SMF20: The Chief Actuary Function Explained
SMF20 is the Chief Actuary function. It applies to insurers regulated by the Prudential Regulation Authority and covers the person responsible for the firm’s actuarial function: the calculation of technical provisions, the opinion on underwriting and reinsurance, and the actuarial input into risk management and capital. Because reserves and capital sit at the heart of an insurer’s safety and soundness, the Chief Actuary is one of the most technically demanding Senior Manager roles in UK financial services. This guide explains who needs SMF20, what the role involves, how it relates to the With-Profits Actuary function, SMF20a, and what to consider when recruiting.
What Is SMF20?
Under the UK’s insurance prudential regime, now known as Solvency UK, insurers must have an effective actuarial function. That function coordinates the calculation of technical provisions, assesses the quality of the data used, gives an opinion on the firm’s overall underwriting policy and the adequacy of its reinsurance arrangements, and contributes to the risk management system, including the firm’s own risk and solvency assessment. The Chief Actuary is the person responsible for that function.
Under the Senior Managers and Certification Regime, the PRA designates the Chief Actuary as a Senior Manager Function, SMF20. The holder needs regulatory approval before taking up the role, has a Statement of Responsibilities, is subject to the Senior Manager Conduct Rules and falls within the Duty of Responsibility. The detailed requirements are in the insurance parts of the PRA Rulebook, and the FCA’s rules for Senior Managers more generally are in SUP 10C. Because insurers are dual-regulated, the PRA leads on approval with the FCA’s consent; our guide to PRA vs FCA dual regulation explains how that works.
Who Needs an SMF20?
SMF20 applies to PRA-regulated insurers. The precise scope depends on the type of firm, and the PRA Rulebook should be checked for any particular case, but as a general guide:
| Firm type | SMF20 position |
|---|---|
| Solvency UK insurers and reinsurers | The Chief Actuary, responsible for the actuarial function, is SMF20 |
| Insurers with with-profits business | Usually SMF20 for the Chief Actuary, plus a With-Profits Actuary under SMF20a |
| Smaller insurers outside the full Solvency UK regime | Actuarial requirements differ; check the PRA’s rules for the firm’s category |
| Lloyd’s managing agents | Actuarial arrangements and designations follow the PRA’s and Lloyd’s requirements for managing agents; check the specific rules |
| UK branches of overseas insurers | Depends on the branch’s regime; the branch head usually holds SMF19 |
Our guide to which SMFs apply at which firm tier sets out the wider picture, and the complete guide to SMF designations lists every function.
SMF20a: The With-Profits Actuary
Life insurers that write or maintain with-profits business have an additional actuarial role. The With-Profits Actuary advises the firm on the exercise of discretion in managing its with-profits fund, including bonus rates, the fair treatment of with-profits policyholders and compliance with the firm’s Principles and Practices of Financial Management. That role is designated as SMF20a.
The With-Profits Actuary is focused on policyholder fairness as much as prudential soundness, so the role sits closely with conduct regulation. In some firms the Chief Actuary and the With-Profits Actuary are different people, which helps keep the with-profits advice independent; in others, depending on size and structure, the arrangements differ. Firms should check the current rules carefully, including any restrictions on combining roles, before deciding how to structure them.
What the Chief Actuary Does
The Chief Actuary’s responsibilities typically include:
- coordinating the calculation of technical provisions and explaining material changes to the board;
- assessing the sufficiency and quality of data used in reserving;
- expressing an opinion on the overall underwriting policy and the adequacy of reinsurance arrangements;
- contributing to the risk management system, especially capital modelling and the own risk and solvency assessment;
- producing the annual actuarial function report to the board;
- supporting regulatory reporting and responding to PRA questions on reserves and capital; and
- working with the chief risk officer, the chief finance officer and internal audit on the firm’s prudential position.
The Chief Actuary is expected to be independent in judgement. Reserving involves significant estimates, and the board relies on the Chief Actuary to give an honest view, including when it is unwelcome. That is why the regulators pay close attention to the reporting lines and remuneration of the role.
Professional Standards and the IFoA
Most Chief Actuaries are Fellows of the Institute and Faculty of Actuaries. The IFoA sets professional standards for its members, including requirements for holders of certain reserved roles, such as a practising certificate for some insurance roles. A firm recruiting a Chief Actuary should check both the regulatory requirements and the candidate’s professional standing, including any practising certificate needed for the role. Candidates’ professional status forms part of the regulator’s assessment of competence under the fit and proper test.
