In light of the influx of life & annuity reinsurers on-island, we thought it useful to provide a refresher on the role of the appointed actuary and peer reviewing actuary (“PRA”) in the Cayman Islands and matters for licensees to be mindful of in connection with their appointment and submission of their reports. Read on for our insights into the appointment process and the role and responsibilities of the appointed actuary and PRA.

Appointment Process

Unless otherwise exempt, the Insurance Act, 2010 requires Class A, Class D and those Class B (re)insurers writing long term business to submit with its annual return to CIMA an actuarial valuation of its assets and liabilities including loss and loss expense provisions, certified by an actuary approved by CIMA. CIMA’s Rule and Statement of Guidance – Actuarial Valuations (“Rule and SoG”) introduced in November 2019 provides guidance on CIMA’s expectations for the preparation of both the appointed actuary and PRA’s reports.

The criteria used by CIMA when determining whether to recognise or approve an actuary are set out in the CIMA Regulatory Policy on The Recognition and Approval of an Actuary dated July 2007. In light of the efforts of the Cayman Islands to be accredited with NAIC qualified jurisdiction status, CIMA proposes to refresh and update the Regulatory Policy and with a consultation paper recently circulated by CIMA for industry consideration and feedback prior to the likely issuance of the updated Regulatory Policy later this year to ensure that CIMA’s considerations are in accordance with the professional standards of all internationally recognised actuarial governing bodies.

Typically a long term (re)insurer will select the actuary and PRA at the time of licensing and include their consent to act and details of their qualifications, good standing with the actuarial bodies of which they are a member and evidence of their ability to certify the liabilities of the (re)insurer. In our experience, CIMA will expect the proposed actuary to have at least 5 years’ experience in the type and lines of business written by the (re)insurer.

The appointed actuary may be an employee of the (re)insurer or a consulting actuary from an external third party. A PRA is required to establish that they are independent from the preparation of the actuarial validation report prepared by the appointed actuary and the audit, but it is not formally prescribed by CIMA that they are an external service provider. In our experience, selecting a third party PRA who is fully independent from the (re)insurer removes any question of independence and is best received by CIMA.

Importantly, where a third party appointed actuary or PRA is selected, it is the appropriately qualified individual at the firm who is appointed by the Board and approved by CIMA, rather than the firm itself. Any report provided by such appointed actuary or PRA will need to be prepared and signed off by that individual. When changing an appointed actuary or PRA, a (re)insurer will also need to submit an application for pre-approval to CIMA, as well as such appointment being approved by the Board of Directors.

Role and Responsibilities

The appointed actuary and PRA will be expected to have the necessary skills and experience to ensure they are well placed to perform such roles effectively and ensure full compliance with the Rule and SOG. At a high-level, the role and responsibilities of the actuaries are as follows:

Both actuaries should be in a position to provide CIMA with their working papers within one to three (1-3) business days from the time they are requested in accordance with the licensee’s obligation to provide CIMA with documentation in a timely manner and to enable CIMA to ascertain the key steps taken to allow them to confirm, or otherwise, that acceptable professional actuarial approaches and analytics were followed in the actuary’s work.

The Board of Directors of a CIMA licensed (re)insurer should also be aware of their oversight responsibilities with respect to the appointment and role of the appointed actuary and the PRA. In our experience CIMA will expect that the Directors should:

• consider and approve any actuary or PRA appointment in accordance with applicable rules on corporate governance and CIMA’s Statement of Guidance on Outsourcing for Regulated Entities and ensure that the service agreement addresses the relevant requirements;
• ensure that the prior approval of CIMA is obtained for their appointment, and the departure of any outgoing actuary notified to CIMA along with the reasons for such;
• ensure that direct and effective communication lines will be put in place to ensure the actuary’s independence, having due regard to constructive input from directors/ senior officers;
• ensure the data produced by the entity for provision to the actuary is signed off on by directors/senior officers, through a written statement on the completeness, reliability and relevance of the data;
• review and acknowledge the contents of the AV Report and the report from the PRA and taking note of and implementing where appropriate any recommendations of the PRA; and
• disclose to CIMA any matter which could impact the quality or validity of the results of the AV Report.

The increase in long-term (re)insurers has contributed to a significant uptick in actuaries who are resident in the Cayman Islands, not only those employed by Class D insurers for which CIMA requires a physical presence in Cayman, but also for many Class B(iii) insurers who are choosing to build out their on-Island team.

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