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Interesting Developments Ahead

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By Phil Rivard, FCIA

This article marks my first as Chair of the Practice Council, a role I assumed at the Annual Meeting in June. I would like to offer my thanks to Ty Faulds, who ably served as council chair for the past two years, and now continues his volunteering activities as a member of the Actuarial Standards Board. There are a number of interesting developments in many of our practice areas, and I look forward to working with the council to provide support to our members over the coming months.

As you are aware, actuarial standards have been the responsibility of the Actuarial Standards Board for a number of years now. However, the Practice Council still has an important role to play in the development of educational notes and research papers, which expand upon the basic guidance contained in the Standards of Practice. Over the past few months, we have issued a number of these documents, and have several others under active consideration. I would like to use this opportunity to recap some of the work the council has recently completed.

Not surprisingly, a fair amount of our attention has been focused on retirement issues. Last week, we released an educational note designed to provide guidance to pension plan sponsors on the selection of a discount rate for accounting purposes (under Canadian, US, or international standards). Concurrent with the release of this note, we were pleased to announce a partnership with Natcan Investment Management to provide an accounting discount rate curve, which we believe will provide a useful benchmark for the valuation of pension and benefit plan liabilities. In addition, we continued to regularly update our educational note supplement that provides guidance for the annuity proxy assumptions used in a hypothetical wind-up or solvency valuation.

In order to improve our guidance on multi-employer and target benefit pension plans (MEPPs and TBPPs), an educational note was issued focusing on the financial risks associated with these plans. Such plans are in a unique position, as the financial risks can have a direct effect on the benefits received by plan members.

Turning to the individual insurance side, Bill C-57 (2005) has been on the radar screen of life actuaries for a number of years now, as it will require the production of fairness opinions for blocks of business such as participating policies and adjustable policies. The accompanying regulations were recently released, leading to the production of a draft educational note which will provide guidance for members in the development of these opinions. At the time of writing, this is still very much a work in progress as we await a draft guideline from OSFI and concurrently collect comments from members on the draft CIA document.

The increased popularity of critical illness (CI) insurance in the past decade created a challenge for actuaries involved in capital management, as the MCCSR guidelines were not entirely clear on how CI should be handled, resulting in a wide range of practice. In response to this, the Committee on Risk Management and Capital Requirements prepared a research paper which was sent to OSFI in June of this year. Among the main recommendations were to use a similar approach to individual life insurance when it came to volatility, and to not incorporate a catastrophe component.

In addition, an educational note addressing investment return assumptions for non-fixed income investments for life insurers was released in March. This note, prepared by the Committee on Life Insurance Financial Reporting, complements guidance produced in prior years. An educational note is currently in progress dealing with the valuation of universal life insurance contracts.

For our members practicing in the public personal injury compensation plan (PPICP) area, the Committee on Workers’ Compensation produced a research paper on the funding of these plans. The paper contains a summary of the various approaches to funding currently used by these plans, and also offers some guiding principles to be followed.

Other research papers under consideration include guidance on the calibration of equity returns for segregated fund liabilities, and considerations on the quantification of economic risk for economic capital purposes.

I encourage all members to review any guidance applicable to their practice area, which can be found on the CIA website. Also, please watch the CIA Announcements for information on any newly released educational notes or research papers. Finally, if you are interested in assisting the Practice Council in the development of guidance material, or have a good idea to share, please feel free to contact me at The PC welcomes the input from all members as we continue to work to fulfil our mandate.

Phil Rivard, FCIA, is Chair of the Practice Council.  

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