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Stress Testing of Relationships

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By Ty Faulds, FCIA

We are aware how major stress events can impact relationships with our partners. It has now been roughly two and a half years since the financial crisis and we are still experiencing aftershocks. Has this major stress caused any changes in our relationships, and what should we be doing about it?

While these relationships are far-reaching, I would like to concentrate on those of the CIA Practice Council and its practice committees with regulators of our practice areas.
There have been signs of changes, such as the updated supervisory framework announcement from OSFI indicating it is changing focus from "relying on the actuary" to "using the work of the actuary".

The CIA strives to maintain a good working relationship with regulators overseeing financial services that require actuarial work. The Practice Council and its committees have been engaged on a number of fronts in this regard over the past year. One of the most important initiatives is to ensure we are communicating enough, and we have increased the frequency of these interactions. A few examples:

  • We have formalized the CIA representation on the MCCSR Advisory Committee (thanks to Alexis Gerbeau for taking on this role).
  • We have set up monthly priority project review meetings with the Actuarial Standards Board, Practice Council, Committee on Life Insurance Financial Reporting, Committee on Risk Management and Capital Requirements (CRMCR), and OSFI.
  • Regulator input is also being actively sought in the development of pension standards and guidance material.
Have these efforts paid off? It is still early but I am optimistic our relationships are emerging from this stress relatively intact and possibly, in some instances, even stronger:
  • In response to our discussions with the Canadian Association of Pension Supervisory Authorities (CAPSA), the CIA Task Force on the Determination of Provisions for Adverse Deviations in Going Concern Valuations will develop a research paper which should help pension regulators address the level of provisions they would like reflected in going concern valuations.
  • We responded to OSFI’s discussion paper on proposed changes to the minimum capital test/branch adequacy of assets test (MCT/BAAT), issuing a submission late in 2010.
  • OSFI has released a draft guideline addressing stress testing for plans with defined benefit provisions. The Practice Council is reviewing the guideline’s content and was planning to provide a submission to OSFI by the end of April.
  • The leaders of the CRMCR and I met with Assuris, AMF and OSFI on their discussion paper on the principles of new MCCSR insurance components. We are considering where we could assist OSFI with this important initiative.
  • Bill C-57 (passed in 2005 with accompanying regulations approved last November) creates additional responsibilities for actuaries related to governance of participating and adjustable insurance products. The ASB has started work on any required changes to standards, but additional guidance will need to be provided by the Practice Council. Nick Bauer is leading a group to address this item and review any related guidelines produced by OSFI. 
  • The CRMCR has completed a research paper recommending a capital requirement framework for critical illness business. This was in response to a request from OSFI, which was concerned about the clarity of the existing guidelines, and the consistency of their application. It is expected that OSFI will include these changes in its new solvency framework.
The CIA and ASB continue open communications with CAPSA, with a formal meeting each spring and ad hoc interactions on an as-needed basis.

Turning to legislation, the CIA issued a submission in November related to the federal review of the Insurance Companies Act. It focused on three areas: protection for actuaries from civil liability, the treatment of foreign business of Canadian companies, and International Financial Reporting Standards. Submissions can be found on the CIA website.

In March, the Government of Ontario issued draft regulations related to Bill 133, which was passed in 2009. They affect the division of pension benefits on marriage breakdown, of interest to actuaries in the actuarial evidence area. A submission has been prepared to reflect the profession’s comments.

Also in March, the Financial Services Commission of Ontario released a consultation document concerning a risk-based regulation framework for pensions. The Member Services Council responded to this document, and issued a submission earlier in April.

As Chair of the Practice Council, I thank council members and other volunteers who have contributed to the above initiatives. As a result, the profession is in a good position to interact effectively with regulators on issues of interest to members.

Ty Faulds, FCIA, is Chair of the Practice Council.


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