How SMF20 Fits With Other Senior Managers
The Chief Actuary works within a small group of prudential Senior Managers at an insurer. The chief finance officer (SMF2) is responsible for financial resources and reporting. The chief risk officer (SMF4) is responsible for overall risk management. The Chief Underwriting Officer (SMF23) is responsible for underwriting. The Head of Internal Audit (SMF5) provides independent assurance.
Their responsibilities touch at many points: reserves feed the balance sheet, capital models feed risk appetite, and the actuarial opinion on underwriting informs the underwriting strategy. The firm’s responsibilities map should make clear where each Senior Manager’s responsibility begins and ends, so that nothing falls between them and nobody duplicates another’s role.
Approval for SMF20
The PRA assesses SMF20 candidates closely, given the technical nature of the role. The assessment usually focuses on:
- Technical competence. Reserving and capital experience relevant to the firm’s lines of business, whether life, general, specialty or reinsurance.
- Regulatory experience. Familiarity with Solvency UK, the PRA’s approach to supervision and the regulatory returns the actuarial function supports.
- Independence and judgement. Evidence the candidate has given difficult opinions to boards and stood by them.
- Professional standing. IFoA membership and any practising certificate requirements.
- Interview. For significant roles, the PRA may interview the candidate. Our guide to preparing for an approval interview sets out what to expect.
Dual-regulated approvals can take several months. Firms should plan the timetable carefully, and start regulatory references early.
Scenario: A mid-sized general insurer’s Chief Actuary announces his retirement, a year after the PRA has raised questions about the firm’s reserving for a long-tail liability line. The board wants a successor with strong long-tail experience and the standing to explain the reserving approach to the regulator. The firm runs a search across insurers, reinsurers and consulting firms, appoints a Fellow of the IFoA who has led reserving for a comparable book, and plans a handover over the year-end reserving cycle so that the outgoing Chief Actuary signs the final report while the successor’s application is considered.
Recruiting a Chief Actuary
The pool of approved Chief Actuaries is small, and most are not actively looking. Searches often draw on deputy chief actuaries and heads of reserving or capital at larger insurers, senior actuaries from consulting firms and Lloyd’s market specialists. Firms should consider:
- Lines of business. Life, general, specialty and reinsurance reserving require different experience; a strong life actuary is not automatically a strong general insurance Chief Actuary.
- Capital modelling. Whether the firm uses an internal model or the standard formula affects the experience needed.
- With-profits. If the firm has with-profits business, the structure of SMF20 and SMF20a needs to be settled before recruiting.
- Timing. Avoid a handover in the middle of the year-end reserving cycle where possible.
Because SMF20 searches are confidential and the pool is small, many insurers use a retained executive search. Our page on SMF recruitment for insurers covers the wider insurance Senior Manager team, and our salary guide gives pay benchmarks.
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Frequently Asked Questions
Which firms need an SMF20?
PRA-regulated insurers, particularly those within the Solvency UK regime. The exact scope depends on the firm’s category, so check the PRA Rulebook for your firm.
What is the difference between SMF20 and SMF20a?
SMF20 is the Chief Actuary, responsible for the actuarial function. SMF20a is the With-Profits Actuary, who advises on the management of with-profits business and the fair treatment of with-profits policyholders.
Does the Chief Actuary need to be a qualified actuary?
In practice, almost always. Most Chief Actuaries are Fellows of the IFoA, and professional requirements such as practising certificates may apply to the role.
Who approves an SMF20?
The PRA, with the FCA’s consent, because insurers are dual-regulated. Approval can take several months.
Can the Chief Actuary role be interim?
Yes, an interim Chief Actuary can cover a vacancy, but they will need approval unless the temporary cover rules apply. See the 12-week rule.
About the Author
Adrian Lawrence FCA is the founder of SMF Capital. He is a Chartered Accountant and Fellow of the ICAEW, holds a practising certificate in his own name, and is a former listed-company Finance Director with a BSc from Queen Mary College, University of London. He founded FD Capital in 2018 and has since built a network of five specialist recruitment practices. He leads every SMF Capital search personally. View Adrian’s ICAEW profile.
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