actuarial capabilities framework - actuaries institute · feedback received. the workshops involved...

Actuarial Capabilities Framework

december 2012

Actuaries Institute • ActuAriAl cApAbilities FrAmeWOrK • december 2012 2

Over the last 20 years, virtually all professions in Australia, or at least some parts of them, have adopted a capability framework (sometimes called competency standards). such frameworks seek to provide explicit statements of what people need to be able to do to practise successfully as professionals.

capability frameworks have numerous uses including the following:

• They are employed by universities and other higher education providers and by the professions themselves as an important guide for designing initial professional preparation courses, higher level courses (e.g. masters) and ongoing professional development programs.

• They provide members of the profession with a guide to planning personal career paths. this can be important in those professions that have a variety of levels and specialisms.

• They provide a basis for assessing and recognising the capacities of overseas qualified practitioners seeking to migrate to Australia and practise.

• They provide professions with a basis for determining refresher course content for those seeking to return after a significant absence from practice.

• Potentially they provide the public with direct knowledge of what might be expected of a professional in a particular occupation. (in practice, however, most members of the public rely on the accreditation and regulation systems for each profession to warrant that professionals have the knowledge, skills and dispositions to perform competently. However, the process of accreditation of professionals, whether at initial or higher levels, is now almost always based on capability frameworks, whether or not a registration model is also in use).

this project aimed to develop a forward-looking capability framework for actuarial practice. the Framework is intended to encompass emerging areas of practice, as well as current areas. thus some parts of the Framework may be unfamiliar to some members. the Framework is also intended to address aspects of actuarial practice that recent research has shown to be viewed somewhat negatively by some clients. so, in attempting to cover all present and future areas of practice, it is recognised that not all components of the Framework are applicable to all current practitioners.

Various uses for this Framework are listed above. but it should be noted that, for significant engagement with any of these uses, this Framework is but a starting point, as further development and refinement would be needed.

the Framework analyses actuarial practice into functions (major work areas), which are sub-divided into elements (the major functions disaggregated into their components). indicators of what might constitute successful performance of the elements are also part of the Framework.

However, it should be stressed that the Framework needs to be read holistically. this means several things:

▲ instances of actual practice often involve two or more elements simultaneously. so, in actual practice, the individual elements are not discrete and independent. For assessment purposes, this means that performance on several elements can be assessed simultaneously.

▲ in the case of new, unusual or changing contexts, the standards may need to be interpreted or adapted to the situation. such contextually-sensitive situational understanding requires informed professional judgment in order to comply with the spirit of the Framework.

Background

Purpose of this project

The holistic nature of the Framework


▲ it is also holistic in the sense that competence, or capability, is not directly observable. rather, what is observable is performance on a series of relatively complex and demanding professional tasks. capability is a global construct that is inferred from observed performance on a sufficiently representative range of tasks and activities.

As in any profession, there are members who are novices, others with moderate experience, yet others with considerable experience and some with high levels of experience. the decision was taken in this instance to focus the Framework on what actuaries who have had considerable experience should be able to do. this was a deliberate choice, as the aim was to produce a Framework that is aspirational. Hence, the Framework is not focused on what every member of the profession is currently able to do. it does, however, provide a pathway that can be followed by individuals to reach the higher levels of the profession.

it is also clear that not all actuaries will be currently working in all the areas (functions) detailed in the Framework. there was a deliberate attempt in the Framework to cover the field, i.e. the range of contexts of actuarial practice. it is hoped that this can also provide a pathway for actuaries seeking to move from one area of practice to another.

A key issue in the development of capability frameworks is the role of knowledge in performance and how knowledge is best incorporated into a framework. Prima facie, the simple solution is to have one or more units of competency centred on knowledge. However, this approach is defective as it fails to capture the actual role of knowledge in professional performance. to see why this is so, it is useful to consider George miller’s classic pyramid (1990) that is designed to illustrate the relationships between knowledge and performance (that is, between what a person knows and what they can do). At the bottom of the pyramid miller places ‘Knows’. Above it is ‘Knows How’, and above that is ‘shows How’. Above all of these, at the apex of the pyramid, is ‘does’. miller maintains that the professional character of the relationship between knowledge and performance is greater the higher up the pyramid the item is located. Also, higher levels progressively encompass lower levels, so that assessment of knowledge, for example, can be made through the use of knowledge in performance.

