An industry report based on the paper presented at the Actuarial Society of South Africa’s 2020 Convention1

Click here to access the abovementioned paper

This report is based on an investigation done on the role of the Head of the Actuarial Function (HAF) and its implementation in the South African Insurance market, two years after the passing of the new Insurance Act in 2017. We compare the current role in South Africa to actuarial roles in other jurisdictions and the prior statutory actuary role based on the Long-term Insurance Act.

Based on an industry survey conducted by us, we highlight the differences in the interpretation and implementation of the role in different segments of the market. We discuss areas that have been problematic when embedding the HAF role in an organisation and investigate those from a regulatory and professional perspective.


The role of the Head of the Actuarial Function (HAF) was introduced into the South African insurance industry in July 2018. Within the SAM regulations, the HAF is given a broad role that extends from providing assurance to the Board on the technical provisions and solvency capital requirements, to expressing an opinion to the Board on various other topics. The role of the HAF is explained and extended by guidance issued by the Actuarial Society of South Africa (ASSA), which explains the best practice guidelines that members of ASSA have in performing their role as HAF and departures from which require disclosure by members of ASSA.

Key questions we aim to examine in this report are how different parts of the South African market have implemented the role and whether this is influenced by the characteristics of particular companies, and how the interpretation of the SAM legislation and HAF guidance might be influenced by a practising actuary’s past experience of similar roles in South Africa.

To inform our analysis, we have performed a market-wide survey of insurers in South Africa, which we estimate covers the majority of companies by market share. This report examines the results of the survey, and uses the insights gained to propose best practice for implementing the role of the HAF. It further highlights areas where there are considerable variations in practice, paving the way for more detailed guidance.


When we compare the role and responsibilities of the statutory actuary as required by the previous insurance legislation with what other jurisdictions legislate and the HAF with the actuarial function under SAM there are some clear differences that emerge.

The old statutory actuary was positioned mainly to approve and certify that she is comfortable from an actuarial perspective that an insurer is and will remain actuarially sound (i.e. solvent) in the foreseeable future. This was widely interpreted as the statutory actuary having the ultimate responsibility for and ownership of the actuarial numbers.

It is worth noting that there was no piece of legislation, regulation or best practice note that required or inferred segregation of duties or operational independence between the statutory actuary and the doers of the actuarial numbers.

It is clear that the professional best practice guidance notes relied mainly on the professional nature of each individual statutory actuary to ensure objectivity and to manage conflicts of interest that may arise. The head of the actuarial department of many South African life insurers was often the statutory actuary, and in many insurers the statutory actuary was to a large extent involved with and had input into the same numbers they had to review or provide attestations for. The need to structure the role in the organisation in such a manner to ensure formal separation or independence from those producing the actuarial numbers was seldom a concern and was not necessitated by legislation, regulations or professional best practice.

The statutory actuary role as set out in the previous Long-term and Short-term Insurance acts, was well established, understood and engrained predominantly in the Long-term Insurance industry. Part of the investigation was to look at whether the implementation or collective understanding of the statutory actuary role plays a role in anchoring or influencing the implementation and understanding of the current HAF role, especially in Long-term insurers.


The basis for the South African HAF role can be traced back to Solvency II, where the “Actuarial Function” is defined in Article 48 of the European Framework Directive.

Considering the development of the role of the HAF, which is characterized by a single person required by regulation to opine on actuarial matters, it is surprising to note that within the Solvency II framework it is up to the actuarial function, as a collective, to facilitate a review of their own work. It is further important to note that there is no requirement to observe operational independence or segregation of duty between the doer and the reviewer.

The Australian regulator has set up an “Appointed Actuary” role which is akin to the HAF role, with some key distinctions. The responsibility of calculating the liabilities and required capital are placed directly on the Appointed Actuary . It is therefore clear that the above mentioned “impartial actuarial advice” is not in terms of doer and reviewer of actuarial numbers, but in terms of other functions and governance roles.

In most jurisdictions considered in our research, they were all aligned mostly to the EU and Australian models. It is important to note that the South African HAF role is unique amongst all other jurisdictions, in the requirement of segregation of duties and operational independence between the doer of the actuarial numbers and providing an opinion to the board (i.e. the HAF as defined in SAM).


Even though the origins of the HAF role can be tracked to Solvency II, from early on in its creation it was interpreted more as an oversight function (control function), compared to the Solvency II Actuarial Function role . Its scope was also further extended to include oversight on the Required Capital calculations and ORSA projections / modelling.

