How to get more value from your Actuarial Function Reports

Insurance consulting Actuarial function Risk management Underwriting strategy

Matthew Pearlman Partner

Contact Matthew

Daniel Sacks Analyst

Contact Daniel

19 September 2025 10 mins estimated reading time

Subscribe to our thinking

Get relevant insights, leading perspectives and event invitations delivered right to your inbox.
Get started to select your preferences.

The Actuarial Function Report (AFR) is key for meeting regulatory standards and reassuring Boards and stakeholders. However, the time spent on these reports can limit actuaries' ability to offer practical business insights.

In this paper, we discuss practical ideas for transforming the AFR into a tool that not only meets regulatory expectations but also enhances the Board’s understanding of business risks, performance and opportunities.

We focus on putting into practice three key principles that should underpin every stage of the Actuarial Function’s (AF) opinion:

Target value-add, not (just) compliance
AF activities should occur before decisions are made
Achieving best practice may be an iterative process

We provide practical tips and steps in each section to help the AF add more value, engage in decision-making promptly and continuously improve processes in line with best practices.

Technical provisions

Technical provisions (TPs) often rank as the least read section of the AFR. We find that the lack of engagement is not solely due to their inherently technical nature but also because Boards typically seek insights on reserves elsewhere, such as in quarterly reserving packs.

We see the TP exercise as an ongoing process, not just a final report, where valuable insights will emerge throughout. The AFR records these insights even if it is not the main way they are initially communicated. An ideal project plan could be structured as follows:

Typically, TPs build on the foundation of GAAP reserving. Planning should start before starting the GAAP reserving process, with a focus on making recommendations that can add value. These recommendations should be reviewed and carried forward into the following year, ensuring they are implemented effectively. This approach supports an iterative reserving process, driving meaningful improvements year after year.

This could involve, for example, improving data flows across the system or properly implementing the reinsurance programme into the calculations. Additionally, it is worth revisiting the key judgments made and the methodological challenges recorded in the previous year. These elements should be incorporated into the planning phase before the annual reserving process begins.

We find the quiet period before the annual year-end reserving process an ideal time to conduct deep dives. For example, this time could be used to assess case reserving adequacy, using the broader perspective offered by the reserving exercise on the claims process. Insights from these deep dives can then be incorporated into GAAP reserving and subsequently into the TPs, ensuring they do not become an additional strain on resources during the critical first-cut reserving phase.

We suggest that the TP report focus on two key parts:

Value-add: Explaining the walk from GAAP reserves to Solvency II reserves, which is typically shown as a waterfall chart. In our experience, this is poorly understood by all but those close to the analysis. The Board needs to understand the sensitivities around individual items in the waterfall and when they could be potentially material
Compliance: Picking up the important points from GAAP reserving and ensuring that they are all documented within the TP report. Most reserving insights should ideally be highlighted earlier in the process.

Subscribe to our thinking

Get relevant insights, leading perspectives and event invitations delivered right to your inbox.
Get started to select your preferences.

The underwriting opinion

Every firm has a unique business plan, but all companies use a structured planning process involving senior management, finance and the Board. We find that tight timelines can often make it hard for the AF to provide meaningful input during the plan’s development. If actuaries aren’t involved early, they may end up having to justify aspects of the plan retrospectively, a practice that adds little value to the business.

Some of the most effective challenges raised by actuaries are simple yet impactful. For example, questioning assumptions such as “What is our justification for assuming we can increase business volumes while also increasing premium rates?” can prove insightful. Similarly, comparing business plan loss ratios to historical trends can highlight potential issues, such as unrealistic expectations that historical loss ratio deterioration will reverse through “re-underwriting” efforts alone.

It is important to present facts in a way that the Board can easily understand. For example, showing how much advance credit is being assumed for underwriting changes can help the Board assess whether such assumptions are reasonable. We suggest framing facts in terms of their impact on decisions, to ensure that the Board has the information needed to make right choices.

AF clearly involved while business plan is still live, challenging assumptions appropriately.
Initial AF recommendations given before board signs off business plan

Balanced framework for giving credit to 're-underwriting' arguments
Appropriate challenge of potentially heroic assumptions

AF under pressure to justify reasonableness of business plan in arrears
AF conclusions not sufficiently objective or rooted in analysis of historical data

The Board should receive the actuary’s initial observations and challenges before approving the business plan, even if they are not yet formalised into an official opinion. Early engagement can help to ensure that the actuarial perspective is integrated into the planning process and adds meaningful value.

The actuary’s views on rate adequacy and the business plan are often closely aligned, but the AF’s role is to critically assess the pricing approach without getting too much into the rate details.

Analysing the variation between actual rates and technical rates can be really useful. There should be clear reasons to explain historical deviations, and the Board should understand their impact on future profitability.

Differences in terms and conditions are often rolled up into the analysis of rate changes. It can be difficult to measure the effect of t&cs objectively and it is important that the actuary finds objective measures to assess against and provide appropriate challenge. A useful method is to “back-solve” the allowance for change in T&Cs in the rate change and confirm its reasonableness with underwriters.