the key differences between the four levels become apparent when we consider the ways in which each is typically assessed. ‘Knows’ is tested mostly by written, oral or computer-based methods (multiple choice, short answer, oral quiz, etc). ‘Knows How’ is also tested mostly by written, oral or computer-based methods. but here the questions are usually more sophisticated and integrated (oral or written questioning on how to best proceed in hypothetical work scenarios, extended matching questions on hypothetical work scenarios, etc). ‘shows How’ is tested typically by performance assessment on simulated work situations or cases (mock files, long and short cases, etc). ‘does’ is usually assessed from performance on real work situations or tasks (direct observation, video-taping, portfolio, etc).

research has demonstrated that employing a variety of methods, encompassing all levels of miller’s pyramid, is the most effective way of assessing competence/capability and its development across a course and during the early years of practice. Whilst the two lowest levels of the miller pyramid are the easiest to assess and the least time- and resource-intensive to operate, the research evidence is that, by themselves, they are very poor predictors of professional capability. reliable and valid assessment of capability requires significant testing at the ‘Shows How’ and ‘Does’ levels. this is a major reason why professional years, internships and the like, have become common across professions. It takes significant and guided

The level at which the Framework is focused

The question of underpinning knowledge and assessment of capability

Knows

Knows How

Shows How

Does


experience of actual practice for graduates of higher education courses to become fully proficient practitioners.

the Framework was developed using a combination of techniques. in summary these were:

• A two-day workshop of leaders of the profession.• Two practitioner workshops – in Melbourne and Sydney. The personnel

for both of these consisted of senior and junior members of the profession including senior academics.

• A number of function-specific review groups. These consisted of senior actuaries with detailed knowledge in each of the areas/functions contained in the Framework. Their role was to refine the original draft in the light of their specific knowledge of the individual functions.

• Critical incident interviews with relatively inexperienced practitioners (less than five years in practice – five in total).

• At the completion of each of these steps, the project team further revised and refined the draft competency standards based on the feedback received.

the workshops involved a range of practitioners, selected to represent the variety of the contexts of the occupation.

the practitioner workshops, focus groups and critical incident interviews took place between February and december 2011. the two-day workshop with leaders of the profession provided an initial fair draft of the Framework. These were then further refined and expanded using the diverse input from the practitioner workshops in sydney and melbourne, review groups and critical incident interviews.

Our approach to identifying capabilities and indicators is based on an analysis that integrates actual key work tasks with the attributes required of the capable actuary. these attributes include knowledge, skills, dispositions, abilities and values and these appear in the performance indicators in the Framework. In each case they relate to the specific work tasks. This approach has been used successfully with a large number of occupations including Nursing, Optometry, dietetics, Osteopathy, podiatry, medical science, and diverse specialisms in law.

Development of Framework

reFereNcemiller, G.e. (1990) the assessment of clinical skills/competence/performance. Acad. med. 65, s63 7.

the original conception of critical incident interviews was developed by Flanagan (1954) as a technique used in the defence Forces to identify the characteristics of successful performers in a variety of military fields. This technique has since been refined and widely used to refine and update professional capability frameworks. in this project, we have used telephone interviews based on a structured self-reporting format. the critical incident interview attempts to unravel the tacit knowledge that experts use in successful performance.


• The existing business is well understood (including key drivers and competitive advantages)

• Corporate risk appetite is understood• Documented evidence is available of understanding of broad

context within an accepted framework (e.g. social, technological, environmental, economical, political, steep) and consistent with corporate objectives (including recognition of high uncertainty and high consequence risks and opportunities)

• Agreement is obtained from senior management and/or Board about interpretation of context

• Competitive need for change is well understood• Clear consideration of emerging external trends is demonstrated

(including political situation)• Proper identification and quantification of risks and opportunities is

demonstrated, including stress testing• Identification of key stakeholders and their needs and perspectives is

undertaken • Identification of champions and potential barriers is undertaken

• Recognised process for idea generation is used (e.g. scenario planning including extreme scenarios, brainstorming)

• A range of skills sets is utilised in developing ideas• Key assumptions are identified and high level reality and sensitivity

checks on assumptions are undertaken• Evidence is available that ideas have been sourced externally