Furthermore the Actuarial Function is required to provide advice where relevant to the Board of Directors, Senior Management and other Control Functions on various topics which include the actuarial related matters of the ORSA, the adequacy of the SAM standard formula and the actuarial soundness of products to name a few.

We can conclude that the main differences between the HAF and the Actuarial Function under Solvency II are the extended scope of activities that HAF needs to perform and the clear delineation of the HAF as a control function.


The Insurance Act 2017 classifies the Actuarial Function as a control function together with the Risk Management, Compliance and Internal Audit Functions. We try to follow a strict reading and interpretation of key concepts such as segregation of duties and operational independence, as these are understood in the wider financial services industries, but we also consider that the implementation of these concepts might be different in the market and more practical than a strict reading would allow.

Regulatory Requirements

The Act states that the “The Prudential Authority may prescribe governance principles and requirements relating to (..) control functions, including in respect of required control functions; requirements for control functions; and roles, responsibilities and functions of control functions and heads of control functions”.

GOI 2 and GOI 3 provides some further direction on key points as highlighted in the graph below, some of which are reminiscent of the SII Lvl 2 Advice.

Segregation of duties

If one interprets the definition of segregation of duties strictly, then GOIs go further than only mitigating external conflicts of interest (as is done in the SII legislation), by requiring that the control function should be free of any conflicts of interest and must also have appropriate segregation of duties from operational business line responsibilities.

These two aspects require further investigation. Is it possible that there are conflicts of interest specifically within the Actuarial Function and how does the requirement to have appropriate segregation of duties mitigate these? In what follows, we call these an internal conflict of interest to contrast it with the external conflicts we discussed above.

We will define the internal conflict of interest through competing incentives i.e. for an internal conflict of interest to apply the Actuarial Function would need to be incentivized to do two conflicting, mutually exclusive actions. If this occurs, the conflict has to be brought before the board of directors and can be resolved either by reviewing and amending the conflicting incentives to align to the overall business purpose (conflict was a mistake or an oversight) or separating out the incentives into different roles and functions and thereby making the conflict of interest external.

More generally, an activity or a process that is necessary for the conducting of business and that is prone to abuse, is divided into separate steps, each of which is necessary for the completion of a task (or for the task to be abused) and then allocated to different persons or units/teams.

It is not immediately clear which are the processes performed by the actuarial function that are prone to abuse to the extent that we need to separate out the activities. Furthermore, it is also not clear what the “operational business line responsibilities” the GOI refers to are. Based on the scope of the HAF, it is implied that the main processes in question are the calculation of reserves and capital requirements, nonetheless, it is still not fully transparent why we would seek to separate duties for these activities to prevent fraud and error.

We can differentiate between three activities in the relevant actuarial processes: the doing or performing of the process, the reviewing and the reporting to the Board of Directors including the expression of an opinion. We now investigate which two of the three need to be segregated or separated to avoid an internal conflict of interest or to prevent error and fraud.

Could it be considered that there is a potential conflict of interest between the function carrying out the actuarial work and the function reviewing the work? For example, if an actuary or an actuarial student performs, for example, a valuation and another actuary reviews this piece of work, this would be in no way different from someone in the marketing department drafting content for a website and the manager of that department reviewing the work. In the same way that one would not suspect a conflict of interest between the manager of the marketing department and her team members, one would also not suspect that an actuary reviewing a piece of work is conflicted.

“Based on the scope of the HAF, it is implied that the main processes in question are the calculation of reserves and capital requirements, nonetheless, it is still not fully transparent why we would seek to separate duties for these activities to prevent fraud and error.”
On the other hand, there might be internal conflict of interest within the Actuarial Function, for example, a calculation is known to be inaccurate or a model is known to be deficient but the HAF does not have the knowledge or resources to remedy the faulty models and she might be untransparent or even dishonest when providing assurance to the Board of Directors when referring to her work. Here the competing incentives could for example be the professional standards of quality of the Actuarial profession and on the other hand a KPI to deliver results within a given timeframe.

While we think that these internal conflicts might occur, there are controls in the South African environment in place that mitigate those risks substantially. The individuals in question, by being Fellows of ASSA and holding a practising certificate, should have sufficient experience and seniority to deal with these situations. The GOI also requires not only a documented self-assessment of the Actuarial Function but also an independent review for each of the control functions to be carried out periodically which mitigates this risk further.

For other Control Functions, the use of segregation of duties to mitigate conflicts of interest appears to be much clearer. For the Risk Management Function, the conflict is between process owners who are often incentivised to take risks in order to achieve their objectives, whereas the risk management function is incentivised to ensure the process owner focusses on managing and/or mitigating risk in her processes.

