CIA.AA-IFRS17 Flashcards
Briefly describe the responsibilities of the AA that have not changed under IFRS 17 [POOR AA]
Policy Liabilities: The definition and coverage of “policy liabilities” are unchanged (extending to certain investment and service contracts, but excluding non-regulated entities)
Opinion: The AA continues to provide opinions on policy liabilities
Others: The AA both relies on and provides work for others, including external auditors
Reporting: the AA still creates formal reports for regulators following appropriate guidelines
Appointment: the AA’s role remains reserved and requires a formal appointment (with duties outlined in the financial statements as per the Insurance Companies Act)
AAP: the AA ensures that calculation of policy liabilities follows AAP in Canada
What sort of report would the AA issue if they used but did not take responsibility for the work of others?
The AA would issue a report with reservations
What sort of report would the AA issue if they used and took responsibility for the work of others?
The AA would issue a report without reservations (assuming everything else regarding the policy liabilities was in order)
Describe situations where the AA would use but not take responsibility for the work of others (2)
- If the work conflicts with what would be appropriate for the purpose of the actuarial services
- If the actuary is unable to judge the appropriateness of the work including assumptions & methodology (without lots of extra work beyond the scope of the assignment)
Describe when the AA would use and take responsibility for the work of others (3)
When such actions are justified based on considerations such as:
- Communication with the other person that is early and periodic
- Confidence in the other person’s qualifications & competence
- Awareness by the other person of how the actuary intends to use the other person’s work
Identify first 9 items (accounting policies, methods, or assumptions) that may be set by someone other than the AA (1-9)
1) PAA Accounting policy choices (ex: recognition of acquisition expenses, discounting)
2) Application of variable fee approach (VFA) (qualification criteria, use of risk mitigation option)
3) Discount rates (whether a bottom-up or top-down approach is used)
4) Directly attributable expenses (identifying directly attributable expenses)
5) Insurance Contract Classification (assessment of “significant” insurance risk) (Onersousity)
- DAC (criteria for testing recoverability of DAC assets)
- Level of aggregation (threshold for groups with no significant possibility of becoming onerous)
- Eligibility for PAA (criteria and testing)
- Risk Adjustment for non-financial risk (RA) (assessing the compensation required by the entity for taking non-financial risk)
Identify last 3 items (accounting policies, methods, or assumptions) that may be set by someone other than the AA (10-12)
Contract boundary (assessment of practical ability to reset the terms of a contract at a renewal date)
Coverage units for amortization of contractual service margin (CSM) (whether to discount or not)
Reinsurance contracts held (grouping, discount rate, RA)
List questions the AA might ask to determine whether to take responsibility for the work of others (5)
- Is the policy or method or assumption that has been set by another party consistent with a reasonable interpretation of the IFRS 17 standard?
- Is the policy or method or assumption that has been set by another party consistent with AAP in canada?
- Are the recommendations in Subsection 1510 of the CIA SOP for “use and take responsibility for” satisfied? (i.e., confirm the other person’s qualifications, competence, integrity, objectivity, and other person is aware of how actuary intends to use their work)
- Is the policy or method or assumption similar to what the AA would have done?
- Is the AA able to judge the appropriateness of the policy or method or assumption without substantial additional work beyond the scope of the assignment?
Identify examples of situations where it may be appropriate to report with reservation (5)
Change in assumption or methodology affecting disclosure items:
- where an item valued by the actuary is materially affected by a change in assumption or methodology that is not disclosed in the financial statements
Liabilities different than those calculated by the actuary:
- where the financial statements of an insurer report policy liabilities that are materially different from those calculated and reported to the regulator by the AA
Impracticality of restatement:
- where restating the preceding year valuation to be consistent with the current year valuation would be appropriate but not practical
New Appointment:
- where the newly appointed AA uses but is unable to take responsibility for a predecessor AA’s work
Takeover of insurer with insufficient records:
- where the AA is unable to judge the appropriateness of a predecessor AA’s work
What is the standard wording for the AA’s opinion according to IFRS 17
To the policyholders (and shareholders) of (the ABC Insurance Company)
- I have valued the policy liabilities of (the Company) for its (consolidated) financial statements prepared in accordance with International Financial Reporting Standards for the year ended (31 December xxxx)
- In my opinion, the amount of policy liabilities is appropriate for this purpose.
- The valuation conforms to accepted actuarial practice in Canada and the (consolidated) financial statements fairly present the results of the valuation
Describe 3 differences in the wording of the AA’s opinion under IFRS 17 versus the old standard, IFRS 4
IFRS Compliance:
- The revised opinion stresses that the policy liabilities valuation complies with relevant IFRS standards whereas old one stressed compliance with AAP in Canada
- Includes IFRS 17 (insurance contracts), IFRS 9 (investment contracts), and IFRS 15 (service contracts)
Appropriate for Financial Statements:
- The AA no longer opines that liabilities make “appropriate provision for all policy obligations”
- Instead, the AA now asserts the amount of policy liabilities is appropriate for inclusion in the financial statements
Broader Scope:
- The scope of “fairly present” in the AA’s opinion is broader under IFRS 17.
- This reflects more extensive presentation and disclosure requirements (including details on insurance contract liabilities and more line items derived from the AA’s valuation)
Quick summary of additional considerations for valuation work that is not subject to IFRS 17
- When insurance contract valuation doesn’t comply with IFRS 17, sections 2200 and 2300 of the CIA SOP are not applicable
- In these cases, the AA must identify and follow the applicable standards, guidance, or laws specific to the engagement, possibly seeking assistance from stakeholders like auditors or accountants
- If there are not specific accounting standards applicable, the AA may opt to follow IFRS 17 or the general section of the CIA SOP and related educational notes on actuarial considerations for valuations not subject to IFRS 17