(including internationally), as well as internally• Evidence is available that the ideas are consistent with context• Financial model is developed and signed off by appropriate staff with

financial training and skills• Ideas are assessed and potential alternatives ranked against risks and

returns using core valuation techniques for uncertain cash flows• Broad agreement is reached amongst working group around

assessment and ranking• Strategy is formulated in alignment with the above processes• Potential risks and rewards are clearly documented (e.g. via the SWOT

framework)

• Plans are developed to manage stakeholders based around their perspectives by leveraging champions

• Personal engagement is undertaken with key stakeholders early and throughout the processes of assessing feedback and making appropriate changes

• Proof is obtained of broad alignment between stakeholders (i.e. evidence of strategies approved by relevant stakeholders)

1 Contribution to Business Strategy

Actuarial contributions to business strategy encompass understanding the context and need for reassessment, followed by the generation and assessment of ideas, strategy and modelling, through to the explanation, promotion and selling of the strategy to ensure implementation.

Description:

1.1 Understand the context (e.g. political, regulatory and competitive issues) and need for reassessment.

1.2 Generate and assess ideas for the generation of strategy, modelling and assessment of potential strategies.

1.3 Explain, promote and sell the strategy.

Elements Performance indicators

CB



1 Contribution to Business Strategy (continued)

CB

2 LeadershipL

• Functional and technical knowledge and skills1 to do the job at a high level of accomplishment are developed and demonstrated

• Effective communication is demonstrated in formal presentations one-on-one, to small and large groups, with peers, direct reports and bosses, inside and outside the organisation, when delivering data or technical information, and when delivering or discussing controversial or hot topics

• Attention is commanded and group process managed during the presentation, and an ability to change tactics midstream when something isn’t working is demonstrated

• An ability to write clearly and succinctly in a variety of communication settings and styles is demonstrated

• Messages are communicated (in writing or in person) which have the desired effect

• An openness to change and quick learning when faced with new problems are demonstrated

• Analysis is undertaken of both successes and failures for clues to improvement, and experiments are undertaken to find solutions

• A quick grasp is demonstrated of the underlying structure of anything• Rigorous logic and methods are used to solve difficult problems with

effective solutions• Hidden problems are seen, and all fruitful sources of answers are

probed

Demonstration of leadership in driving some or all of self, others, business or thinking at a high strategic level.

Description:

2.1 Develop self leadership, the personal drive and discipline to learn, communicate, prioritise and solve problems in a dynamic business environment.


1 material drawn from competency 24: Functional / technical skills, leadership Architect framework, lominger international.

• Evidence is obtained of implementation plan approval by relevant stakeholders

• Consultation is undertaken to ensure implementation plans are realistic (e.g. using consultants that have track records or existence of internal track record of success in similar projects)

• Appropriate governance structures are ensured (e.g. steering committees and project teams are adequately and appropriately resourced and have sufficient senior management and Board support)

• Proof is available of appropriate monitoring and evaluation once project is underway

• Reports on various milestones against project plan and budgets are undertaken

• Proof of ongoing stakeholder management is available• Evidence is available of adaptation to the external context including

that assumptions used in the original strategy are still appropriate• Implementation tasks are delegated and monitored

1.4 Ensure implementation is carried out.


2 material drawn from competency 16: timely decision making, leadership Architect framework, lominger international.

3 material drawn from competency 37: Negotiation, leadership Architect framework, lominger international

• Skill in honest analysis is demonstrated• Ability to look beyond the obvious and not stop at the first answers is

demonstrated • Decisions are made in a timely manner2, sometimes with incomplete

information and under tight deadlines and pressure• Own time and time of others is spent on what’s important – focus is

created• Critical few actions are focused on, whilst trivial many are put aside• What will help or hinder a goal is quickly identified, and roadblocks are

eliminated• Resources (people, funding, material, support) are marshalled and

used effectively and efficiently to get things done• Multiple activities can be orchestrated at once to accomplish a goal• Information and files are arranged in a useful manner• Tasks and projects are accurately scoped, work is broken into process

steps, schedules developed and tasks assigned to people• Problems and roadblocks are anticipated and adjustments made• Performance is measured against goals, and results evaluated


2 Leadership (continued)

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• An ability to relate well to, and build rapport with, all kinds of people (up, down, sideways, inside and outside the organisation) is demonstrated

• Constructive and effective relationships are built• Diplomacy and tact are employed, and an ability to defuse high

tension situations is demonstrated• An ability to quickly find common ground and solve problems for the

good of all is demonstrated, whereby own interests are represented whilst being fair to other groups

