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Exam 6C - Fall 2024 > OSFI.AA > Flashcards

OSFI.AA Flashcards

1
Q

What are the legal requirements for the appointment of an AA (8)?

A
  1. Insurer must appoint an AA
  2. Insurer must notify OSFI of the appointment
  3. AA must be a FCIA
  4. AA can’t be (CEO, COO) or similar without authorization from OSFI
  5. AA can’t be CFO without audit committee permission
    - Audit committee must certify (AA,CFO) duties can be performed competently & independently
  6. Insurer must notify OSFI if Board of Directors revokes AA’s appointment
  7. Outgoing AA must write report to (Board of Directors, OSFI) on circumstances & reasons for leaving
  8. Incoming AA must review outgoing AA’s report within 15 days
    - If incoming AA does not receive report within 15 days, they may accept appointment regardless
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2
Q

Summarize the roles & responsibilities of an AA (7)

A
  1. Valuation of Reserves

Reports:
2. AAR
3. FinPo Report –> BoD
4. FinCo Report –> BoD, OSFI
5. Material Adverse Event (MAE) report –> BoD, CEO, CFO
6. Policyholder Fairness report

  1. Final Opinion/Memo
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3
Q

Of the 7 responsibilites of the AA, what is the main one?

A

The AA must perform a VALUATION of the policy liabilities at year-end using AAP (Accepted Actuarial Practice)

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4
Q

Reporting - describe the AA report (2)/7

A

AA Report:
- Must be completed at least 21 days before the AGM (Annual General Meeting)
- Must state whether Annual Report fairly represents results of valuation

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5
Q

Reporting - where is the AA’s report on financial position sent (3)/7

A

Financial Position Report:
- Completed Annually
- Send to BoD
- AA must meet with directors or chief agent of company to discuss financial position

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6
Q

Reporting - when & how is the AA’s report on financial condition done & where is it sent (4)/7

A

Financial Condition Report:
- Must be completed annually
- Involves a 3-5 year projection possibly using FCT methodology
- Send to BoD, OSFI

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7
Q

Reporting - when is the AA’s MAE (Material Adverse Event) report done & where is it sent (5)/7

A

MAE Report:
- Report on Material Adverse Events requiring rectification (changed to make something right)
- Send to BoD, CEO, CFO (aka company officers)
- AA must supply a copy to BoD & ORSI if in the AA’s opinion, suitable action is not being taken

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8
Q

Reporting - what is another report the AA must complete that relates to policyholders (6)/7

A

Policyholder adequacy report:
- Completed Annually
- Assesses fairness with which policyholders are treated regarding dividends, bonus & other benefits & whether it is in accordance with the dividend or bonus policy

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9
Q

Final opinion - what does the AA’s final opinion contain (7)/7

A

Financial Opinion/Memo:
- Concerns parts of financial statements requiring discretion or significant calculations/judgment

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10
Q

OSFI AA main qualification + 3 CIA rules of professional conduct that AA is subject to

A

Main qualification: FCIA - in good standing (subject to CIA SOPs)

RULE 1: Perform Professional Services WITH Integrity, Competence, Skill, Care

RULE 2: Perform Professional Services only when qualified to do so

RULE 3: meet all applicable SOPs (Standards of Practice)

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11
Q

Briefly describe four qualifications that OSFI expects in assessing the suitability of an AA (4)

A

1) FCIA

2) Canadian experience (1) 3 of last 6 years working in Canada (2) with at least 1 year of valuation

3) Experience with CIA’s SOPs (also insurance legislation & regulation)

4) Must maintain CIA’s continuing professional development requirements

5) No adverse findings with CIA disciplinary tribunal. If there are, can still be AA under certain circumstances

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12
Q

What are 3 objectives sought by OSFI in requiring a peer review of the work of the AA (3) (Hint: AAR)

A
  • Assist OSFI in its assessment of the insurer’s safety and soundness
  • Assist AA: give independent advice & help professional development
  • Raise & maintain confidence in AA’s work with public, insurance company management & directors and with OSFI
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13
Q

Abbreviated list of peer review work (1-7)/7

A
  1. AM: review/discuss with AA appropriateness of Assumptions & methods
  2. AA: review if AA used AAP (Accepted Actuarial Practice) in their work
  3. W: produce a Written report(s) documenting the findings of the peer review
  4. ie: review internal/external changes to the insurer (if material)
  5. M: review MCT/BAAT assumptions & methods
  6. A: validate Adequacy of procedures, systems, work of others used by the AA
  7. F: validate financial condition reporting scenarios, assumptions, methods (usually done through FCT)
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14
Q

Describe 1st item of peer review work: Am

A

Am: Assumptions & methods
- Is each assumption independently reasonable
- Are methods appropriate for each valuation model

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15
Q

Describe the 2nd item of peer review work: AA

A

AA:
- Did the AA use AAP (Accepted Actuarial Practice) in performing the valuation of policy liabilities & ceded reinsurance assets

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16
Q

Describe the 3rd item of peer review work: W

A

W: Written report
- produce a written report(s) documenting the findings of the peer review

