Analysing the actuarial function under Solvency II in Maltese insurance companies

Abstract

PURPOSE: This study sought to analyse the actuarial function under Solvency II in Maltese insurance companies and identify interactions between the actuarial function and the other key functions, as well as interactions with external auditors. DESIGN: A mixed-research design was adopted to achieve the study’s objectives. The quantitative model involved the Friedman’s and the Kruskal-Wallis tests. The quantitative results where further corroborated with the qualitative findings which took the form of fifteen semi-structured interviews with actuarial function holders, other key function holders and external auditors. FINDINGS: The findings reveal that initially the actuarial function has been introduced for compliance’s sake by Maltese insurance companies, but by time its value has been recognised. In fact, the benefits attained by this function do outweigh the costs. It was discovered that due to the lack of supply of local actuaries and the high demand, the actuarial function holder can be fulfilled by an individual who is not a qualified actuary but has a mathematics or statistics degree and the necessary experience. It was also ascertained that a good relationship exists between the actuarial function and the other key functions, as well as with external auditors. It was established that the actuarial function holder should not be responsible for other key functions especially in a large company due to the complexities of Solvency II. CONCLUSIONS: This study concludes that the insurance industry requires an effective actuarial function. The requirement of the actuarial function has been beneficial to all stakeholders and has further strengthened the standing of the actuarial function in the Maltese insurance industry. it is imperative that awareness of the actuarial profession is maintained to benefit from more qualified actuaries that aid in the growth of the insurance industry in Malta. IMPLICATIONS/VALUE: This study contributed to enhancing the limited literature on the actuarial function under Solvency II and further contributed to adding value to Maltese insurance companies. Moreover, this study is also value-adding to actuaries and external auditors.