• Support and trust of peers is gained, such that the actuary is seen as a team player and cooperative

• An ability to negotiate3 in tough situations with both internal and external groups is demonstrated, so that differences are settled and concessions are won without damaging relationships

• Availability to listen to, and assist with, work and non-work issues and problems is demonstrated

• Attentive and active listening is practised, and people are patiently heard out

• Diverse teams are built, and all kinds and classes of direct reports (whatever gender, age, race, culture, disability) are managed equitably

• Candid discussions are held with direct reports and preferential treatment is not given

• Frequent development discussions are held with direct reports, compelling development plans are constructed and executed

• Challenging and stretch tasks and assignments are set• People are pushed to accept development moves (even if outside

their comfort zone)• Both routine and important tasks and decisions are clearly delegated,

others are empowered• People are trusted to perform and direct reports and others are

allowed to finish their own work• Responsibility and accountability are broadly shared and success is

defined in terms of the whole team, each individual is made to feel their work is important

2.2 Leadandinfluencepeopleusing interpersonal and peer relationship building within both internal and external groups and where direct report and team development is fairly and motivationally delivered.

2.1 Develop self leadership, the personal drive and discipline to learn, communicate, prioritise and solve problems in a dynamic business environment (continued).


2.2 Leadandinfluencepeopleusing interpersonal and peer relationship building within both internal and external groups and where direct report and team development is fairly and motivationally delivered (continued).

• Open dialogue is fostered and input is invited from each person• An ability to motivate many kinds of direct reports, team or project

members is demonstrated• An ability to motivate with reference to a higher purpose is

demonstrated

• Knowledge of how the business works is demonstrated i.e. ability to read financial statements, understanding of what drives revenue, capital and profit, understanding of strategic plan and mission-critical functions and capabilities, understanding of the operations of the business, understanding how the different parts of the business fit together and how they influence each other

• Knowledge of current and possible future policies, practices, trends, technology and information affecting the business and organisation is demonstrated

• An understanding of customers is demonstrated• The competitors and competitive environment for the business is

understood• An awareness of how strategies and tactics work in the marketplace is

demonstrated• Dedication to meeting the expectations and requirements of internal

and external customers is demonstrated• First hand customer information is gained and used for improvements in

products and services • Customers are kept in mind when actions are taken• Effective relationships are established with customers (internal and

external), and their trust and respect is gained• Creative ideas of others are brought to market• Good judgment is shown about which creative ideas and suggestions

will work• Effective brainstorming is facilitated• Demonstrated ability to project how potential ideas may play out in the

marketplace is shown• The broadest possible view of an issue/challenge is taken, and a global

thought process is undertaken• Broad ranging personal and business interests are indulged and pursuits

are undertaken• An ability to easily pose future scenarios is demonstrated• Multiple aspects and impacts of issues are discussed and projected into

the future• Ability to see ahead, to anticipate future consequences and trends is

demonstrated• A broad perspective is taken (i.e. an understanding of business,

markets and customers, and how the world operates (political realities etc))

• Ability to articulately paint credible pictures and visions of possibilities and likelihoods is demonstrated

• Planning and organising skills are demonstrated

2.3 Apply strategic and business leadership, demonstrating business acumen, perspective, strategic agility and customer focus while managing innovation.



L

4 material drawn from competency 57: standing Alone, leadership Architect framework lominger international.




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2.4 Demonstrate thought leadership, employing creativity and inspiration aligned with business vision and purpose to champion ideas and make quality decisions which are valued, respected and sought after.

• Good decisions are made based on a mixture of analysis, wisdom, experience and judgment

• In terms of judgment, the actuary brings scepticism to the process and does not blindly accept optimistic assumptions

• When judged over time, most of the actuary’s decisions turn out to be correct and accurate

• The actuary is sought by others for advice and solutions• The ability to stand alone4 and be the only champion for an idea or

position is demonstrated • New and unique ideas are generated• Connections are easily made amongst previously unrelated notions• In brainstorms, the actuary is seen as original and value-adding• A compelling and inspired vision or sense of core purpose is

communicated• Milestones and symbols are created to rally support behind the vision• The vision is made shareable by everyone• Entire units or organisations are inspired and motivated

Description:


Employment of a holistic approach utilising technical knowledge, skills and judgment to enable valued advice and authoritative comment to be provided to stakeholders.