Clear analysis and challenge of both technical rate adequacy and of actual vs technical rates
Strong feedback loop to incorporate AF recommendations in BAU process

Periodic AF deep dive into aspects of technical pricing basis
Appropriate considerations of alternative scenarios of pricing adequacy

Lack of communication between AF and pricing/underwriting teams
Lack of clarity on difference between reserving and underwriting view of profitability

The reserving and underwriting teams may have different views on the profitability of a book of business. These differences are normal and can provide useful insights. The actuary can support the Board by presenting plausible alternative assumptions - both adverse and favourable, and showing their impact on profitability. For example, the reserving actuary’s potentially more conservative assumptions might highlight less optimistic outcomes that require consideration.

Actuaries should not only ask difficult questions but also encourage the underwriting and finance teams to include these questions into their own process, so that the initial business plan already addresses the likely actuarial challenges. We find that early involvement at the planning stage can help to create a strong feedback loop, increasing the chance that recommendations become part of business as usual.

Underwriting opinions may include statements such as “the business has a low exposure to anti-selection risk” but these aren’t always supported by evidence. Such statements may be inaccurate, particularly when a business is expanding or changing its strategy.

It is difficult to measure the level of anti-selection introduced by a new portfolio. For example, will the new underwriter bring their entire portfolio? Are growth ambitions being achieved by relaxing terms and conditions? If new brokers are contributing to the portfolio, do they access market segments with distinct characteristics from the existing portfolio?
Given the difficulty in understanding the impact of anti-selection, it is important for the actuary to ask the right questions, in a way that is easily understood by the Board. For example:

Which classes of business have a higher anti-selection risk?
Has anti-selection risk increased or decreased since last year?
Does our chosen strategy increase or decrease anti-selection risk?
Are we taking specific actions to minimise exposure to anti-selection risk?

Some answers may be qualitative, but this is not a weakness. Focusing on adding value rather than just compliance and clearly highlighting potential issues can provide significant value, even in the absence of precise numerical analysis. Quantitative information can complement qualitative analysis.

For example, exploring scenarios where the business is affected by anti-selection, allowing for the size of the relevant business lines and understanding the time needed to identify and address the issue, can add valuable information. While some assumptions will require judgement, they can still help in providing meaningful insights to the Board.

Clear consideration of underwriting process and control in place to manage risk of anti-selection
Specific examples showing how change in business mix can lead to anti-selection
Establish metrics so business can measure the outcomes of their selections

Some indication of the materiality of anti-selection
Identify business practices that can leaf to anti-selection

Vague statements like 'the business has a low exposure to anti-selection'.
Lack of clear definition of anti-selection in the context of the business

Emerging risks is another challenging area where it can be difficult to produce quantitative information. While many firms rate their emerging risk processes highly, they often lack well-structured plans to quantify the impact of these risks.

An effective emerging risks framework should follow these steps:

Risk identification
Understanding the risk
Prioritisation and research
Assessment of exposure
Assessment of impact
Refinement and validation

As the risk starts to crystallise, processes typically evolve from horizon scanning, to scenario analysis, to making some allowance as an ENID (event not in data), and eventually becoming an integral part of the best estimate.
We find that reserving and underwriting teams often hold differing views. For example, the reserving team may add margins for certain risks, while underwriters might hesitate to increase rates in a competitive market. The AF can help the Board understand these differences by showing the effect on profitability of using the reserving actuary’s more prudent assumptions.

The AF can add enormous value to the Board’s understanding of emerging risks by engaging early and ensuring that the risk appetite clearly reflects the Board’s attitude towards emerging risk, in a way that can be monitored over time.

This approach highlights the importance of focusing on value-add and providing timely opinions before key decisions are made, which are central principles of an effective AF.

Reinsurance opinion

Reinsurance is a critical business decision because of its direct impact on managing the risks of the business. It is not an exact science as multiple solutions can align with the theoretical risk appetite. At its core, reinsurance purchasing is an optimisation problem, requiring Board to weigh various factors carefully to arrive at the best decision.
The Board must have sufficient information to understand the financial dynamics of the various reinsurance options. While actuarial teams typically provide detailed modelling to support recommendations, the final decision often involves a commercial compromise.

The reinsurance opinion usually comes after the main reinsurance purchase decisions, offering a chance to independently assess the quality of MI and look at the decision from a different angle. A common issue identified in these opinions is the imbalance between qualitative and quantitative information provided to the Board, with the latter often lacking the detail needed for fully informed decisions. Below are some ideas to enhance the value of the reinsurance opinion for the business.

Using the right metrics

An effective start is the simple question: “Is this year’s renewal offering better or worse value than last year?” Metrics aligned with the company’s risk appetite or reinsurance policy can effectively illustrate this. Comparing and ranking the current programme against the previous year provides meaningful context.