It is not clear what is the underlying conflict or conflicting incentives for the Actuarial Function. Therefore, if there is no material internal conflict of interest between doing, reviewing and providing assurance and the risk for error and fraud can be handled within one team/reporting line, then instituting segregation of duties for the actuarial function appears to be unnecessary.

In this strict reading of the requirements in the GOI nothing prevents an insurer to have one person in the Actuarial Function perform the calculations, review them and provide assurance to the board about the accuracy of these calculations.

Perhaps a segregation of duties between doing/reviewing and providing assurance is required to enable a “second opinion” on a given topic, which is a popular concept within risk management that is applicable when an independent view on a given topic is necessary to inform decision making. But while for the Risk Management Function the “Second Opinion” is a necessary tool to inform decision makers about other perspectives on a topic which might otherwise be neglected (and an underlying conflict is present), a “Second Opinion” for the Actuarial Function does not appear to be necessary to mitigate any underlying conflict and is merely an opinion from a second Actuary confirming the accurateness of calculations. This opinion does not mitigate any conflicts that are inherent in the role of an actuary signing off a valuation, but it does provide comfort and assurance (to Senior Management and the Board). This might be of special significance in situations where the Board or Board committee is unfamiliar with actuarial processes and might be uncomfortable to assess the performance of the function as well.

“Perhaps a segregation of duties between doing/reviewing and providing assurance is required to enable a “second opinion” on a given topic…”

Professional Requirements – Operational Independence

The APN 106/403 characterizes the role of the HAF to have a dual role with oversight/review on the one hand and a reporting role to the Board of Directors on the other. While the APN acknowledges that the HAF can be supported by a team of actuaries for his oversight/review role depending on size and complexity of the insurer, the reporting role should be performed by the individual itself and should not be delegated.

The practice notes states that the “Head of Actuarial Function should be sufficiently independent from the activities associated with the underlying actuarial roles such that the Head of Actuarial Function’s responsibilities of oversight and review can be appropriately performed.”

The underlying actuarial roles mentioned in this paragraph refer to what we have called the “doing” in the actuarial process i.e. performing the actuarial calculations. The paragraph stipulates that the HAF should be sufficiently independent from those activities. This is commonly interpreted as “operationally independent” which means that the HAF should not be directly involved in the calculations and have no influence on the initial design of the work performed.

In our reading of the GOI, there is nothing that prevents the HAF from getting operationally involved in the calculation, from frequently reviewing the progress and guiding the calculation to performing parts or all of the calculation herself. To be operationally independent from the “doing” would make this very difficult, if not impossible, if a strict definition of operational independence is adopted.

How the requirement of APN 106/403 is implemented in the South African market is covered in the results of the survey we present below. Many different degrees of independence and levels of documentation of this independence are possible. We expect to see different controls being put in place, from a fully-fledged separation of teams into “underlying actuarial roles” and HAF teams with separate reporting lines to very low-key measures like a document trail to demonstrate that the HAF only got involved in the reviewing of a calculation.

It will also be interesting to observe how the requirement of independence from the underlying activities will be dealt with on a longer time horizon. Even if the HAF is not operationally involved, there is a still a feedback loop between the HAF and the underlying roles through the opinion that the HAF expresses to the Board of Directors. This will ensure that over time the HAF has influence on the design of the actuarial processes and this will create a bias in the review of the calculations. This bias and the familiarity with the work might render the independent oversight and review aspect of the HAF role (based on the APN) more difficult to fulfil.

While we expect to see many different interpretations of the wording of the APN to be “sufficiently independent from the activities of the underlying actuarial roles”, we believe that this requirement supports the idea that we are required to have two different functions – an actuarial function that does the work and a second actuarial control function that reviews and expresses an opinion about the work done.


We received 104 responses to the survey from a broad audience spanning, current HAF’s, board members, corporate actuaries and risk managers. The survey is centred around 3 major themes, they are: Independence, Value add and Overlap. For more detail on the questions asked and the answers, refer to our paper.


First, we consider how the requirements of the HAF’s independence have been implemented. Given the strong history of the role of the statutory actuary in the long-term insurance industry, it is likely that the role of the HAF has been implemented in a manner that is more similar to the predecessor role than in the short-term insurance industry, which could lead to a less strict interpretation of the independence requirements. Second, having previously acted as a statutory actuary may determine the interpretation of independence in the regulation and guidance. Third, some insurer characteristics, such as the size of the insurer, may also play a role.