• The problem is broken down into key constituent parts• The key trends, cycles, risks and sensitivities (of the component parts

and the whole problem) are modelled

• The significance of the various components of the Actuarial Control Cycle (define problem, design solution and monitor results) is considered

• Problems, key stakeholders and constraints are identified and initial data gathered

• Stakeholders’ perspectives, requirements and constraints are understood

• Consequences are explained to key stakeholders• Agreement of the extent of problems and solution process is obtained

from key ‘problem owners’ • Relevant quantitative and qualitative data is gathered• An approach based on constraints (i.e. model specification) is

developed

3.1 Understand the problem using a holistic approach, reconciling the dissective analysis with the big picture.

3.2 Understand the Actuarial Control Cycle.

3.3 Employ the Actuarial Control Cycle in diverse situations.

3 Actuarial Approach to Problem SolvingPS


• Interests of multiple parties are identified and taken into account• Allocation of financial outcomes across cohorts or competing interests

are managed

• Alternative communication strategies are identified • Feedback is sought from key stakeholders on preferred strategies• Strategies best suited to the particular situation are selected

3.4 Understand and apply the principles of equity.

3.5 Select appropriate communication strategies.

• A model is developed, tested and validated, and applied to the problem

• Key drivers, sensitivities and limitations are identified• Results of model are interpreted, using judgment and measures of

reasonableness• Results are delivered in language the user can understand• Cycle is monitored over (agreed) timeframe to (agreed) level. Different

timeframes can be accommodated, including long term projections• Remedial/reactive steps are considered and applied where

appropriate

3 Actuarial Approach to Problem Solving (continued)

PS


3.3 Employ the Actuarial Control Cycle in diverse situations (continued).

• Capacity to think commercially is demonstrated• Ideas are presented in language that stakeholders can understand• Ability to influence and persuade stakeholders on appropriate action is

demonstrated

• Processes are put in place to ensure monitoring • Steps are taken in response to issues identified through monitoring

• Action taken by senior decision makers on the advice (or where advice has not been followed, the actuary has demonstrated efforts to follow up and seek reasons why not)

• Documentation exists of discussion process such as:• comprehensive Board minutes reflecting actuary’s advice/

discussion to board• copies of correspondence to senior managers • actuary’s working papers

• Complex issues are discussed in the Financial Condition Report (Fcr) and other professional reports and related presentations or conversations

• Complex issues are socialised across the business and discussed with business leaders outside the actuarial area

• Additional expertise is sought from third parties where necessary• The thinking behind key interpretations (including of legislation and

standards) is documented

3.7 Engagewithandinfluencebusiness partners and stakeholders.

3.8 Monitor over agreed timeframe to agreed level.

3.9 Ensure complex issues are fully understood in complete business context.

• Proposal and recommendations are clearly stated or communicated and amended as required

• Issues to be monitored and trigger events for further actions are clearly communicated

• Results and alternative strategies are discussed with the relevant parties to agree preferred option for solution

3.6 Communicate recommendations and results conclusions to all stakeholders.



• Senior decision makers have taken action on the advice or, where advice has not been followed, the actuary has demonstrated their efforts to follow up and seek reasons why not

• Documentation exists of discussion regarding risk issues in Board papers, correspondence with senior management, board and board committees (including audit committee), Fcr etc.

• Evidence exists of timely advice rather than reactive response• Documentation exists of issues raised internally or externally such as:

• correspondence with regulators and auditors• near misses reported to internal auditor• issues register• compliance reports

• Additional expertise is sought from third parties where necessary• A comprehensive report is made on compliance with risk management

framework

3.10Proactivelyflagissues(inanyareas) of risk exposure not currently being adequately addressed.

3 Actuarial Approach to Problem Solving (continued)

PS

• Evidence is available that demonstrates that key knowledge is shared and retained within the business (including internal cpd, collaboration between relevant areas)

3.9 Ensure complex issues are fully understood in complete business context (continued).

4 Valuing Uncertain Future Cash FlowsVF

Description:

4.1 Establish the purpose of the valuation.

• Reason for valuation is established either through relevant regulations or documented user brief

• The terms of reference (i.e. scope of work) are clearly understood

• A summary is included in reports

• Data is collected including timing, amount and variability of cash flows• Integrity, quality and accuracy of data is checked• The uncertainty of the cash flows is assessed

Provision of reasoned, relevant and justifiable projected cash flows through the application of professional judgment in analysis, communication, reporting, monitoring and advising clients.

