OSFI.AA

Question 1

Legal Reqirement for Appointing an AA

Answer 1

1. insurer must appoint an AA and notify OSFI
2. AA must be a FCIA
3. AA can’t be CEO/COO or similar role without authorization from OSFI
4. AA can’t be CFO w/o audit committee permission
   
   • audit committee must verify AA & CFO duties can be performed adequately & independently and notice OSFI in written
   • OSFI need authorized the appiontment
5. Notify OSFI if BOD revoke AA in written
6. If AA resigns/revoked, AA shall submit written statement to OSFI & BOD including circumstances and reasons for resignations or reasons of revocation in actuary’s opinion
7. No new actuary shall accept the position w/o seeing the statement; appointment of new AA is accepted if no reply in 15 days

Question 2

Role & Duities of AA

Answer 2

1. valuation of reserves
   
   • perform valuation of actuarial and other policy liabilities @year-end with Accepted Actuarial Practice
2. AAR
   
   • complete AAR at least 21 days before AGM
   • state whether Annual Report fairly represents results of valuation
3. Financial Position report
   
   • completed annually & sent to BOD
4. Financial Condition report
   
   • complete when directed by OSFI
   • involves 3year projection possibly using DCAT methodolgy
   • sent to BOD
5. Material Adverse Event (MAE) report
   
   • report on MAE requiring rectification
   • set to BOD
6. Policyholder Fairness report
   
   • completed annually
   • assess fairness which PH are treated regarding dividends, bonus & other benefit
7. Final opinion and memo
   
   • concerns parts of financial statements reqiring discretion or significant calculations & judgements

Question 3

Qualification required for AA

Answer 3

• FCIA - in good standing
• Perform professional services with integrity, competence, skill and care
• meet all applicable SOPs

Question 4

Expectations of AA

Answer 4

• Must have 3-yrs of Canadian experience within past 6-yrs, including 1-yr of valuation of Canadian actuarial laibilities
• Must have experience with CIA’s SOPs also relavent legislation & regulation
• Must maintain professional development requirements - CIA’s countinuing professional development
• Must have no adverse findings with CIA disciplinary tribunal

Question 5

Objective of Peer Review

Answer 5

Hint: AAC

• Assist OSFI to assess insurer’s safety and soundness
• Assist AA by providing independent advice and additional source of professional education
• Increase Confidence in AA’s work with management, public and regulators

Question 6

Work of Peer Reviewer (External Reviewer)

Answer 6

• Make sure AA’s valuation is compliance with accepted actuarial practice (AAP)
• Review adquancy of porcedures, system and work of others relied on by AA
• Discuss with AA the appropriateness of each assumption used and the methods employed in the vaulation
• Review the method, assumption and scenarios used for future financial conditions, usually based on DCAT
• Review method and assumption used in MCT/BAAT calucation
• Detailed review of material internal/external changes
• Detemine if the AAR sufficeintely describes the valuation assumption and methodology employed by AA
• Produce a written report documenting the findings

Question 7

Selection of a peer reviwer

Answer 7

• Not an employee of company or any affiliated companies
• Not AA of the company in past 3 years
• Not a shareholde, Not have a direct finiancail investment
  
  • other than PH, depositor, beneficiary or insured
• Not a consultant from same firm of AA
• Ok - if a consultant from a firm involved in any actuarial work relating to finanacial statement or condition reporting, but he/she does not involved
• Ok - for peer reviewer to be from the same audit firm, but discourage if AA is on the audit team for that company

Question 8

Required Exprience of Peer Reviwer

Answer 8

• exposure to 2 or more unrealted insurers
• familiarity with range of practices and assumptions used in canada
• Change peer reviewer at least once every 2-cycles (ie. 6yrs) to enhance objectivity, enducational value to AA

Question 9

Peer Review - material changes to consider

Answer 9

• System change - valuation software
• material external event - inflation
• valuation assumptions - LDFs, trends
• valuation methods - for claim liabilities
• Operations - investement policies, reinsurance practice

Question 10

Peer Review - work doen’t required

Answer 10

• doesn’t preform detailed recalcualtion
• verify data
• verify controls

Question 11

Peer reviewer vs External auditor

Answer 11

Audit - checks that F/S is free from material misstatment as a whole

Peer Reviewer - review AA’s F/S work at more granular level

Audit need to perform recaulation, peer reviewer doesn’t