OSFI.MemoAA

Question 1

Is the AAR contained in an insurer’s Annual Report?

Answer 1

Yes, this is a statutory requirement

Question 2

What should be included in the AAR (4)

Answer 2

OPINION: on whether Policy Liabilities as determined by AA are fairly represented in insurer’s F/S

ALSO: detailed commentary, data & calculations

Question 3

Who is the audience for the AAR

Answer 3

Actuaries & non-actuaries regulators

Question 4

What is the Fall Letter and what should the actuary disclose in the AAR

Answer 4

FALL LETTER: a letter issued every Fall by the CIA from PCFRC, providing guidance to the AA regarding the AAR

AA must disclose deviations from guidance in fall letter

Question 5

Filing deadlines (AAR, FCT, peer review)

Answer 5

AAR: < (fiscal year-end + 60 days)

FCT: Earlier of (fiscal year-end + 1yr; BoD, Audit Committee & Chief Agent communication + 30 days)

Peer Review: < 30 days after release of the AA’s report on the work reviewed

Question 6

Briefly describe whether an insurance company’s provision for policy liabilities shown in the Annual Return may be different from the AA’s estimated policy liabilities

Answer 6

Yes they could be different but the company’s provision cannot be less than AA’s estimate. AA will also need to provide explanation on material differences

Question 7

What may OSFI do as part of the AAR review (2)

Answer 7

• Submit questions to the AA regarding valuations of policy liabilities
• If AA’s reponse is not satisfactory, OSFI may require AA to change assumptions and/or methods

Question 8

Outline of AAR (12 items) = (3,2,4,3)

Answer 8

(1,2,3): (intro, opinion, support of opinion)

(4,5): (Exec Summary, description of company)

(6,7,8,9): (data, ClmLiabs, PrLiabs, OthLiabs)

(10,11,12): (disclosures, unpaid claims & LR exhibits, appendices)

Question 9

Must the AA use prescribed wording in stating the opinion

Answer 9

Yes, otherwise the opinion will be considered “qualified”

An “unqualified” opinion is one where the AA basically says that everything is ok

Question 10

Opinion - items in an unqualified opinion (2)

Answer 10

• That the policy liabilities in the B/S make appropriate provision for all policy obligations
• That the A/R fairly represents the results of the valuation

Question 11

Opinion - liability values stated in the opinion (2)

Answer 11

• The figure carried by the company in the A/R
• The figure derived by the AA

Question 12

Executive summary - specific items (4)

Answer 12

AvE (actual) vs (expected from prior yr-end)

Changes: assumptions, methods

Other concerns

Deviations: from CIA standards

Question 13

Description of company - specific items (4)

Answer 13

• LOBs
• Ownership & management
• Reinsurance
• Materiality Standard

Question 14

AA’s main reponsibility regarding data in the AAR

Answer 14

That the data is reliable and sufficient for valuation purposes

Question 15

Causes for differences between actual vs expected (3)

Answer 15

CAUSES: ULAE allocation, FA, other reserves

Note: AA should explain these differences

Question 16

Categories of other disclosures required in AAR (7)

Answer 16

1. New AA appointment
2. Reporting: Board of Directors, Audit Committee
3. Continuing Professional Development Requirements
4. Disclosure of Compensation
5. Reporting relationship of the Appointed Actuary
6. Peer Review of the Work of the Appointed Actuary
7. Re-submitting the report

Question 17

Upon appointment of a new AA, identify three disclosures that must be made in the company’s upcoming AA report

Answer 17

• Date of appointment of new AA
• Date of resignation of previous AA
• Date on which OSFI was notified of appointment
• A list of the AA’s qualifications, keeping in mind, but not limited to, the CIA’s rules of professional conduct

Question 18

Must unpaid claims be presented in AY format?

Answer 18

No: AY is the usual format, BUT insurer should use the format best suited to their operations (Ex: U/W year or Report Year)