4.2 Understand the business context.

4.3 Gather and review relevant data.


• Data justifying the assumptions is documented• Assumptions are validated with previous assessment, consistent with:

• current economic projections• professional standards and regulatory requirements• actual experience• business forward projections• professional judgment• degree of uncertainty

4.4 Develop assumptions.


• Appropriateness of available models is assessed• Clarity and availability of data requirements is ensured • Understanding of model operation is ensured• Robustness of the model is tested• Known limitations of the model are noted• Parameters for the model are identified• Output contains sufficient information to provide context of the

valuation

• The projected cash flows are generated and valued• Errors have been identified and system issues addressed

• A sensitivity analysis of outcomes has been undertaken• Results have been compared with other relevant information and the

results of other methods• Reasonableness of the results has been tested• Appropriate level of peer review has been conducted

4.5 Develop or choose a model.

4.6 Perform computation, projection or modelling.

4.7 Analyse the outcomes using professional judgment.

4 Valuing Uncertain Future Cash Flows (continued)

VF

• Interactions and validity as a whole are considered• Feedback on assumptions is sought from business managers


4.4 Develop assumptions (continued).

• A report is written with a view to commercial implications• Assessment of uncertainty is included in a report• Limitations are included in a report• Opportunities and implications are discussed with the client/user and

actuary’s own opinion is clearly stated

• Consistency of outputs and assumptions is ensured• Actual versus expected experience is analysed and validation made

against assumptions• Proposals are made regarding extent to which assumptions have

changed• Sensitivity analysis of new assumptions and decisions on changes is

undertaken• Input from business managers is obtained regarding new assumptions

4.8 Report or communicate results including limitations and sensitivity drivers.

4.9 Look ahead by monitoring and revisiting.

5 Risk Management

Description:

5.1 Communicate the importance of riskmanagementandinfluencekey stakeholders.

• Widespread acceptance amongst stakeholders of the commercial importance of risk management is achieved

• Risk management is given due attention at Board and management level, including consideration of outlier scenarios

Application of a broad, proactive approach to the development and improvement of a client’s risk culture ensuring the strong engagement of the Board and senior management through systematic development, implementation and promotion of policies, processes and support at all levels for the defined risk framework.


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5.2 Understand, identify and articulate the key risks and opportunities to the business.

5.3 Develop and oversee governance arrangement.

5.4 Develop and review Risk Management Policy (i.e. the Risk Management Strategy as per APRA regulation).

5.5 Oversee and/or implement Risk Management Process.

• All sources of risk are identified and material risks, in the context of the business environment, are considered in greater detail

• Key business risks are given due attention at Board and management level

• All stakeholders are identified (including shareholders, customers, employees, regulators, service providers etc)

• Ownership for particular risk responsibilities is clear (including Board, senior management, middle management, chief actuary, crO (risk function), service providers, front line staff)

• Risk Management Framework is defined and documented (i.e. the totality of all aspects of risk management, including risk management policy and risk management process)

• Policy is fully documented• Board ownership of policy is demonstrated• Consistency with business strategy is ensured• Consistency with other policies is ensured (including Investment Policy,

reinsurance management strategy, etc)• Risk appetite is fully articulated qualitatively and quantitatively • Risk Management Process is specified• Risk management performance is monitored and reporting clearly

specified• Review cycle is defined to ensure the policy remains current• Translation of policy into operational details and guidelines is

undertaken

• Qualitative and quantitative translation of risk appetite into risk tolerance at operational level is undertaken

• Formal Risk Management Process (including ISO 31000 as an application of the Actuarial control cycle) is adopted• establish context• identify and assess risks• treat risks• monitor and review• communicate and consult

• Business-as-usual conditions, as well as outlier scenarios, are considered• Compliance requirements are met (including legal, statutory and

professional)• Risk Management Process and its implementation are reviewed

regularly

• Tailored communication strategies are developed to persuade and influence key internal and external stakeholders

5 Risk Management (continued)

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5.1 Communicate the importance of riskmanagementandinfluencekey stakeholders (continued).

