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CAS Exam 6C > OSFI - Appointed Actuary > Flashcards

OSFI - Appointed Actuary Flashcards

1
Q

What are the legal requirements for the appointments of an AA? (1-5)

A
  • 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)
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2
Q

What are the legal requirements for the appointments of an AA? (6-8)

A
  • 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)
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3
Q

What is the main duty of the AA?

A

The AA must perform a valuation of the policy liabilities at year-end using the AAP (Accepted Actuarial Practices).

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4
Q

What are the roles and duties of the AA? (3)

A
  • Valuation of reserves
  • Reporting
  • Final opinion and memo
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5
Q

What are the 5 reports that the AA must produce as part of their roles and duties? (hint: AFFMP)

A
  • Appointed Actuary report
  • Financial Position report
  • Financial Condition report
  • Material Adverse Event report
  • Policy Holder Fairness report
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6
Q

Describe the AA report.

A

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.

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7
Q

Where’s the AA’s report on financial position sent?

A

It is completed annually and sent to the BoD (Board of Directors).

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8
Q

When and how is the AA’s report on financial condition done and where is it sent? (3)

A
  • 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
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9
Q

When is the AA’s Material Adverse Event report done and where is it sent?

A

The report on MAE (Materially Adverse Event) requiring rectification and it is sent to the BoD (Board of Directors), the CEO, and the CFO.

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10
Q

What is another report that must be completed by the AA that relates to policy holders?

A

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.

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11
Q

What does the AA’s final opinion contain?

A

Opinions on the parts of financial statements requiring discretion or significant calculations and judgements.

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12
Q

AA qualifications: Main one & 3 rules

A

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)

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13
Q

AA qualifications: OSFI expectations (4)

A
  • 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
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14
Q

What are the objectives for a peer review? (3)

A

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

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15
Q

How often is a F/S (Financial Statement) peer review performed when there have been NO material changes to the valuation?

A

At least once every 3 years, all at once OR in phases (with brief annual reports stating that there were no material changes).

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16
Q

How often is a F/S (Financial Statement) peer review performed when there HAVE been material changes to the valuation?

A

Annually.

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17
Q

What are a peer reviewer’s work to review? (7)

A
  • 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)
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18
Q

Peer review - Valuation

A

Did the AA use the AAP (Accepted Actuarial Principles) in performing the valuation?

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19
Q

Peer review - I/E (internal, external) changes

A

Detailed review of material internal and external changes.

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20
Q

Peer review - Adequacy of PSW (Procedures, Systems, Work)

A

Check the adequacy of the procedures, systems and work of others.

21
Q

Peer review - AM (Assumptions and Methods)

A
  • is each assumption independently reasonable?

- are methods appropriate for each valuation model?

22
Q

Peer review - Documentation of AM

A

Does the AA’s report accurately document the assumptions and methods used in the valuation?

23
Q

Peer review - MCT/BAAT (AM)

A

Review the assumptions and methods used in the calculation of MCT/BAAT.

24
Q

Peer review - FCT (AMS)

A

Review the assumptions, methods and scenarios used in evaluation of the future Financial Condition of insurer.

25
Q

Responsibilities of AA and management in peer review.

A

Full cooperation - respond to reviewer in a timely manner, with all relevant documentation and information.

26
Q

Who sets the materiality level used for a company’s financial statement and at what basis?

A

The External Auditor, based on the size of the company as a whole.

27
Q

Some material changes to consider. (5)

A
  • 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)
28
Q

Is auditor’s level of materiality sufficient for AA, peer review?

A
  • 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
29
Q

What causes increased rigour?

A

Getting near internal capital targets, or solvency control levels
- small changes could trigger significants actions

30
Q

What is difference between the external audit and the peer review?

A

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

31
Q

Do audit requirements satisfy peer review requirements?

A

No.

32
Q

What are the duties that a peer reviewer does not perform? (3)

A

The peer reviewer DOES NOT:

  • perform detailed RECALCULATIONS (provided that the AA has controls to detect errors in valuation)
  • verify DATA
  • verify CONTROLS
33
Q

What are the contents of the peer review report? (4)

A
  • 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
34
Q

Identify the qualification standards fora peer reviewer - Main one & 3 rules

A 
- 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)
35
Q

Required prior experience of peer reviewer before appointment.

A
  • exposure to 2 or more unrelated insurers

- familiarity with a range of practices and assumptions used in Canada

36
Q

What does OSFI expect if a company is hiring/changing the peer reviewer?

A

Written notification with reasons for the change in peer reviewer, if applicable.

37
Q

Describe OSFI peer reviewer objectivity criteria. (3)

A
  • 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
38
Q

OSFI peer reviewer - not an employee or AA for 3 years

A

The peer reviewer cannot have been an employee or AA for the company or a subsidiary in the prior 3 years.

39
Q

OSFI peer reviewer - not a shareholder

A

The peer reviewer may not be a shareholder, nor have any direct financial investment in the company.

40
Q

OSFI peer reviewer - not from the same consulting firm as the AA

A

The peer reviewer cannot be from the same consulting firm as the AA.

41
Q

OSFI peer reviewer - NO disscussion

A

The peer reviewer may not have discussion with AA regarding work UNLESS IN THE CONTEXT OF the AA and the peer reviewer’s relationship.

42
Q

OSFI peer reviewer - OK to have indirect financial investment

A

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

43
Q

OSFI peer reviewer - OK to be from the same consulting firm doing the financial statements

A

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.

44
Q

OSFI peer reviewer - OK to from the same audit firm

A

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.

45
Q

Identify a reason that a peer reviewer may be from an insurer’s audit firm.

A
  • using peer reviewer from audit firm accommodates smaller and simpler insurers
  • this is discourage for larger insurers (needs a broader perspective)
46
Q

How often should the change of peer reviewer occur?

A

At least once every 2 cycles (ie: every 6 years)

47
Q

Identify reasons for periodic changes of the peer reviewers. (2)

A
  • enhance objectivity

- increase educational value to the AA

48
Q

How does the AA identify and report material adverse transactions and/or conditions?

A

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

CAS Exam 6C (70 decks)

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