16 September 2024
The year 2023 was the fourth consecutive
year of insurance companies submitting actuarial reports under the Actuarial
Work Rules (AWR) issued in March 2020. The primary objective of those Rules is
to enhance the role and responsibilities of actuaries in the insurance sector
in order to facilitate informed decision-making by management and to provide
greater technical support to the business as the market sophistication
continues to grow in the Kingdom.
Under the above Rules, an Appointed Actuary
is obligated to carry out technical pricing of risks, at least annually and
more frequently if business environment so demands, and report to the Senior
Management, Board of Directors and the Insurance Authority (IA) the outcome of
those exercises. The pricing exercises are required to be carried out for
Health, Motor and Protection & Savings insurance at a minimum; the IA (or
the Company management) may also require the Appointed Actuary to carry out a
similar exercise for other lines of business.
Depending upon the appropriateness of the
assumptions used, range of rating factors considered, allowance made for any
regulatory changes, and credibility assigned to a client’s own claim
experience, the competitive position of an insurance company is likely to be significantly dependent on the Appointed
Actuary’s recommendations.
The regulations allow a Company management
to deviate from the technical prices recommended by the Appointed Actuary,
provided there are adequate controls in place in the form of i) an underwriting
authority matrix that specifies the deviation limit by role, ii) a requirement
for the underwriter to document justification for deviation from the technical
rate, and iii) quarterly reporting by the Appointed Actuary to the Board of
Directors on the expected financial impact of deviating from the technical rate
in respect of the policies underwritten in each period.
This document encompasses
the IA’s observations from its review of the following actuarial pricing
reports:
1.
Health Actuarial Pricing Report (pages 2 - 10)
2.
Motor Actuarial Pricing Report (pages 11
- 16)
3.
Protection and Savings Actuarial Pricing Report (pages 17 - 23)
A
number of important observations emerged from our review. We would like to
share those observations with the Company’s management together with our
expectations in respect of those observations, in anticipation that management
will consider each of those observations and recommendations diligently,
internal discussions will be held at the Board of Directors’ level and with all
relevant functions, and appropriate actions will be taken by management.
Furthermore,
similar to last year, a separate brief document accompanies
this letter that summarizes the IA’s expectations regarding actuarial pricing going
forward.