5.6 Oversee and/or perform risk analysis.

• Risk analysis, as CRO, is overseen when prepared by specialist risk staff, and the specific detail is understood to the required level

• Risk in various forms is analysed (including stochastic modelling and stress testing) as appropriate

• The relative importance of risk drivers is understood and analysed/modelled in a practical way

• Key take-outs are communicated up the chain


5 Risk Management (continued)

5.7 Implement and monitor risk management systems.

5.8 Promote a positive risk management culture at the organisation.

• Risk management systems to support Risk Management Framework are developed and reviewed

• Operational systems (e.g. accounting, administration, actuarial, information technology, training etc) provide required supporting information to risk management Framework

• Required and timely relevant reporting is produced and distributed to various stakeholders

• CEO and Board initiatives in developing and improving the organisation’s risk culture are supported, such as:• adequate resourcing for risk management • desired behaviours articulated to all levels of the organisation so

that everyone understands that risk is their responsibility• a systematic approach to develop, communicate and monitor

desired culture is put in place• processes to address issues that arise • remuneration systems to align behaviours with sound risk

management


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6 Professional GovernancePG

Description:

6.1 Adopt a professional approach in providing services.

• Code of Professional Conduct is understood and followed• Purpose of service and the principal’s expectations are discussed and

agreed both upfront and during the process• Relevant statutory requirements are complied with• Stakeholders are engaged as appropriate• Service is provided in a risk aware manner• Consideration is given to third parties and the public interest where

appropriate• Communication is clear, timely and appropriate for the audience• Key messages and critical issues are clearly and concisely

communicated• Quality control and documentation are appropriate to the service

Adoption of professional approaches and practices required to provide services and Prescribed Actuarial Advice, while maintaining currency of own capability and contributing to the development of the Profession.


• In addition to all performance indicators in 6.1 above:• Advice complies with actuarial professional and regulatory

standards, where relevant• consideration is given to how professional and statutory guidance

should be applied• Appropriate quality control is applied, such as technical and peer

review• Where advice has not been followed, the actuary has actively

engaged with the principal in following up on the issues and has considered other actions

6.2 Ensure obligations are met in providing Prescribed Actuarial Advice.


• Awareness of capabilities and any gaps within the current areas of the actuary’s operation are identified

• Engagement in continuing professional development including compliance with ps1 is maintained

• Opportunities to challenge own thinking and explore issues are sought• Sound market and professional reputation is maintained• Sound operational risk management practices are maintained• Appropriate knowledge and skills in relevant areas (beware of the perils

of being an enthusiastic amateur) are acquired

• Engagement with the Institute is developed and maintained• Contribution to the profession, including mentoring of other members of

the profession, is provided• Research, writing and publishing papers and the delivery of

presentations at conferences are conducted• Voluntary leadership, participation or assistance to the Institute’s

professional groups is offered, such as:• council• practice committees• events and conference taskforces• technical or research committees• education teaching and Assessment

6.3 Maintain professional capability.

6.4 Contribute to the development of the profession.

6 Professional Governance (continued)

PG


7 Product Development Management and PricingPD

Description:

• Understanding of social and economic context, business constraints, marketing environment, competitive position and customer needs is demonstrated

• Understanding of business operations including IT systems, marketing channels and investments) is demonstrated

• Interaction and collaboration with key internal stakeholders (including it, legal, administration, sales, claims, marketing, underwriting, asset management and Appointed Actuary) is demonstrated

• Understanding of business strategy, marketing strategy, risk appetite, senior management and board views and risk management policy is demonstrated

• Understanding of legislative, tax and regulatory framework (including new legislation and relevant international developments) is demonstrated

• Ability to understand the intent of standards and regulations so as to apply them to new or untested situations is demonstrated

Demonstration of product management, development and pricing which incorporates and balances stakeholders’ needs, commercial realities, the external market, sales and marketing consistency, financial objectives and risk management.

7.1 Develop and maintain an understanding of the environment.



7 Product Development Management and Pricing (continued)

7.2 Create a solution to the needs that the product is trying to meet.

• Understanding of the external environment is demonstrated, including customers, competitors, industry bodies, international developments etc.