We found that there is a difference in perception of what independence requirements are between actuaries working in life insurers and non-life insurers. As shown in Figure 1 the most striking difference is that life insurers seem to rely less on the organizational structure to ensure independence and materially more on the individuals performing the HAF role and their professional nature to manage undue influence (61% vs 35%).

This result in Figure 1 could potentially be reflective of the previous statutory actuary role that was engrained in the life industry and did not have a strict organizational separation of the statutory actuary from other roles. We find that the same difference between industries also occurs in the current population of HAFs, as shown in Figure 2.

We find that most life insurers also seem to view the Separation of Duties and Operational Independence requirements as not having a substantive difference, while the spread of answers are much greater for non-life insurers, indicating that the life industry has taken a more cohesive view of the requirements around the HAF, even if this view is not strictly in line with the meaning of these terms as we defined earlier. We show these results in Figure 5. This finding also appears to be linked strongly to whether an individual has previous experience as a statutory actuary.

The results in Figure 7 show that non-life insurers seem to require more (85% vs 78%) that the HAF reviews only after the corporate actuarial function completed their work and that life insurers seem to separate the HAF more from the corporate actuarial function (65% vs 58%), but rely less on separate reporting to the relevant committee (59% vs 68%) and less on separate reports (49% vs 60%). A greater proportion of life insurance HAFs will document questions/concerns in an email trail (41% vs 30%). Thus, non-life insurers seemingly place emphasis on a different set of controls on the actuarial processes than life insurers do.

We also find that the size of an insurer seems to determine how the role of the HAF has been implemented, as shown in Figure 9 – Figure 11. Larger insurers are much more likely to come to the conclusion that there is no difference between the requirements of the GOI compared with the APN. While this is also the most popular view of most small and medium insurers, these insurers also display a larger spread of views, in particular with significantly more insurers understanding that the APN establishes a higher level of independence. Fewer larger insurers rely on email trails to document the review of the HAF and fewer large insurers see a need for the HAF to be involved in the first line processes for efficiency.

On the other hand, smaller insurers seem to indicate more that it is sufficient for the HAF to review and require changes from the corporate actuarial function than larger insurers. Smaller insurers rely more on email trails and less on team separation.

It is however interesting that larger insurers seem to indicate less of a need for the HAF to be not involved in the actual calculation and only to get involved once the corporate actuarial function has completed their work.

The value added by the HAF role

The survey also investigated the perceived value added by the HAF. The figures below show the perceived value by industry and size of the insurer.

Figure 13 shows that significantly more Life insurers than non-life insurers view the HAF as adding very significant value, whereas non-life insurers generally indicated that the HAF was adding value, but not as much as in life insurers.

Similar proportions of life and non-life insurers believe that the HAF adds value by providing assurance to the board of directors that the actuarial calculations are correct, as shown in Figure 17, and this is particularly the case for smaller insurers, as shown in Figure 18. Life insurers see more value in the HAF contributing to areas outside the scope of GOI 3 and in the HAF providing a second opinion on methodology and assumptions.

Quite remarkably, all heads of corporate actuarial functions answering our survey believe that the HAF adds value by giving assurance to the board of directors, and similar views were expressed by independent directors on risk and audit committees and risk managers. This is in line with our previous analysis which indicates that an underlying reason for implementing segregation of duties within the actuarial function is to allow for an independent second opinion on the actuarial numbers. Whereas HAFs and risk managers believe there is value in providing guidance to corporate actuarial teams, this belief is not strongly met by heads of corporate actuarial functions, nor by members of boards of directors. Independent directors appear to value the contribution of the HAF on areas outside of GOI 3.

The more positive view of the role of the HAF shown by life insurers also manifests in more life insurers thinking that the role of the HAF should be extended to other areas, such as embedded value, IFRS 17, quantitative risk management and market conduct. Among non-life insurers, the most favoured suggestion is that the role be extended to IFRS 17. These results are shown in Figure 20.

One might conclude from these results that, due to the nature of non-life business, the role of the HAF is less relevant for non-life insurers. Nonetheless, Figure 21 shows that similar proportions of respondents from life and non-life insurers believe the role of the HAF is equally relevant for life and non-life insurers.

These results perhaps indicate that the reason that non-life insurers perceive less value and are less positive about the role of the HAF is more as a result of the manner in which non-life insurers have implemented the role and less because of how non-life business differs from life business.

Overlap with other roles

The final section of the report considers to what extent the role of the HAF is seen to overlap with other roles within insurers.

