We are pleased to announce the establishment of Lux Actuaries &amp; Consultants in Kuwait, as a locally based actuarial consultancy, registered by the Kuwait Insurance Regulatory Unit (IRU). The management of Lux would like to extend a huge thank you to the team that has been instrumental in getting us to this point, including our local partners. We look forward to supporting the Kuwaiti market and continuing to promote the growth of the profession within the Gulf region. &nbsp;

We are pleased to announce the registration of Lux Actuaries & Consultants with the Kuwait Insurance Regulatory Unit (IRU).

Lux Actuaries now open for business in Kuwait

Increased demand for actuarial skills&nbsp;The most significant change for the actuarial function in 2023 will be alignment with IFRS 17 from a business as usual (BAU) perspective. This includes the associated development and upskilling of the actuarial function with an increasing level of urgency and importance. There will be an uptick in&nbsp;demand for actuarial students and qualified Fellows and Associates to develop and streamline internal processes, particularly between Actuarial and Finance functions,&nbsp;as these are evolving to suit a new reporting workflow. With a supply that won’t keep pace with demand, we would expect an increase in actuarial costs and likely an enhancement of actuarial packages to include study incentives as a standard offering as the better companies work to secure stronger talent.&nbsp;Outsourcing&nbsp;With many insurance companies in the region currently choosing to outsource the Appointed Actuary function to consultancies, these consulting firms are expected to experience an increase in outsourced responsibilities and will need to adopt an operating model that accommodates a new level of scale. External Auditors, many of which utilise actuarial teams based outside of the region, may also choose to invest in actuarial capabilities based locally as the cost-benefit gradient now tilts more towards benefit.&nbsp; With financials coming under greater scrutiny, the external audit scope will increase to include greater actuarial involvement and expertise. This in turn will have knock on effects on audit costs.&nbsp;&nbsp;Regulators&nbsp;Regulators will likely look to issue guidance or regulation on the increased scope that Appointed Actuaries need to fulfil.&nbsp; The upskilling and expansion of regulatory actuarial departments will be crucial to ensure that the review and monitoring of compliance with the new standard meets the minimum requirements. Regulatory forms will likely undergo change and external actuaries will be critical in the population and signoff of these forms.&nbsp;&nbsp;Stakeholder communication&nbsp;One of the most pivotal parts of BAU will be the development of forecasts and comprehensive business plans on an IFRS 17 basis, with a comparison of the differences with respect to the conventional IFRS 4 basis and associated rationale. Where actuarial involvement may have been relatively lighter historically, this will necessarily increase. Forecasted Statements of Financial Performance and Financial Position will require more detailed calculations that the actuarial function should be required to perform as these are naturally within the actuarial remit. Rules of thumb that may have been employed historically will likely be replaced by explicit liability calculations, particularly for longer term lines of business. This will require sophisticated software and knowledge of use, involving further investment in training and development.&nbsp; Explanation of these figures to Senior Management, Rating Agencies and Boards will push the actuarial and finance functions further into the centre of stakeholder communication.&nbsp;&nbsp;Actuarial education&nbsp;Lastly, the training and development of actuarial students produced by local tertiary institutions, most notably in the KSA and Bahrain, is likely to gather more support. Recent initiatives undertaken by the Bahrain Institute of Banking and Finance (BIBF) together with the Institute and Faculty of Actuaries (IFoA) recognise the importance of locally based graduates meeting the increasing demand for actuarial recruits. The long term success of actuaries in the region will be intrinsically linked to the grassroots coaching and support of universities and training institutes in providing fresh talent prepared to suitably meet the changing requirements of the insurance industry. &nbsp;No doubt the upcoming year brings exciting opportunities for the actuarial graduates, students and qualified Associates and Fellows. Our success in meeting the accompanying challenges depends on a proactive vision of the wider industry in developing and supporting the growth of professionals capable of ensuring the industry is able to successfully navigate around this corner. &nbsp;

Shivash Bhagaloo discusses trends and challenges facing the actuarial profession in the GCC in 2023. 

