OSFI - Appointed Actuary Flashcards
What are the legal requirements for the appointments of an AA? (1-5)
- the insurer must appoint an AA
- the insurer must notify OSFI of the appointment
- the AA must be an FCIA
- the AA can’t be the CEO, COO, or hold a similar position without authorization from OSFI
- the AA can’t be a CFO without the permission of the audit committee (the audit committee must certify that the AA and the CFO duties can be performed completely and independently)
What are the legal requirements for the appointments of an AA? (6-8)
- the insurer must notify OSFI if the BoD (Board of Directors) revoke’s the AA’s appointment
- the outgoing AA must write a report to the BoD, OSFI on the circumstances & reason for leaving
- incoming AA must review outgoing AA’s report within 15 days (if incoming AA does not receive reports within 15 days, they may accept appointment regardless)
What is the main duty of the AA?
The AA must perform a valuation of the policy liabilities at year-end using the AAP (Accepted Actuarial Practices).
What are the roles and duties of the AA? (3)
- Valuation of reserves
- Reporting
- Final opinion and memo
What are the 5 reports that the AA must produce as part of their roles and duties? (hint: AFFMP)
- Appointed Actuary report
- Financial Position report
- Financial Condition report
- Material Adverse Event report
- Policy Holder Fairness report
Describe the AA report.
Must be completed at least 21 days before the AGM (Annual General Meeting), and must state whether the Annual Report fairly represents results of valuation.
Where’s the AA’s report on financial position sent?
It is completed annually and sent to the BoD (Board of Directors).
When and how is the AA’s report on financial condition done and where is it sent? (3)
- it must be completed when directed by OSFI
- it involves a 3-year projection possibly using FCT methodology
- it is sent to the BoD (Board of Directors) and OSFI
When is the AA’s Material Adverse Event report done and where is it sent?
The report on MAE (Materially Adverse Event) requiring rectification and it is sent to the BoD (Board of Directors), the CEO, and the CFO.
What is another report that must be completed by the AA that relates to policy holders?
The Policy Holder Report, which is completed annually. It is to assess the fairness with which the policy holders are treated regarding dividends, bonus, and other benefits.
What does the AA’s final opinion contain?
Opinions on the parts of financial statements requiring discretion or significant calculations and judgements.
AA qualifications: Main one & 3 rules
Main: FCIA - and in good standing
RULE 1: PPS w/ ICSC (perform professional services with integrity, competence, skill and care)
RULE 2: PPS only when qualified to do so
RULE 3: meet all applicable SOPs (standard of practice)
AA qualifications: OSFI expectations (4)
- must have 3 years of Canadian experience with the past 6 years (incl. 1 year of valuation experience)
- must have experience with CIA’s SOPs (also insurance legislation & regulation)
- must maintain professional development requirements
- must have NO adverse findings with the CIA disciplinary tribunal
What are the objectives for a peer review? (3)
ASSIST (OSFI): in assessing insurer safety and soundness
ASSIST (AA): by providing independent advice and a source for professional development
Increase CONFIDENCE in (AA): with management, the public and with regulators
How often is a F/S (Financial Statement) peer review performed when there have been NO material changes to the valuation?
At least once every 3 years, all at once OR in phases (with brief annual reports stating that there were no material changes).
How often is a F/S (Financial Statement) peer review performed when there HAVE been material changes to the valuation?
Annually.
What are a peer reviewer’s work to review? (7)
- Valuation
- I/E (internal/external) changes
- Adequacy of PSW (Procedures, Systems, Work) of others
- AM (Assumptions and Methods)
- Documentation of AM
- Review MCT/BAAT AM
- review FCT AMS (Assumptions, Methods and Scenarios)
Peer review - Valuation
Did the AA use the AAP (Accepted Actuarial Principles) in performing the valuation?
Peer review - I/E (internal, external) changes
Detailed review of material internal and external changes.
Peer review - Adequacy of PSW (Procedures, Systems, Work)
Check the adequacy of the procedures, systems and work of others.
Peer review - AM (Assumptions and Methods)
- is each assumption independently reasonable?
- are methods appropriate for each valuation model?
Peer review - Documentation of AM
Does the AA’s report accurately document the assumptions and methods used in the valuation?
Peer review - MCT/BAAT (AM)
Review the assumptions and methods used in the calculation of MCT/BAAT.
