Guideline 20. Investment governance

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The requirements for actuarial input and the role of the actuary are clearly defined in the investment governance framework.

Governance refers to the process of decision-making, control and monitoring of the processes carried out by an organization. Its aim is to ensure risks are known and managed effectively as well as improving efficiency of processes.

Actuarial input is increasing in magnitude and importance in many investment areas. The actuary’s involvement in the governance structure and investment processes of the social security institution should therefore be sought.

This guideline considers, at a general level, the different elements of investment governance where actuarial input is likely to be required. This guideline should be read in conjunction with the ISSA Guidelines on Investment of Social Security Funds, Guidelines 1 to 5 inclusive, which describes in more detail the general governance issues set out below.

Guideline code

ACT_02300

Mechanism

The social security institution should ensure that the investment beliefs, mission and objectives are clearly stated, documented and reviewed on a regular basis. The formulation of the objectives and beliefs should be agreed by all parties involved. Where there is a contradiction between beliefs, a priority should be assigned to the different beliefs.
The implications of the beliefs and investment objectives for the investment process, management of the investment process, asset selection and reporting should be assessed and documented.
The responsibilities of different employees of the social security institution should be clearly documented and available internally to all those involved in the investment process. Responsibilities will include executive, management and/or administrative roles as well as peer reviewing processes. These responsibilities may be determined or influenced by legal instruments or regulations which need to be taken into account in the detailed description of tasks and their application. The role of the actuarial department or actuary will feature in the document setting down the responsibilities.
There should be an adequate governance budget for each element of the investment process. The budget will include financial resources, skills, experience and abilities. Those involved in the investment process, including actuaries, should therefore have the necessary competencies and experience in order to be able to carry out their role effectively. The institution should set down the requirements in these areas and detail efforts (e.g. training) to address situations where the level of competencies or experience does not meet these minimum requirements. Where external (to the social security institution) resources are required, these should be detailed and budgeted.
The peer review process should be carefully documented and include which decisions are to be reviewed, the mechanisms of review, the frequency of review and staff involved. The role of the actuarial department or external actuarial resources should be specified.
Actuarial input is likely to be particularly valuable in aspects relating to the valuation of assets and liabilities, the appointment of third-party providers in certain areas (e.g. investment managers), the formulation and monitoring of the investment strategy of the institution, the assessment of risks and the measurement of performance of assets. In addition to this technical input, the actuary is likely to input into the overall investment governance structure of the institution, given his or her overview of the different processes and appreciation of risk. The mechanisms by which such input is solicited should be set down by the social security institution and reviewed regularly.
The actuary may also be asked to carry out or input into the monitoring and regulation of supplementary funded provision, system adequacy projections, costing of certain systems and benefit factor calculations. When carrying out these tasks, appropriate methodology and assumptions should be used in any asset valuations performed. Appropriate coordination with other parties involved (e.g. investment managers, regulators) is important and how this coordination is carried out should be defined.

Parent

C. Investment Issues

Structure

Principles

The social security institution should document the different activities linked to the investment process. It should define responsibilities for the carrying out and reviewing of these different activities. These responsibilities should be well documented and reviewed regularly.
Within this framework, the requirement for actuarial input and/or the involvement of the actuarial department should be specified.
The actuarial department (if existing) within the social security institution should ensure that its own work plan and defined responsibilities for its staff are consistent with the requirements of the investment function of the social security institution. It should identify in each area of involvement which competencies are required for the carrying out of the tasks. Where there are gaps in competencies and/or experience, a detailed plan should be put in place to indicate how these gaps could be closed. Where external review or input is recommended, this should be indicated.

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