Actuaries Institute report to help superannuation trustees improve RBCM approach

The Actuaries Institute, the professional body for actuaries in Australia, has released a new report to help superannuation trustees improve their approach to maintaining the financial strength needed to operate their businesses effectively and protect superannuation fund members' best financial interests.

The report, called “Uplifting Superannuation Risk-Based Capital Management (RBCM),” establishes a set of RBCM principles related to superannuation to implement a more integrated trustee entity RBCM structure within the Australian superannuation industry.

The Actuaries Institute explained that RBCM is developed based on a sound understanding of the trustee's risk profile, financial capital and reserves, and contingent funding structures. Its main benefits include:

• Providing a more systematic approach to funding and preparation for loss events;
• Strengthening the link between risk and capital management; and
• Maximising long-term member outcomes.

Read more: Actuaries Institute calls for better measures to understand insurance affordability

The Actuaries Institute's report defined four high-level guiding principles to improve superannuation trustees' approach to RBCM:

• Single framework: Consolidate RBCM-related policies and regulatory frameworks to a single overarching RBCM framework, which must have a summary statement that provides the trustee board and the Australian Prudential Regulation Authority (APRA) with a holistic view of the trustees' RBCM processes;
• Business plan integration: Create an RBCM strategy integrated into the annual strategic and business plan review;
• Scenario and data driven: Apply scenario testing on a broader set of capital management challenges to enhance any gaps or limitations in RBCM-related data capture; and
• Transparent and holistic reporting: Regular RBCM board reporting at a holistic level, including mismatches between risks and capital.

However, the Actuaries Institute noted pre-conditions to successfully implement a fit-for-purpose trustee RBCM framework:

• Fund scale;
• RMF design and operational effectiveness;
• Risk and event data quality;
• Trustee intent and capabilities; and
• Regulatory support.

The professional body invites participants in the Australian superannuation industry to “continue the conversation on how to enhance trustee entity RBCM within superannuation.”