Outlook of the actuarial profession in the GCC for 2023

&nbsp;Lux Actuaries &amp; Consultants is proud to have sponsored the first in-person meeting of the Gulf Actuarial Society (GAS) since 2019. The event took place in Dubai and was attended by over 70 actuaries and students from across the GCC.&nbsp;&nbsp;There were many familiar faces and some new ones. We are particularly honoured to receive a delegation from the Institute and Faculty of Actuaries (“IFoA”), including the president-elect,&nbsp;Kalpana Shah.&nbsp;&nbsp;The seminar provided insightful presentations on interesting topics, including a discussion on the use of machine learning in Health Insurance by Navarun Jain, an update on the status of IFRS 17 implementation in the GCC by Hatim Maskawala, and an introduction to mortgage insurance by Imran Haider. In our final session, IFoA President-elect Kalpana Shah shared her views on her vision for the actuarial profession.&nbsp;&nbsp;As before the pandemic, this event was a great opportunity for actuaries in the region to engage and network with their colleagues and we are all looking forward to hosting many more such events in the region.&nbsp;

Lux Actuaries and Consultants is proud to have sponsored the Gulf Actuarial Society event held in Dubai on 6 October 2022.

Full house at the Gulf Actuarial Society event in Dubai

We are pleased to announce the establishment of Lux Actuaries &amp; Consultants Egypt, incorporated in Cairo with a local Commercial Registration as of May 2022. This achievement is the culmination of significant effort over the past few years as Lux grows its commercial footprint across the Middle East and North African region. We aim to provide integrated actuarial services to the Egyptian market with the best standards and the highest professional level. We look to grow our local base and develop local expertise. We are looking forward to growing our presence in Egypt as we start a new chapter of our brand’s growth. &nbsp;

We are pleased to announce the establishment of Lux Actuaries & Consultants Egypt, incorporated in Cairo with a local Commercial Registration as of May 2022. 

Announcing our new Lux office in Egypt

When I qualified as an actuary, the so-called financial economics debate was just erupting within the actuarial profession.&nbsp; For pension schemes it overturned the orthodoxy that equities were the best investment and replaced them with fixed income.&nbsp; Both approaches were wrong: they were too simplistic, and ignored the investment golden rule of diversification.But in sense both approaches were correct.&nbsp; At short durations equities are a poor match to inflation-linked liabilities, but at long durations they are a decent match.&nbsp; There is a term-structure which is observed in many economies to the correlation between equity and inflation from around zero, or even negative, at the short end, to around 0.5 at the long end.&nbsp;Strategic Asset AllocationThe starting point for making investment decisions is the strategic asset allocation (SAA). For institutional investors such as insurance companies and pension schemes something better than simplistic models is required.&nbsp; Asset-liability modelling (ALM) is the key tool to use to determine the SAA.&nbsp; ALM combines three elements: the assets, the liabilities and a stochastic economic scenario generator (ESG).&nbsp; An ESG is a model of the economy which creates multiple (at least a thousand, and often many more) simulations of the future path of the economy and its financial markets, over a given time horizon.At its simplest the assets are the SAA under consideration, a set of asset classes that add up to 100%.&nbsp; But it can be extended to include strategic derivative policies, for example. More advanced approaches include dynamic SAA where the SAA changes on a trigger, be it time or funding level, for example. Typically, the actuary will consider several alternative portfolios, often with the addition of new asset classes, alongside the current SAA.Liability cashflowsThe liabilities and their associated metrics use the output from actuarial valuation, ideally the yearly liability cashflows (which I call an “armadillo”) rather than their discounted value.&nbsp; ALM can be seen as a natural extension of actuarial valuation.&nbsp; A roll-forward algorithm is required, which is straightforward for assets but more complicated for liabilities, as for example you may need assumptions for new policyholders, and various approximations are usually used.Economic scenario generationCreating&nbsp;an&nbsp;ESG is straightforward, starting from mean (expected return) and standard deviation (risk) for each asset class, and the correlations between them.&nbsp; However, creating and maintaining a&nbsp;meaningful&nbsp;ESG from a coherent economic model to produce realistic simulations is technically demanding.&nbsp; The ESG needs to provide yearly return figures for each asset class under consideration over the time horizon for each simulation.&nbsp; For fixed income it is better that the ESG provides the yield curve (or curves, if multiple currencies) from which returns are derived based on the characteristics of the fixed income asset class.Art and scienceALM provides much valuable information on the risk-return trade off to determine how the investments of an institutional investor should be implemented.&nbsp; But it is dangerous to see ALM as a black box which spits out an optimal answer.&nbsp; The value-add in ALM is not just in the quantification of the trade-off off between conflicting objectives and risks but also in the conversations it facilitates on objectives for risk tolerances.&nbsp; There is both art and science in ALM.&nbsp; The science will determine how the assets can be made closer to the liabilities, for example by buying longer dated fixed income or through a complex swaption strategy.&nbsp; The art is determining which is best for the characteristics of an investor and its decision-makers.

