Penrose; Morris; Kingman We Hear You: ARGA’s Coming

It’s not as if the actuarial standards problem was unidentified

December 2000 Equitable Life closed after 238 years.  It triggered the first ever review of the actuarial profession.  The 817 pages of Lord Penrose’s inquiry concluded the actuarial profession lacked comprehensive and specific professional standards; gave insufficient guidance in specific areas and was not willing to challenge fellow professionals.

The Government commissioned the Derek Morris Review. Published in 2005 it concluded:

• Professional standards have been weak, ambiguous or too limited in range and perceived as influenced by commercial interests.
• An absence of proactive monitoring of members’ compliance with professional standards.
• The Pensions Regulator should develop information and case study material to help pension plan trustees to challenge their actuarial advice.
• FRC should establish an Actuarial Standards Board with responsibility for compliance with standards.
• Public interest would be best served by actuaries’ compliance with high-quality professional standards.
• The profession could continue to run its own Code of Conduct unless there were concerns about what it was doing.

In December 2018 the “Independent Review of the Financial Reporting Council” by John Kingman, Chair of Legal and General, was published.  In its 93 pages it gives FRC’s actuarial role minimal coverage.  It suggests the FRC should give responsibility to PRA, as it has 80 actuaries rather than 4.  It notes that over 12 years after Morris, actuarial standards were only just being invented.

It does conclude “the regulation of actuarial work, as opposed to the profession, is likely to have considerable more impact than regulation of the profession ever can”.  It notes that there is “real risk that stakeholders may be assuming that FRC’s current oversight of the actuarial profession is a great deal more thorough and effective than, in the absence of credible powers, it actually is or can be.”  Independent oversight is needed and “suitable legal powers must be put in place to make it possible.”

The IFoA response to Kingman was sadly nonchalant:
“We believe that there is no evidence to suggest that the current arrangements are not serving the public interest and the introduction of a system of statutory regulation where there is no identifiable need to do so seems disproportionate.”

The LDI crisis; the unmonitored, unregulated, explosive growth of the Risk Transfer industry; the continuing disdain amongst practitioners for FRC Technical Actuarial Standards like TAS300V2; and blatant conflicts of interest around longevity risk transfer at CMI.  The evidence is ample of an identifiable need.

Penrose; Morris; Kingman.  The diagnosis was right.  Scrutiny is much needed.  The Audit Reporting and Governance Authority should not mess about.

And FRC could say now that it will work with fellow regulators (PRA / FCA / TPR / PPF / CMA) on a Thematic Review of audit and actuarial practices behind Risk Transfer transactions.  With such scrutiny, the behaviour or actuaries and their friends will improve dramatically even before ARGA finally arrives with a Statutory recipe and radiates authority.


The lack of scrutiny of actuarial work has long been recognised as a problem.  The boom in Pension Risk Transfers has made it a big one.  But remedial action creates new opportunities as ARGA warms up.

Comply rigorously with Technical Actuarial Standard Version 2.1 with a Risk-Benefit Analysis.  The maths required and the governance issues raised will be eye opening and work terrifically well in all stakeholders’ interests.  The new information generated will align with DWP’s requirements for new scheme Funding and Investment Strategies.  Relevant questions arise that trustees must ask.

It’s a straightforward, available, opportunity Government should take to reinforce its growth strategy.

Read Technical Actuarial Standard 300 Version 2: At One.  Actuaries are nonchalant but ignore it at your peril.