FCRs are a “health check” of the financial and risk management of a superannuation fund and can make a substantial contribution to achieving better risk and financial management in the sector.

Darren Wickham, chair of the Actuaries Institute FCR Taskforce, believes these reports will be extremely valuable for trustees and fund executives going through the MySuper licensing process as they can help answer the following questions:

    • Does the fund have adequate operational risk reserves?
    • Does the fund have scale?
    • Will the fund have sufficient liquidity under different stress scenarios?

“The reports provide useful information to assist trustees in the development of their risk appetite statements as required by the new prudential standards. They provide both a methodology for the trustee and a clear demonstration as to how they reached their conclusion,” said Wickham.

Speaking at the ASFA Conference today in Sydney, Darren Wickham and fellow leading actuary James Collier, two of the co-authors of the new professional guidance added, “FCRs are widely used in the insurance industry and provide an objective assessment of the key risks faced by the entity as well as an assessment of financial strength. FCRs also involve modeling the fund into the future and provide stress testing under different scenarios.”

In relation to the use of an FCR for prudential standards, it is considered the areas covered by an FCR (as set out in the guidance) will also provide valuable information in relation to the best financial and risk management practice of superannuation funds.

The guidance was approved after a period of consultation and a thorough due diligence process. As well assisting actuaries working in this area, it represents the Institute’s commitment to quality – providing a common framework, terminology and approach in preparing FCRs.

“The Institute has developed this guidance to assist super funds to better comply with the APRA prudential standards, particularly important given the size and significance of the sector in safeguarding Australians’ retirement incomes,” Wickham concluded.

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