When I qualified as an actuary, the so-called financial economics debate was just erupting within the actuarial profession. 

Asset-Liability Management: Science or art?

Insurance companies in the Gulf Cooperation Council (‘GCC’) region have been working towards alignment with IFRS 17 (the ‘Standard’) for over three years now. This process to date has been largely organized and controlled by the local regulators that initially set out a common broad approach. The pace of execution, however, has been varied in terms of priorities, timelines, submissions and the level of detail, process- and system-related aspects, user-testing, dry runs and the level of stakeholder involvement.Saudi ArabiaThe Saudi Central Bank (‘SAMA’) is in the forefront and well on its way to plotting an early learning curve for the KSA insurance sector with the second dry run due by 31 May 2022 for the financial year ended 31 December 2021. Alongside, most insurers have commenced system integrations and other process-related changes. In addition, the regulator has also outlined a detailed scope of work for external auditors to ensure a seamless and well-tested transition.BahrainLikewise, the process appears to be gathering momentum in Bahrain with the first dry run due by 14 August 2022 for the six months ended 30 June 2022.United Arab EmiratesIn contrast, the Central Bank of the UAE has suggested a dual reporting framework. While IFRS 17 will be adopted for general purpose accounting with effect from 1 January 2023, regulatory reporting (for solvency) will continue via the current eForms and gradually align with IFRS 17 in due course. Apart from the third (more comprehensive) Financial Impact Assessment (FIA) due by 31 March 2022 for the financial year ended 31 December 2020 and quarterly progress updates, dry runs have not been mandated and insurers are generally navigating the implementation process with the support of consultants.Rest of GCCElsewhere, further instructions are awaited from the Capital Markets Authority in Oman while progress in Kuwait and Qatar remains largely market-driven.With just three quarters left to the ‘go live’ date of 1 January 2023, the transition to IFRS 17 is now a pressing priority for insurers.&nbsp;TRANSITIONING TO IFRS 17: Some key decisions for insurersIn this two-part series, in partnership with Insurance Monitor, we delve into two key actuarial assumptions when transitioning to IFRS 17. These assumptions and the choice of methodologies thereof are key decisions for insurers that influence how profit from insurance contracts emerges and is reported over time:<ul><li>the&nbsp;<a href="https://luxactuaries.com/solutions/ifrs-17" target="_blank" rel="noopener noreferrer">computation of Risk Adjustment</a>: discussed in Part 1; and</li><li>the computation of an appropriate Discount Rate: concept, measurement approaches and limitations discussed in Part 2.</li></ul>Part 2, available on the&nbsp;<a href="https://www.insurancemonitor.ae/publications.php?e=NjQ=" target="_blank" rel="noopener noreferrer">Insurance Monitor website</a>, covers the following:<ul><li>the concept and guiding principles for insurers when computing Discount Rates;</li><li>the measurement approaches and key considerations when selecting a suitable approach;</li><li>the key limitations in these approaches and suggested workarounds for GCC insurers;</li><li>further considerations when establishing the discount rate that should dovetail with the product attributes, currency and timing of future cash flows, and overall characteristics of an insurer’s liabilities while feasibly meeting the requirements of the Standard.</li></ul>Click here to&nbsp;<a href="https://www.insurancemonitor.ae/publications.php?e=Njc=" target="_blank" rel="noopener noreferrer">download the report for free</a>.

Insurance companies in the Gulf Cooperation Council (‘GCC’) region have been working towards alignment with IFRS 17 (the ‘Standard’) for over three years now.

Latest from our blog

Lux Actuaries now open for business in Kuwait

Outlook of the actuarial profession in the GCC for 2023

Full house at the Gulf Actuarial Society event in Dubai

Announcing our new Lux office in Egypt

Asset-Liability Management: Science or art?

IFRS 17: Decoding Discount Rates