OSFI.AA

Question 1

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

Answer 1

1. FCIA in good standing
2. Worked in Canada for at least 3 of the last 6 years, including 1 year performing Canadian valuation
3. Has experience with the CIA’s Standard of Practices (SOPs)
4. Up to date with professional development requirements
5. No adverse finding by the CIA Disciplinary Tribunal

Other requirements:
5. AA can’t be CEO, COO or similar without authorization from OSFI
6. AA can’t be CFO without audit committee permission: audit committee must certify AA and CFO duties can be performed competently & independently
7. Outgoing AA must write report to BoD and 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

Question 2

What are the 7 roles & responsibilities of an AA?

Answer 2

1. Valuation of reserves

5 reports (AFFMP):
2. Appointed Actuary report
3. Financial Position report
4. Financial Condition report
5. Material Adverse Event report
6. Policy Holder Fairness report

7. Final (opinion, memo)

Val - 5 reports - Final(opinion/memo)

Question 3

What is the main responsibility of the appointed actuary? ( 1/7)

Answer 3

The AA must perform a VALUATION of the policy liabilities at year-end using AAP (Accepted Actuarial Practice)/IFRS17.

Question 4

Briefly describe the AA report.

Answer 4

Must be completed at least 21 days before AGM (Annual General Meeting)

Must state whether Annual Report fairly represents results of valuation

Question 5

What are OSFI’s expectations regarding the background of an AA? (Experience (2) and professionalism (2))

Answer 5

Experience:
• 3 years of Canadian experience from past 6 years (including 1 year of valuation)
• experience with CIA’s SOPs (also insurance legislation & regulation)
Professionalism
• must maintain professional designation requirements
• no adverse findings with CIA disciplinary tribunal

Question 6

What are the 3 objectives of a peer review? (Hint: AAR)

Answer 6

Assist OSFI to assess safety and soundness of the insurer
Assist AA independent advice & professional development
Raise confidence in AA with regulator, management and public

Question 7

Identify 4 items reviewed by the peer reviewer.

Answer 7

1. Am: Review Assumptions & methods used by AA
2. AA: AA used AAP (Accepted Actuarial Practice) in Valuation work
3. D: Documentation of assumptions & methods
4. ie: Review Internal/External material changes
5. M: MCT/BAAT (assumptions & methods)
6. A: Adequacy of procedures, systems, work of others
7. D: Review FCT scenarios, assumptions, methods

AM an AA so I’ll Die MAD

Question 8

What is the reviewer expecting from AA and management?

Answer 8

Full cooperation: respond to reviewer in a timely manner with all relevant docs and info

Question 9

Who sets the materiality standards and what is the basis?

Answer 9

External auditor

Basis = size of company

Question 10

Briefly describe 3 examples of material changes that the peer review is expected to consider.

Answer 10

• Systems (Ex: valuation software)
• material External event (Ex: inflation)
• Valuation assumptions (Ex: LDFs, trends)
• valuation methods (Ex: for claims liabilities)
• Operations (Ex: investment policies, reinsurance practices)

Question 11

What causes increased rigour?

Answer 11

Getting near internal capital targets and solvency control levels

Small changes could trigger significants actions

Question 12

Briefly describe the difference between external audit and peer review. (2,2)

Answer 12

AUDIT:
- checks that F/S 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

Question 13

Do audit requirements satisfy peer review requirements?

Answer 13

No, a peer review is more detailed than an audit.

Question 14

Identify the 3 duties External Auditor does that Peer reviewer does not

Answer 14

• Verify data used
• Verify controls
• Perform detailed recalculations (provided AA has controls to detect errors in valuation)

Question 15

Identify the 4 contents of the peer reviewer report.

Answer 15

1. Description of work | timing | materiality level
2. Opinion regarding AA’s compliance with AAP
3. Opinion on changes in Assumptions & Methodology
4. List of recommendations to AA
5. Confirmation that no additional material changes should have been made
6. Relationship with AA

Question 16

Identify the qualification standards for a peer reviewer.

Answer 16

Same as outlined for AA:
Main qualification: FCIA - in good standing
RULE 1: Perform Professional Services WITH Integrity, Competence, Skill and Care
RULE 2: Perform Professional Services only when qualified to do so
RULE 3: meet all applicable SOPs (Standards of Practice)

Question 17

What is the required prior experience before appointment of the peer reviewer?

Answer 17

Exposure to 2 or more unrelated insurers

Familiarity with range of practices & assumptions used in Canada

Question 18

What is the OSFI expectation when in the insurer is hiring/changing his peer reviewer?

Answer 18

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

Question 19

Does the same standard of materiality can be used for the whole company?

Answer 19

No, a numerical threshold for company as a whole is not sufficient

Peer reviewer & AA must use professional judgment for different areas within company

Question 20

Identify the 7 OSFI’s peer reviewer objectivity conditions.

Answer 20

Peer reviewer CANNOT be:
1. An employee or AA for the company/subsidiary in past 3 yrs
2. Shareholder or direct financial investor in company
3. From same consulting firm as AA
4. Friend with AA

Peer reviewer CAN be:
5. INDIRECT financial investor in the company
6. From consulting firm doing financial statements for the company (if not involved in that work)
7. From company’s audit firm (but this is not encouraged)

Question 21

How often should a peer reviewer be changed?

Answer 21

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

Question 22

Identify 2 reasons for periodic changes of peer reviewer.

Answer 22

1. Enhance objectivity
2. Increase educational value to AA

Question 23

Identify basic disclosure items that must appear in the peer review of the AA report (3)

Answer 23

1. Main results & findings
2. When the review was done
3. Name of peer reviewer