• A clear understanding of why the product needs to be maintained as it is, developed, enhanced or closed down is demonstrated

• Appropriate issues are considered (including pricing, capital, profitability, appropriate risk mitigation and market research)

• A solution that meets needs and/or reason for product change (taking into account the balance of stakeholder needs) is proposed

• Interaction and collaboration with key internal stakeholders (e.g. IT, legal, administration, sales, claims, marketing, underwriting, asset management and Appointed Actuary) is undertaken and sign-off on the detailed design (product specification) is reached

• Proposed solution is communicated and explained to management and/or decision makers and uncertainties or potential problems are highlighted

• Understanding of the natural tension between marketing stakeholders (including wording of marketing material, reasonable benefit expectations and volume projections) is demonstrated

PD


7.3 Implement the solution.

7.4 Manage the product portfolio.

• Close involvement in, or management of, the project to implement the solution (product, price, promotion, place as well as the necessary administrative systems) is demonstrated such that the project is completed to achieve the business goals

• Interaction and collaboration with key internal stakeholders is undertaken in accordance with project plan

• Ability to solve problems and be responsive to the changing environment is demonstrated

• Influence is achieved over the sales and marketing strategy for the product to ensure that the manner in which it is marketed and sold is consistent with the product design and its pricing

• Sales and marketing strategy for the product takes account of the broader business strategy, wholesale and retail customers and distribution channels

• Post implementation review is undertaken and it is demonstrated that lessons learnt are implemented

• An understanding of the environment is developed and maintained• Performance is measured against financial and other targets and

quality management reporting is produced that allows informed decision making

• An understanding of the key performance drivers of the product portfolio is demonstrated

• Proactive action is taken (including close, enhance, add products) as appropriate in the light of the evolving environment and performance drivers

• An ability to solve product problems by collaborating with other relevant business areas or personnel is demonstrated

7.1 Develop and maintain an understanding of the environment (continued).


Description:

8.1 Agree investment objectives. • Documentation exists of:• wholesale and retail customer needs and expectations (including

costs, risk/return profile, timeframe, social responsibility etc)• liability profile• any constraints on the investment mandate (including liquidity

and tax)• consideration of the public interest

• A clear understanding of why the mandate is being developed or modified is demonstrated

• Understanding of market conditions and possible future scenarios is demonstrated

• Identification of asset classes and their characteristics is conducted• Additional expertise is sought from third parties where necessary• An understanding of competitors’ products and strategies is gained

• Strategic asset allocation, which meets the investment objectives, is formulated

• Mismatch of assets and liabilities is identified• Other asset risks are identified (such as liquidity, credit risk etc)• Portfolio performance is assessed or stress tested under a range of likely

and unlikely scenarios

• Mandate is designed with consideration of key factors such as:• cost in all layers • risk/return profile • active vs. passive strategies • sector and country selection • stock selection • competitive situation and implementation

• Interaction and collaboration with key internal and external stakeholders is undertaken and sign-off on the detailed mandate design is reached

• The proposed solution is communicated to management and/or decision makers and uncertainties or potential problems are highlighted

• Proposed mandate is signed off by management and/or decision makers

Provision of documented, demonstrated advice on management and development of investment portfolios, including consideration of investment objectives, market knowledge, asset liability modelling, strategic asset allocation and communication with stakeholders.

8.2 Develop an understanding of markets.

8.3 Apply asset liability modelling.

8.4 Construct investment portfolio.


8 Investment Advice and GovernanceIA

8.5 Report on investment performance.

• Timely, accurate and relevant reporting is produced for:• internal stakeholders to allow informed decision making • external stakeholders for sales and marketing and customer

service purposes


• Statutory and legislative requirements are identified• Operational risks are identified and ‘business as usual’ conditions and

extreme events are considered• Investment governance systems are developed to monitor the key risks,

including:• remuneration arrangements• custodial arrangements• cash handling• trading limits• delegations• counterparty exposures • compliance with mandate etc

• Operational systems are developed (including accounting, administration, actuarial, information technology, etc) to report on these risks

• Timely relevant reporting is produced to allow informed decision making

• Regular reviews are undertaken• Regular review of Risk Management Process and its implementation is

conducted

END

8.6 Ensure sound investment governance is in place.

8 Investment Advice and Governance (continued)

IA

Institute of Actuaries of AustraliaAbN 69 000 423 656

level 7, 4 martin place, sydney NsW Australia 2000t +61 (0) 2 9233 3466f +61 (0) 2 9233 3446e [email protected] www.actuaries.asn.au

• Performance attribution is undertaken and actions are recommended• Performance reporting is reviewed for consistency with objectives and

modelling assumptions


8.5 Report on investment performance (continued).

actuarial capabilities framework - actuaries institute · feedback received. the workshops involved...

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