17
Q

Describe the 4th item of peer review work: ie

A

ie: internal/external changes
- Review appropriateness & extent of all material internal/external changes regarding the valuation of policy liabilities & ceded reinsurance assets

18
Q

Describe the 5th item of peer review work: M

A

M: MCT/BAAT (assumptions & methods)
- Review assumptions & methods used in the calculation of MCT/BAAT

19
Q

Describe the 6th item of peer review work: A

A

A: Adequacy (of procedures, systems, work of others)
- Check the adequacy of procedures, systems, work of others that is used by the AA, to the extent that these are not reviewed by the external auditor

20
Q

Describe the 7th item of peer review work: F

A

F: FCT scenarios, assumptions, methods
- Review (assumptions, methods, scenarios) used in evaluation of the future financial condition of insurer

21
Q

Responsibilities of AA, Management with regards to reviewer

A

Full cooperation - respond to reviewer in a timely manner with all relevant documents/information

22
Q

Who sets the global materiality level for a company & what is the basis

A
  • External auditor sets the materiality level for the company as a whole
  • Basis = size of company (bigger companies have higher materiality thresholds)
23
Q

Material changes to consider when peer reviewing (5)

A
  • Change in systems (ex: valuation model or software)
  • Change in Material External events suggesting that valuation assumptions/methods may need to be changed (ex: inflation)
  • Change in methodology used in the valuation (ex: for claims liabilities)
  • Change in company operations or circumstances (ex: investment policies, reinsurance practices)
  • Valuation assumption changes (ex: LDFs, trends)
24
Q

Can materiality for the purposes of peer review be determined solely by means of the application of a numeric threshold?

A

No! Materiality is also a matter of professional judgement in the particular circumstances. Materiality for the purposes of peer review cannot be determined solely by means of the application of a numberic threshold. General quantitative guidelines are not a substitute for the AA’s and peer reviewer’s professional judgment

25
Q

What causes increased rigour with regards to materiality?

A

Materiality should become more rigorous as the company approaches internal capital targets or regulatory capital thresholds
- Small changes could trigger significant actions

26
Q

Difference in responsibilities between external auditor & peer reviewer

A

AUDIT:
- Checks that Financial statement is free from material misstatement as a whole
- Uses CICA standard

PEER REVIEW:
- Reviews AA’s financial statement work (valuation of liabilities) at more granular level
- Uses CIA standard

Peer reviewer does not:
- Verify data (auditors do)
- Verify controls (auditors do)
- Perform detailed recalculations (provided AA has controls to detect errors in valuation) (auditors do)

27
Q

Contents of the peer review report (8)

A
  • A description of the work done by the reviewer (both the specifics of the work and its extent)
  • The timing during the year when the work was carried out
  • The materiality level used for the review
  • The reviewer’s statement of opinion with respect to the AA’s compliance with AAP and any objectives /requirements established by OSFI in Regulations, Guidelines or Memoranda to the AA.
  • The reviewer’s observations with respect to changes made in methodology and assumptions
  • The reviewer’s acknowledgement that no additional material changes should have been made
  • A list of any recommendations for further review or work by the AA in the coming year
  • A brief description of the relationship with the AA to support the specific objectives of providing consultation aid, professional education and improving the quality of the AA’s work
28
Q

Describe the peer review cycle required by OSFI

A

If there are/have been material changes - annually

If no material changes - At least once every 3 years, all at once OR in phases with brief annual report stating that there were no material changes

29
Q

Identify the qualification standards for a peer reviewer (7)

A
  • Need to have exposure to 2 or more different (unrelated) insurers
  • Need to have same qualifications as the AA (FCIA, Canadian Experience, no adverse finding from CIA tribunal)
  • Cannot have a direct financial interest in the company that they review (but can if has an indirect investment in company)
  • Cannot have worked for the insurer in the last 3 years
  • Can be peer-reviewer even if part of the company’s external audit firm, but companies are not encouraged to use as a peer-reviewer someone from the same firm as auditor
  • Cannot be peer-reviewer if involved in any actuarial work related to the financial statements or financial condition reporting for the company
  • Cannot be peer-reviewer if from same consulting firm as AA
30
Q

If (hiring, changing) peer-reviewer OSFI expects?

A

Written notification (w/reasons for change in peer reviewer, if applicable)

31
Q

Identify a reason that a peer reviewer may be from insurer’s Audit firm

A
  • Using peer reviewer from Audit Firm accomodates (smaller, simpler) insurers
  • This is discouraged for large insurers (large insurers need a broader perspective)
32
Q

How often should a peer reviewer be changed?

A

At least once every 2 cycles (i.e. every 6 years)

33
Q

Identify reasons for periodic changes of peer reviewer (2)

A
  • Enhance objectivity of the peer review
  • Increase educational value to AA (due to receiving varying opinions)
34
Q

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

A

IDENTIFY: use (FCT, Stress-Testing)
REPORTING: report to (CEO, CFO) with deadline for corrective action (cc: BoD)
IF DEADLINE NOT MET: cc: OSFI & outline events leading up to notifying OSFI

For ex: if there has been a material adverse event, then AA cannot just inform CEO and CFO, must also state specific date for corrective action & notify OSFI if need be

Exam 6C - Fall 2024 (56 decks)

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