CIA (e)Bulletin/(e)Bulletin de l'ICA
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September 2014
 
 

Actuarial Standards Board Update

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By Jim Christie, FCIA

In this (e)Bulletin article, I would like to comment on the ASB’s current efforts on Canadian actuarial standards.

A designated group (DG) chaired by Ty Faulds put tremendous effort into developing changes to the economic reinvestment assumptions for life insurance related to the use of fixed and non-fixed income assets in liability valuation, the determination of the ultimate reinvestment rate, and achieving greater consistency in the results obtained through applying stochastic vs. deterministic approaches. A final version was approved and published by the ASB in May and will become effective October 15, 2014. Early implementation is not allowed.

The DG chaired by Bob Howard presented a revised notice of intent (NOI) on Use of Models and a "discussion draft" of the proposed standard to the April 8, 2014, ASB meeting. The ASB approved issuing an NOI at that time. Comments received on the NOI were reviewed by the DG in preparing a draft exposure draft (ED). Comments on the draft ED have been requested from all CIA practice committees whose practice areas may be affected by the ED. The DG will present its proposed ED for discussion at the December ASB meeting, reflecting its response to the comments received on the NOI and any comments received on the draft ED from the practice committees. We expect to approve issuing the ED shortly after the December ASB meeting.

The International Actuarial Association (IAA) is developing International Standards of Actuarial Practice (ISAPs). ISAPs are intended to be model minimum standards and are not applicable to actuaries in any country unless adopted by the national actuarial standard-setting body. The member organizations of the IAA, including the CIA, have approved a policy of convergence whereby each national actuarial body commits to moving its own actuarial standards toward those issued by the IAA. ISAP 1 (General Actuarial Practice) and ISAP 2 (Social Security) were approved in final form by the IAA in 2012 and 2013 respectively.

The ASB reviewed ISAP 1 against our existing General Standards (Part 1000). As expected, in most circumstances Part 1000 provided similar or stronger requirements than ISAP 1. Nevertheless, a few areas where ISAP 1 went further than part 1000 were identified. The ASB approved issuing an ED at the April 2014 ASB meeting. A DG chaired by Michael Banks dealing with these matters expects to present its response to comments on the ED and various committee comments on the draft final standard for discussion at the October ASB meeting. We expect to approve issuing the final version shortly after that meeting.

The ASB has begun a review of ISAP 2 (Social Security). There is currently no part of our standards addressing social security, so the ASB will be appointing a DG chaired by Ed Gibson and composed mainly of actuaries working in this area to recommend how to incorporate the requirements of ISAP 2 into our standards. We expect to issue an NOI in Q4.

The International Accounting Standards Board released an ED on IFRS 4 (Insurance Contracts) in 2013. A final version is expected in 2015 to be effective in 2018. In anticipation of the final version of IFRS 4, the IAA has begun working on a related ISAP 4. The ASB has appointed a DG chaired by Simon Curtis to proactively monitor and comment upon statements of intent (SOIs) and EDs of ISAP 4. Ultimately the DG will recommend to the ASB what revisions to our standards are necessary to address ISAP 4. The ASB is on hold at this point, pending development of an international actuarial standard (ISAP 4) by the IAA. Our preference, if possible, is to implement a standard that is consistent with global actuarial practice. The IAA plans to issue an SOI (similar to our NOI) shortly with the final ISAP scheduled for 2017. Due to timing constraints imposed by our due process, we will mostly likely need to begin development of our standards based on the IAA ISAP 4 ED.

Increasing longevity is raising concern about the tables promulgated for use in the pension commuted values and marriage breakdown capitalized costs standards, as well as the mortality improvement assumptions used for commuted values generally. The CIA published new Canadian pensioners mortality tables in February 2014. A DG chaired by Conrad Ferguson will determine how to apply this research to promulgated appropriate tables and mortality improvement scales in our standards. A draft initial communication on the promulgation was discussed at the August ASB meeting. This initial communication has been shared with CIA’s pension and actuarial evidence committees. We expect to approve and release an initial communication shortly after the October ASB meeting.

With the planned review of promulgated mortality tables and mortality improvement scales, the ASB discussed the need to review the other assumptions underlying pension commuted values and marriage breakdown capitalized costs. The ASB developed a two-phase approach designed to minimize controversy during this review. The approach was agreed to by the CIA’s actuarial evidence and pension plan financial reporting committees. At the August ASB meeting a DG chaired by Gavin Benjamin presented the following aggressive timeline for its review for (phase 1) pension commuted values:

  • Issue NOI—January 2015;
  • Issue ED—May 2015;
  • Issue re-exposure of standard changes—September 2015;
  • Issue final standard—January 2016; and
  • Effective date of final standard—second quarter of 2016.

It does not expect to address (phase 2) marriage breakdown capitalized costs until phase 1 is nearing completion.

The ASB noted that existing actuarial standards do not address the volatility associated with stochastic modelling of investment returns for all pension funding (not just shared risk plans). Based on what has been done for life insurance standards it was not felt that mandating a particular stochastic model was the appropriate approach, but rather (as with life insurance) it would be better to prescribe calibration criteria for the outputs of any stochastic model used. Based on reports from the working group on calibration standards, the ASB at its August meeting appointed a DG, chaired by Tony Williams, to address the calibration criteria of pension asset returns.

The ASB appointed a DG, chaired by Paul Della Penna, to conduct a quinquennial review of the General section (part 1000) of our standards. Several minor items have been identified over the last few years and notes on all these have been given to the DG. The current plan is to have an NOI considered by the ASB at either its October or December meeting.

The ASB plans to appoint a DG to undertake a quinquennial review of the Insurance section (part 2000) of our standards. Several minor items have been identified over the last few years and notes on all these will be given to the DG once it is formed. The DG chair and members will be appointed at October’s ASB meeting and the DG will be asked to provide a tentative timetable for its review to the ASB in December.

Jim Christie, FCIA, is Chair of the Actuarial Standards Board.

 

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