Financial Condition Reports

Change for the better

Lux started working with this UAE based insurer early 2017, when major changes to the Company began. At the time Lux became the Appointed Actuary, the client was effectively insolvent, the business was performing poorly, and the data provided was lacking.

Two years later (2019), we can now see the positive results of the changes that were implemented in 2017. The Company is solvent, performing better than the market and the data provided is of improved quality. Of course, the Company still has a long way to go and there is room for improvement. In the year end 2018 financial condition valuation, much of the required documents were not available for review, such as corporate governance or investment policy documentation. Furthermore, much of the documents provided were inadequate. For example, the Non-Motor underwriting manual provided was not explicitly for a specific line of business but rather it applied to multiple lines of business.

One of the major issues that the Company is currently facing is growth prospects as, generally speaking, efficiencies of scale should lead to lower relative expenses and greater profitability, assuming business quality can be maintained. We have met with the client and discussed this at length. We elaborated the steps necessary to move forward and the client was eager to listen to and implement our recommendations.

Now, with this understanding, the client is planning to make further changes to grow and adhere to the regulation set by the Insurance Authority. As we saw the positive results from the changes made previously, we hope to see the results of this evolution in the next years.

Jumping Hurdles

We were engaged to prepare the year-end 2018 Financial Condition Report (“FCR”) for one of the largest national insurers in the UAE. Given the increase of scope in 2018, producing an exhaustive FCR presented many challenges. Due to the sheer size of this client and its unique business segmentation into international and domestic portfolios, Lux faced a logistic hurdle. Although co-ordination among the several departments proved cumbersome and time consuming, the outcome was greatly appreciated by all members. Liaising with the individual departments resulted in having a greater feel for the culture and direction of the Company.

The meetings with key personnel in the main departments served as a point of reflection on previous performance as well as paving the way forward with the newly formed Actuarial team. The continuous engagement of the client produced a well-received report, which was coupled with a presentation to the Audit Committee and Actuarial team summarizing the key findings of the FCR. Overall, the exercise assessed the financial health of the Company, highlighted key areas of improvement and strengthened the existing relationship between the external functions, such as the Appointed Actuary and External Auditors, and internal functions, such as management and the Board.

Teething Troubles

Lux was engaged as the Appointed Actuary for several MEA branches of an international insurer starting from the year-end 2018 valuation.

Given that this was a new client, we had to spend time understanding their data which is very different from all other clients’. This also meant that the entire reserving process had to be created from scratch. We had to account for special cases since different branches close on different dates, requiring premium reserves to be adjusted accordingly.

Since this was the first exercise and given that we started working on the project later than most other clients, timelines were extremely tight. Despite all the challenges that were faced, we were able to stick to timelines for each entity and managed to complete the FCRs on time with positive feedback and gratitude from the client, at completion.

One client, several jurisdictions

Lux was commissioned to prepare the 2018 year-end financial condition reports for an international insurance company with several branches in the GCC. Each regulator required a separate report for the branch operating within its jurisdiction, and each jurisdiction had different regulations and requirements with similar or same deadlines.

One of the main challenges that were experienced were the changes in regulations by the different regulators. In addition, internal changes within the client meant that we had to update our processes in order to ensure accurate and reliable results. We were able to prepare and execute a work-plan to process all the data, share the results with the client and prepare the reports to meet the deadlines.

The client wanted nothing less than full statutory compliance in the FCRs, and we delivered.

Busy in Bahrain

At the 2014 year-end, Lux Bahrain was tasked, under new Central Bank of Bahrain legislation, to deliver 14 Financial Condition Reports for 14 companies – the FCRs being very much in line with Solvency I standards.

This meant we had to consider Reserves, Pricing Adequacy, Reinsurance Arrangements and Asset/Liability matters, to be able to assess statutory Solvency. We have performed many FCRs over the years, but these requirements were new to these companies, which meant additional challenges in obtaining information and data to required standards, and communicating to clients what was expected.  Multiplied by 14.

We delivered all 14 reports on time – some earlier than the agreed deadline.  We exceeded required standards and we are certain that the regulator appreciated the clarity of our actuarial analysis and reporting. Questions that arose for company specific results were comfortably dealt with by our knowledgeable and experienced staff.

Our clients benefit in that regulatory interaction is minimised through delivery of quality work, on time. Management can instead focus on writing profitable business.

Additional analyses we included in these FCRs, outside of regulatory requirements, were as follows:

  • Expense analysis in greater detail than required – useful for pricing work
  • Incurred claims, reconciled from accident year to financial reporting
  • Profitability, reconciled from accident year to financial reporting
  • Cash-flow projection and analysis

Our clients were delighted with our delivery and they rest assured that our reports are at the quality top-end of all the year-end FCRs delivered, setting the standard for other companies to follow.