An Interview Abroad with Valerie Tsang and Jessica Kirkwood
By Jessica Kirkwood and Valerie Tsang
International News, January 2024
Valerie Tsang and Jessica Kirkwood are both senior consultants with Ernst & Young LLP (EY UK) and Ernst & Young LLP (EY US) respectively, who also have something else in common—they both have recently moved to a new country and are now immersed in a different market.
Valerie started her career in the US in the Ernst & Young LLP (EY US) New York office. She has four years of experience in life insurance and has spent the past year working in the London office—focusing on the BPA market. Jessica qualified as an actuary while working in the Ernst & Young LLP (EY UK) London/Edinburgh offices and after eight years of experience in life insurance, she is working in the New York office—focusing on IFRS 17 implementation.
Here, they discuss the quick-changing landscape of actuarial work and regulations and the importance of being aware of the key issues both in the countries they work in and globally, as well as some of the differences they have seen between the UK and US markets. While there are many similarities in the work actuaries carry out in the two countries, there are some differences in the key upcoming issues and areas of interest due to differing regulation and speed of uptake.
Jessica (Jess): Hi, Valerie! I hope that you are enjoying your time in London. Now that you have settled into work in the UK, I would be interested to know what you think is the biggest difference you have found between working in the UK market vs. the US.
Valerie: I’d say accounting regulation changes are some of the biggest differences. When I worked in the US there were two regulatory changes that actuaries were spending a lot of time working on—LDTI and PBR. UK firms are focused on new IFRS 17 regulations, as well as keeping up to date with Solvency II regulations.
Jess: Yes, LDTI and PBR were new to me when I moved over. What do you think are the key things to know if you haven’t heard of these regulations?
Valerie: “LDTI” stands for Long Duration Targeted Improvements. It was issued by the Financial Accounting Standards Board (FASB), in 2018 and applies to insurance entities that issue long-duration contracts in the US. The standard became effective in 2023, and has five main updates:
- Assumptions used to measure the liability for future policyholder benefits (LFBP) and limited-pay contracts are changed and updated to reflect the current best-estimate view.
- There are also changes to how the discount rate is determined.
- The valuation approach to market risk benefits (MRBs), which has made the valuation of annuity products more consistent.
- DAC (deferred acquisition costs) amortization changes, which is now a more constant and straight-line approach.
- Introduction of more transparent disclosures, such as liability rollforwards and information regarding significant inputs, judgments, assumptions and methods used in measurement.
“PBR” stands for Principles Based Reserving and is for statutory reserving. There are many different iterations of PBR, one example of which is VA CARVM, which is the PBR requirements for variable annuity (VA) products. This specific PBR became effective in 2020.
Prior to PBR, static formulas and assumptions used to determine reserves were prescribed by state laws and regulations. Under PBR, insurers are now required to hold the higher of (a) reserves using prescribed factors, or (b) reserves that consider a wide range of future economic conditions and are computed using credible experience factors specific to the insurer.
Jess: Thanks! There are changing regulations in the UK, too, but LDTI and PBR have been new topics for me. When I compare hot topics in the UK market vs. the US market, a big difference I have noticed is the focus on sustainability in insurance, which has been one of the quickly rising topics over the past few years in the work of actuaries in the UK. Firms in the UK have been impacted by several new regulations, as well as increased expectations in this area from their customers and shareholders. Climate scenario modeling has been challenging for the insurance industry, with a range of issues, from what data to use, to assumptions and how to interpret the results.
An increasing number of firms are also making extra commitments to initiatives outside mandatory regulations. Committing to net zero comes with data challenges on how to define and measure scope 1, 2 and 3 emissions, while other commitments may involve heavy reporting requirements with extra time and resources needing to be allocated.
While I have heard that this is an increasingly important area to firms in the US, mandatory regulations appear to be being established more slowly in this area.
Valerie: Yes, I have also seen this difference between the UK and US.
Jess: Another interesting area is bulk purchase annuities (BPAs)/pension risk transfer (PRT). While increased volumes mean this is an exciting area of actuarial work in both countries, in the UK this has also drawn the attention of the Prudential Regulatory Authority (PRA).
Valerie: Yes, that’s right. In June, the PRA published a “Dear Chief Risk Officer” letter summarizing findings of its preliminary thematic review into funded reinsurance arrangements.
In the letter, they state “FundedRe is the transfer of both asset/investment risk and longevity risk to a reinsurer, that is, all the material risks of a BPA transaction, to a reinsurer.”
Given the increased use of this reinsurance strategy in the BPA market in recent years, this is likely to impact upcoming transactions. The letter focuses on structuring of the transactions, risk frameworks and capital requirements, so it will be interesting to see how this impacts insurers’ strategies for BPAs.
Jess: The PRT market was also boosted through the higher interest rate environment meaning lower liabilities, and therefore improved funding levels. This is an area I’ll be following keenly to see what trends emerge next! While there are many other topics to discuss, we have covered some interesting differences between the UK and US markets, and I look forward to following these as they develop over time. Thank you for chatting with me today.
Statements of fact and opinions expressed herein are those of the individual authors and are not necessarily those of the Society of Actuaries, the editors, or Ernst & Young LLP (US) or Ernst & Young LLP (UK) or other members of the global EY organization.
Valerie Tsang, ASA, is a senior consultant with Ernst & Young LLP (EY UK). She can be reached at Valerie.Tsang2@uk.ey.com.
Jessica Kirkwood, FIA, is a senior consultant with Ernst & Young LLP (EY US). She can be reached at Jessica.S.Kirkwood1@ey.com.