OSFI.AA Flashcards
what are the legal requirements for the appointment of an AA?
- insurer must appoint an AA
- insurer must notify OSFI of the appointment
- AA must be FCIA
- AA can’t be CEO, COO or similar without authorization from OSFI
- AA can’t be CFO without audit committee permission
- audit committee must certify AA, CFO duties can be performed competently & independently
- insurer must notify OSFI if BoD revokes AA’s appointment
- outgoing AA must write report to BoD, OSFI on circumstances and reasons for leaving
- incoming AA must review outgoing AA’s report within 15 days
- if incoming AA doesnot receive report within 15 days, they may accept appointment regardless
summarize the roles & responsibilities of an AA
1) valuation of reserves
2) 5 reports ( FFAPM)
- Financial position report
- Financial condition report
- AAR
- PH fairness report
- Material adverse event report
3) final opinion & memo
what is the main responsibility of AA?
AA must perform a valuation of the policy liabilities at year end using AAP (Accepted Actuarial Practice)
describe AAR
- must be completed at least 21 days before AGM annually (Annual General Meeting)
- must state whether annual report fairly represents results of valuation
where is the AAR on financial position sent?
Financial Position Report
- completed annually
- send to BoD
when & how is the AAR on financial condition done & where is it sent?
Financial Condition Report:
- must complete when directed by OSFI
- involves a 3-5 year projection possibly using FCT methodology
- send to BoD, OSFI
when is the AA’s MAE (Material Adverse Event) report done & where is it sent?
- report on MAE requiring rectification 整顿
- send to BoD, CEO, CFO
what is the report AA must complete that relates to the PH?
Policy Holder Report
- completed annually
- assesses fairness with which policy holders are treated regarding dividends/bonus/other benefits
what does AA’s final opinion contain?
concerns parts of financial statements requiring discretion审慎 or significant (calculations, judgements)
main AA qualification + 3 rules
FCIA in good standing
1) PPS with ICSC (Perform Professional Services with Integrity/Competence/Skill/Care)
2) PPS only when qualified to do so
3) meet all applicable SOPs
OSFI’s expectations regarding an AA
AA must be a Canadian professional with Canadian experience:
Exp:
- 3 years of Canadian experience from past 6 years including 1 year in valuation
- experience with CIA’s SOPs also insurance legislation and regulation
Professionalism:
- must maintain professional designation requirements
- no adverse findings with CIA disciplinary tribunal
setup questions
what are the objectives of a peer review?
AAR
- Assist OSFI in assessing insurance safety & soundness
- Assist AA by providing independent advice and additional source of professional education
- Raise confidence in AA with management, public & regulators
abbreviated list of peer review work
i AM AA DIE MAF
- Assumptions & Methods
- use AAP? (Accepted Actuarial Practice)
- Document?
- examine Internal & External changes if material
- examine MCT/BAAT assumptions and methods
- examine Adequacy of procedures, systems, works of others
- examine FCT scenarios, A&M
Describe peer review work - A&M
- is each assumption independently reasonable
- are methods appropriate for each valuation model?
Describe peer review work - Document
did AA report accurately document AM used in the valuation?
Describe peer review work - examine internal/external changes
review all material internal/external changes regarding the valuation
Describe peer review work - F
FCT scenarios, A &M
review A&M, scenarios used in evaluation of the future financial condition of insurer
responsibilities of AA and management
full cooperation - respond to reviewer in a timely manner with all relevant documents and information
who sets the global materiality level for a company and what is the basis?
- external auditor sets the materiality level for the company as a whole
- basis = size of company (bigger company have higher materiality thresholds)
material changes to consider
- systems (valuation software)
- material external event (inflation)
- valuation assumptions (LDFs, trends)
- valuation methods (for claim liabilities)
- operations (investment policies)
is auditor’s level sufficient for AA and 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 company
what causes increased rigor?
- getting near internal capital targets or solvency control levels
- small changes could trigger significant actions
difference between external audit and peer review
Audit:
- checks that FS is free from material misstatement as a whole
- uses CICA standard
Peer review:
- reviews AA’s financial statement work at more granular level
- uses CIA standard
things peer reviewer doesnot do
Peer Reviewer Doesnot Care to do:
- Perform detailed Recalculations provided AA has controls to detect errors in valuation
- verify Data
- verify Controls
do audit requirements satisfy peer review requirements?
no
peer review is more detailed
contents of peer review report
- description of work/timing/materiality level
- compliance with AAP and changes in AM
- recommendations for further work
- relationship with AA
how often is a F/S 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 report stating that there were no material changes
how often is a FS peer review performed when there have been material changes to the valuation?
annually
identify the qualification standards for a peer review
same as AA
- FCIA
- 3 rules:
1) PPS with ICSC
2) PPS only when qualified to do so
3) meet all applicable SOPs
required prior experience of peer reviewer
- exposure to 2 or more unrelated insurers
- familiarity with range of practices and assumptions used in Canada
what does OSFI when hiring or changing the peer reviewer?
written notification with reasons for change in peer reviewer if applicable
OSFI’s peer reviewer criteria or objectivity conditions
Not allowed:
- an employee of AA for the company or subsidiary in the past 3 years
- shareholder or direct financial investment in company
- from same consulting firm as AA
- outside non-work discussions with AA
Permitted:
- peer reviews can have an indirect financial investment in the company
- peer reviewer can be from consulting firm doing financial statements for the company
- peer reviewer can be from company’s audit firm
identify a reason that a peer reviewer may be from insurer’s audit firm
- using a peer reviewer from audit firm accommodates smaller and simpler insurers
- this is discouraged for large insurers because they need a broader perspective
how often should a peer reviewer be changed?
at least once every 2 cycles ( every 6 years)
identify reasons for periodic changes of peer reviewer
- enhance objectivity
- increase educational value to AA
how does AA identify and report material adverse transaction or conditions?
- identify: use FCT/stress testing
- reporting: report to CEO/CFO with deadline for corrective actions and cc BoD
if deadline is not me, cc OSFI and outline events leading up to notifying OSFI