For example, the reinsurance policy may state that no single reinsurer should have more than 20% of any layer. While it is normally clear whether this technical limit has been breached, reviewing the entire programme can reveal surprising levels of reliance on one reinsurer. This may then highlight that the policy has not been expressed clearly, providing the opportunity to clarify the risk appetite and improve future reinsurance decisions.

Another effective approach is to supplement actuarial modelling results with tests against historical experience. Board members will likely remember the company’s worst recent year and will want to see how the reinsurance programme would have responded to those losses. We often find that clearly explaining any differences, such as changes in line sizes or improved terms and exclusions, can help the Board in understanding how those past losses relate to today’s exposures.

Clear understanding of how emerging risks are built into either pricing or policy exclusions.
Clear articulation of firm's appetite to accept certain emerging risk in new business.

Clear link between the emerging risk framework and actuarial processes.
Consideration of external factors which may limit the ability to deliver the business plan.

Little consideration of emerging risks or their materiality.
Little involvement to the AF in emerging risks discussions.
Poorly defined emerging risks framework.

It is important to state the obvious. For example, “This programme leaves us exposed to a third post $10m loss, but the modelled probability of such a scenario is very low and in the history of the company there has only ever been one loss over $7m in a single year”. What seems obvious to one person may not be clear to someone else or may be overlooked amidst the many other factors being considered.

Governance of information is another key area for the reinsurance opinion. For example, if reinsurance modelling relies on a capital model calibrated to a 1-in-200 level for capital setting, it may be less reliable at the 1-in-10 or 1-in-20 levels typically used for reinsurance decisions. It is important for the opinion to communicate these limitations, helping the Board to understand implications of relying on such data.

Feedback loops

The reinsurance opinion is produced after decisions are made and provides a good opportunity to identify gaps in technical analysis or highlight additional insights that proved useful to the Board. This feedback loop supports continuous improvement of MI, enabling the Board to make better decisions each year.

Contribution to risk management

Risk management is the least defined area of the AF’s involvement, as there is no formal requirement for an opinion. However, the AF plays an important role in supporting and enhancing the company’s risk management processes.

: The AF’s involvement should start early in the development of the risk appetite statement, rather than reviewing it once finalised. This ensures alignment with the company’s strategic objectives and the inclusion of clear, quantifiable measures to enhance clarity and usability.

Objective metrics in the risk appetite framework can help the AF to assess business plans and are highly valued by the Board. A clearer, more measurable risk appetite statement enables the Board to engage more effectively with the company’s overall risk strategy.

The AF should play a fundamental role throughout the ORSA process. While ownership of the ORSA often sits with the risk management team, the AF should be actively involved at every stage, from planning to finalisation
In some jurisdictions, such as Ireland, the head of the Actuarial Function is required to provide a formal report on the ORSA, covering areas such as:

The range and robustness of stress and scenario testing.
Limitations of the scenarios and their potential impact.
The alignment of ORSA results with the company’s capital requirements.

This highlights the value of the AF’s input in the ORSA process, even if formal reporting is not required. By contributing to its development and review, the AF can ensure that the ORSA is robust, well-aligned with risk appetite and connected to the company’s capital planning processes.

: The AF is a key participant in risk committee discussions and should actively contribute to these meetings. We suggest having regular one-to-one interactions with Board members, the chair of the risk committee and other committee members, to help build strong relationships and ensure alignment on key risk issues. Regular input from the AF can help to ensure that actuarial insights are considered when making strategic decisions.

Other general considerations

Timing of the report

The AFR can add significant value if done at a time early enough to influence decisions. Instead of acting as a retrospective review of decisions already made by the Board, it should act as record of how the AF actively participated in the work leading up to those decisions.

For example, the Underwriting Opinion, or at least the initial findings, should be presented to the Board while the business plan is still live and where any key challenges from the Actuarial Function can still be factored into the plan by the Board.

Another example is the AF’s involvement in the Own Risk and Solvency Assessment (ORSA). Before the Board signs off the ORSA, they should have the benefit of input and challenge from the AF.

Structure of the report

Good presentation improves the Board's engagement with its findings. It is important to recognise that Board members have unique preferences, and it’s crucial to regularly discuss how they interact with the results.
We suggest some simple changes below that can make a big difference to how the audience engages with the findings of the report:

Putting the opinions and key recommendations on page 1. This helps Boards focus on the purpose of the report.
Board members typically prefer a short report (approx. 10 pages) with signposting to appendices and other reports where the detail is presented.
Ensure that AFR addresses the following three key questions for the Board early on:
- “So what?”: What is the point of this advice for the Board, what question are we trying to answer?
- “What if?” What are the key assumptions and uncertainty around the results presented?
- “What next?”: What needs to happen next, and what implications does this advice have on other areas?
Ensure that the opinions from the AF are clearly stated to avoid giving false confidence. For instance, instead of stating “the firm has low exposure to anti-selection risk,” provide analysis that quantifies changes in business mix and offers an indication of whether anti-selection risk is increasing or decreasing.