Importantly, Figure 23 shows that a majority of respondents from non-life insurers believe that external audit overlaps significantly with the role of the HAF, whereas this is a minority view for respondents in life insurers. Most respondents from life insurers believe there is no substantial overlap with any other function with a minority seeing some overlap with the risk management function.

Interestingly, auditors of more life insurers place reliance on the work of the HAF than non-life insurers, as shown in Figure 24, which may explain part of this finding illustrated in figure 23.

When disagreements between the HAF and the corporate actuarial team occur, the opinion of the majority of respondents from both life and non-life insurers is that the HAF can only recommend changes to the relevant board committee, who must then make the decision. However, those who acted as statutory actuaries present a significant view that usually there are no disagreements between these functions, whereas among those who were not statutory actuaries, a significant view is that the corporate actuarial team must make the decision as shown in figure 27 & 28.

In summary, respondents from life insurers do not believe that there is a strong distinction between the requirements of GOI 3 and the APN 106, whereas the views of respondents from non-life insurers are more varied as to exactly what these regulations and guidance require.

Life insures tend to place more reliance on the HAF herself to ensure that these requirements are fulfilled, whereas non-life insurers tend to rely on different controls. Similar views are predicted by knowing if the respondent has previous experience as a statutory actuary, or not.

Generally, those from life insurers take a more positive view of the value added by the HAF, and would like to see the role of the HAF extended to other areas, whereas respondents from non-life insurers are usually somewhat less positive about the value added by the HAF, and only want to see the role extended to IFRS 17.

A significant proportion of non-life respondents believe that the role of the HAF overlaps with external audit, whereas very few from the life industry believe this to be the case.

Finally, most respondents believe that the value added by the HAF is strongly linked to the assurance provided to the board of directors.


Overall we have found that two major factors on which the answers of the respondents to our survey depend are whether the company which the respondent represents is a life or non-life insurer, and whether the respondent has past experience as a statutory actuary. It seems reasonable that at least a partial explanation is that the life insurers have a longer history of implementing the oversight role of the statutory actuary that is similar to the role of the HAF in some respects, and this explanation is lent weight by the similar views expressed by those who were previously statutory actuaries.

Whereas one might perhaps speculate that those who previously were statutory actuaries might have implemented the HAF role incorrectly (e.g. without the appropriate segregation of duties and no operational independence), we find on the contrary that those who were statutory actuaries are more focussed on ensuring strict separation and not involving the HAF in performing the underlying process, and also attributing the decision making ability to the board of directors.

Thus, we can conclude that having performed the previous statutory actuary role is a good predictor of compliance with the requirements of the GOIs and the APN.

On the other hand, we have noted that life insurers and those who previously were statutory actuaries tend to view the requirements of segregation of duties and operational independence as having no substantive difference, whereas there is a much greater spread of views as to whether there are differences between these requirements among life and non-life insurers.

The survey data suggest close compliance of life insurers and statutory actuaries with the requirements of the GOI and APN. However, the correct interpretation of the segregation of duties and independence requirements is not in strict accordance with the manner in which these terms are used elsewhere in the financial services industry.

Thus, we recommend that the Prudential Authority and the Actuarial Society consider publishing guidance on the correct interpretation of these terms to enable easier compliance and a more cohesive view of how to implement the role of the HAF in the insurance industry.

Another similar matter relates to how life insurance HAFs and those who were previously statutory actuaries review the work of the corporate actuarial function. We have noted that in these cases, auditors are more likely to place reliance on the work of the HAF and disagreements with the corporate actuarial team are less likely to arise. Also, whereas the non-life industry believes that there is substantial overlap between the role of the HAF and the external auditors, this is much less the case in the life insurance industry.

Sharing the manner in which the role has been implemented successfully in the life insurance industry with actuaries working in the non-life industry would appear to be an important way to improve the perception of the HAF role in the non-life industry.

Despite the slightly less positive perception of the role of the HAF by respondents from non-life insurers, most respondents to the survey believe that the role of the HAF is equally applicable to both life and non-life insurers.

Overall, board members who sit on risk and audit committees, other board members and risk managers have a very positive view on the role of the HAF, and it seems to be the case across the board that the assurance provided by the HAF is seen as the main value add of the HAF role.

The life industry considers the extension of the role to areas such as quantitative risk management, IFRS 17 and the embedded value of the company as relevant.

While, a significant proportion of respondents in the non-life industry felt that the role of the HAF should be extended only to IFRS 17. We believe that this indicates a different perception in the life industry of the role of the HAF as an assurance provider on all actuarial issues within a company, perhaps like that of a risk officer.