ARTA provides actuarial and technical advice to financial services regulators, tax authorities and other public sector bodies
 
Regulation
 
Our role is to support regulators in fulfilling their statutory objectives, to assist prudential supervision, and to help achieve robust insurance and reinsurance markets.

Advice on design & drafting of legislation & regulations

A regulator may need to introduce changes or new regulations to meet changing market needs. We assist the regulator in defining clearly the objectives of regulations and advise on the technical content needed to achieve those objectives.

Review of legislation and regulations

Regulatory structures require review to ensure they remain relevant to a changing environment. There may be product lines or market developments that are not adequately covered by the existing regulations. Alternatively, there may be international developments that are valuable in formulating revised regulations.

We consider an area of regulation - or a whole regulatory structure - and advise where enhancement may be appropriate.

Review of licence applications

A company intending to transact regulated business will need to apply for a licence. We advise on whether applications demonstrate that business will be conducted in a prudent manner and that the applicant has appropriate financial and non-financial resources.

Our advice is likely to include assessing business plans, capital and liquidity, as well as governance, risk management and controls. We advise on market impact and wider regulatory issues arising from the granting of new licences.

Review of business plans of regulated entities

A company may be required to submit a business plan to its regulator, for example as a result of business growth, whether planned or not, or to obtain authorisation for entry into new classes of business, or possibly into new geographic regions. Alternatively, the requirement may be the result of poor trading results leading to impairment of existing capital.

We examine the credibility of plans submitted and the impact of the company’s plans on its projected capital position.

Review of insurance company prudential returns

Insurance and reinsurance companies must demonstrate that business is conducted in a prudent manner and that they have appropriate financial resources. One tool for achieving this is the submission to the regulator of, typically annual, prudential returns. Returns provide detailed numerical information on the business being written and upon the assets held to back that business. A key component of prudential returns is an actuarial report on the adequacy of the company’s technical reserves.

We provide detailed scrutiny of prudential returns and the associated actuarial valuation report. We audit compliance with the relevant law and regulations, examine key indicators and provide our opinions on the methodologies used in determining the technical reserves of the company.

Review of insurance company pricing reports

In many markets there is a concern that particular classes of business are systematically mispriced by insurers. This can be a particular issue in respect of classes where high volumes of business written at inadequate rates can threaten the stability of the insurance industry.

Regulators can respond by requiring premium rates to be supported by an actuarial pricing report. We provide regulators with an analysis of such reports.

Review of insurance policy terms and conditions

An insurance policy should deliver the cover that a policyholder might reasonably expect. At the same time, it should not expose the insurer to risks it cannot sustain. Some regulators require pre-approval of new products. Others may wish to conduct a thematic review of a class of business.

We review insurance documentation with a view to ensuring that insurers are acting prudently and that customers are being treated fairly.

Review of reinsurance protection

It is vital that companies maintain adequate reinsurance protection and conform to the requirements of regulations in this respect. It is therefore necessary to review reinsurance arrangements to ensure that they are adequate and compliant.

We provide regulators with an analysis of the adequacy and security of a company’s reinsurance protection.

Review of insurance company investment strategies

We consider the investment policy of a company, and its implementation, to ensure that it is appropriately prudent and that it complies with regulations.  In particular, we examine the asset classes supporting the various classes of business being written, or proposed to be written, with regard to the nature, quality, diversity, currency and duration of those assets.

Participation in regulator inspection visits to
-- regulated entities

Our consultants can provide on-site technical support during regulator visits to companies.

Advice on insurance market mergers and acquisitions

When mergers and acquisitions are proposed in the insurance market, our main technical focus is on future solvency. We seek to establish whether the proposed new company is likely to be able to maintain its solvency margins in the medium term. In addition, where significant staff changes are projected, we investigate whether the company is likely to retain enough expertise to ensure the continued operation of the lines of business involved.

We can also consider the estimated market share of the proposed new company in various classes of business and advise if there is likely to be any detriment to consumers due to the size of the transaction.

 
 
Taxation
 
Our role is to support tax authorities in achieving the appropriate taxation of insurance and reinsurance transactions

Transfer pricing investigations

In a global economy where multinational enterprises play a prominent role, governments need to ensure that taxable profits are not artificially shifted out of their jurisdiction and that the tax base reported in their country reflects the economic activity undertaken there. The OECD has agreed a general principle - the arm's length principle - which governs transactions between related parties.

We analyse insurance and reinsurance transactions to examine compliance with the arm’s length principle.

Our analysis considers the price, terms and conditions of an insurance or reinsurance contract between related parties in order to establish whether they are consistent with what might have been agreed between two or more unrelated parties dealing at arm’s length.

Determination of the appropriate taxation of insurance
---and reinsurance contracts

Most jurisdictions have specific rules and guidelines relating to the tax treatment of income and expenditure arising out of contracts of insurance and reinsurance. These rules and guidelines are often more favourable than those that apply generally to commercial business transactions. They have often been designed to encourage companies and individuals to exercise the prudent purchase of insurance protection.

As insurance instruments become increasingly complex and opaque, it is often not obvious whether a transaction properly qualifies for the favourable tax treatment.

We examine both the form and substance of transactions to assist tax authorities in determining the appropriate treatment.

Analysis of financial reinsurance

Financial reinsurance, also known as Fin Re or finite reinsurance, is reinsurance that is motivated by financial as well as risk transfer goals. Fin Re employs the future profits contained in a block of new or in-force insurance business to achieve a financial objective for an insurance company.

Recent developments in the area of Fin Re by various regulatory agencies have highlighted the concern that this form of reinsurance has been used improperly on occasion. Even where this is not the case the economics of a transaction may differ significantly from its apparent form.

We provide analysis of financial reinsurance transactions to assist tax authorities and regulators in determining the appropriate treatment of a transaction.

Expert witness services

Our aim in advising our clients is to support the resolution of disputes as to the appropriate tax treatment of insurance and reinsurance transactions. However, this will not always be possible and litigation may be the only solution. Our consultants are able to act as expert witnesses, assisting the court in reaching its decision.
 
 

 
Registered Address: 57 Connaught Gardens London N10 3LG UK