The social security institution decides whether internal or external expertise is to be used to carry out the actuarial work related to social security schemes. The social security institution seeks to develop the internal actuarial expertise to perform actuarial work for a social security scheme.
The choice of whether to use external or internal actuarial expertise should be made in the context of the particular social security institution and should take into account the environment in which the institution operates. In making this decision, the social security institution should consider the needs and characteristics of all social security schemes falling under the institution’s responsibilities. Given the different potential areas of actuarial involvement, the choice regarding internal or external actuarial input may depend on the type of work that needs to be undertaken.
Guideline code
ACT_05600
Mechanism
Mechanism
- In making the decision of whether external or internal actuarial expertise should be used, the social security institution should consider:
- The number and complexity of social security schemes managed by the institution;
- The nature and extent of actuarial work that needs to be performed, e.g. actuarial valuations, actuarial calculations, providing actuarial input in risk analysis and the investment process, providing actuarial advice on scheme design, etc.;
- The existence or possible emergence of actual or perceived conflicts of interest; and
- The likely evolution of the volume and nature of actuarial work in the future.
- The social security institution may decide to use internal actuarial expertise for some areas of actuarial activities, and external resources in other areas.
- Factors to consider in the use of internal actuarial expertise include, but are not limited to:
- Availability of existing internal actuarial expertise, as well as skills, competencies and experience of actuarial staff;
- Feasibility of creating or enhancing internal actuarial expertise through attracting and retaining qualified individuals and developing their competencies;
- Availability of technological resources needed to conduct actuarial work;
- Ability of the social security institution to ensure internal actuarial expertise maintenance and knowledge transfer;
- Ability of the social security institution to ensure the independence of internal actuaries;
- Financial cost of carrying out actuarial work internally.
- Factors to consider in the use of external actuarial expertise include, but are not limited to:
- Availability of reliable national or international external expertise;
- Ability of the social security institution to conduct a transparent and competitive selection process, perhaps using a third party;
- Consideration of the impact of a change in external actuarial service provider and subsequent transition processes;
- Feasibility of implementing external controls of the actuarial services provided, for example:
- compliance of actuarial work with national and/or international standards of practice;
- appropriateness of provider’s processes with respect to data including privacy issues;
- professional qualifications of individuals performing actuarial work;
- monitoring and prevention of conflicts of interest (real and perceived);
- peer review processes;
- Costs and contract terms relating to the appointment of an external actuary.
- The selection process for the recruitment of an external expert should be documented. The process is likely to include consideration of theexperience and competencies of the external actuary and his or her employer, the charges and contract conditions, methodologies used, ICT systems, governance and peer review processes and professional qualifications of personnel.
Structure
Principles
- The social security institution should aim at creating an internal actuarial department that would be responsible for part or all of the actuarial work to be undertaken. Guidelines 49 to 51 provide information on steps that should be taken to achieve this.
- Based on the institution’s priorities, the social security institution should assess advantages and risks of using external and internal actuarial expertise in different areas of actuarial involvement. The assessment process should be properly documented. The existing arrangement with respect to the use of external or internal actuarial expertise should be re-examined on a regular basis to assess whether it continues to address the evolving needs of the social security institution. As the internal actuarial department develops, the social security institution should consider transferring more tasks from external providers to internal actuaries.
Title HTML
Guideline 48. The choice between the use of external or internal actuarial expertise
Type
Guideline_1
Weight
59