described in more detail below.

In this note, the impact of short-term capital market fluctuations is reviewed by updating a simplified balance sheet to the end of the next financial year, using adverse scenarios for the development of share prices, capital market interest rates, property prices and default risks. This involves checking whether the company has ensured that the next balance sheet can be closed by means of its investments even under these adverse scenarios, without the need for external funds.

In addition, the responsible actuary should also comment on the significance of liquidity risk and liquidity management in the actuarial report.

The procedure described is based on the current legal situation.