Peer review - FCT (AMS)
Review the assumptions, methods and scenarios used in evaluation of the future Financial Condition of insurer.
Responsibilities of AA and management in peer review.
Full cooperation - respond to reviewer in a timely manner, with all relevant documentation and information.
Who sets the materiality level used for a company’s financial statement and at what basis?
The External Auditor, based on the size of the company as a whole.
Some material changes to consider. (5)
- systems (eg: valuation software)
- material external event (eg: inflation)
- valuation assumptions (eg: LDFs, trend)
- valuation methods (eg: for claims liabilities)
- operations (eg: investment policies, reinsurance practices)
Is auditor’s level of materiality sufficient for AA, peer review?
- no, a numerical threshold for company as a whole is not sufficient
- peer reviewer & AA must use professional judgement for different areas within the company
What causes increased rigour?
Getting near internal capital targets, or solvency control levels
- small changes could trigger significants actions
What is difference between the external audit and the peer review?
AUDIT: check that is F/S (Financial Statement) is free FROM material misstatement as a whole
PEER REVIEW: review the AA’s F/S work at a more granular level
Do audit requirements satisfy peer review requirements?
No.
What are the duties that a peer reviewer does not perform? (3)
The peer reviewer DOES NOT:
- perform detailed RECALCULATIONS (provided that the AA has controls to detect errors in valuation)
- verify DATA
- verify CONTROLS
What are the contents of the peer review report? (4)
- description of work, timing, and materiality level
- compliance with the AAP (Accepted Actuarial Principles) and changes in AM (Assumptions and Methods)
- recommendations for further work
- relationship with the AA
Identify the qualification standards fora peer reviewer - Main one & 3 rules
- same as outlined for the AA: Main: FCIA - in good standing RULE 1: PPS with ICSC RULE 2: PPS only when qualified to do so RULE 3: meet all applicable SOPs (Standard Of Practice)
Required prior experience of peer reviewer before appointment.
- exposure to 2 or more unrelated insurers
- familiarity with a range of practices and assumptions used in Canada
What does OSFI expect if a company is hiring/changing the peer reviewer?
Written notification with reasons for the change in peer reviewer, if applicable.
Describe OSFI peer reviewer objectivity criteria. (3)
- NOT an employee or AA for the company in past 3 years, a shareholder (or direct investor), or from same consulting firm as AA
- NO outside non-work discussion with the AA is permitted
- OK if there are indirect financial investment, or if they are from the same consulting firm doing financial statements or from the same audit firm
OSFI peer reviewer - not an employee or AA for 3 years
The peer reviewer cannot have been an employee or AA for the company or a subsidiary in the prior 3 years.
OSFI peer reviewer - not a shareholder
The peer reviewer may not be a shareholder, nor have any direct financial investment in the company.
OSFI peer reviewer - not from the same consulting firm as the AA
The peer reviewer cannot be from the same consulting firm as the AA.
OSFI peer reviewer - NO disscussion
The peer reviewer may not have discussion with AA regarding work UNLESS IN THE CONTEXT OF the AA and the peer reviewer’s relationship.
OSFI peer reviewer - OK to have indirect financial investment
It is OK for the peer reviewer to have an indirect financial investment, be a policyholder, depositor, beneficiary
- eg: may own a diversified mutual fund containing the insurer
OSFI peer reviewer - OK to be from the same consulting firm doing the financial statements
It is OK for the peer reviewer to be from the same consulting form that does actuarial Financial Statement work if not involved in that work.
OSFI peer reviewer - OK to from the same audit firm
It is OK for the peer reviewer to be from the same audit firm, BUT DISCOURAGED if the AA is on the audit team for that company.
Identify a reason that a peer reviewer may be from an insurer’s audit firm.
- using peer reviewer from audit firm accommodates smaller and simpler insurers
- this is discourage for larger insurers (needs a broader perspective)
How often should the change of peer reviewer occur?
At least once every 2 cycles (ie: every 6 years)
Identify reasons for periodic changes of the peer reviewers. (2)
- enhance objectivity
- increase educational value to the AA
How does the AA identify and report material adverse transactions and/or conditions?
IDENTIFY: use FCT, stress testing
REPORTING: report to the CEO, CFO with a deadline for corrective action (cc BoD (Board of Directors))
IF DEADLINE IS NOT MET: cc OSFI & outline events leading up to notifying OSFI
