CIA (e)Bulletin/(e)Bulletin de l'ICA
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April 2016

Actuarial Standards Board Update

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By Ty Faulds, FCIA

ASB Membership

The Actuarial Standards Board (ASB) is very pleased to welcome Geoffrey Melbourne and Josephine Marks to our board and to thank Laura Newman for all her support over the last several years. The current membership of the ASB includes Stephen Cheng, Ty Faulds (Chair), Conrad Ferguson, Jacqueline Friedland, Alexis Gerbeau, Edward Gibson, Josephine Marks, Geoffrey Melbourne, Dave Oakden, Catherine Robertson, and Tony Williams; and on an ex officio basis, Pierre Dionne, Chair of the Practice Council and Michel Simard, Executive Director of the CIA. Please feel free to approach any of us with any suggestions or questions you might have.

Mortality Improvements

The Task Force on Mortality Improvement chaired by Alexis Gerbeau is waiting for the 2013–2014 Canadian population experience to be published before completing their cross-sector research report. Information from other sources indicates the Canadian population may be seeing a similar slowing down of mortality improvement trends to those observed in the UK and the U.S. Statistics Canada expects to release 2013 deaths in the fall of 2016 followed by 2014 deaths in the spring of 2017.

The ASB has formed a designated group (DG), chaired by Dominic Hains, to consider these developments for life insurance mortality improvement, since in addition to potentially promulgating new scales, we expect changes will need to be made to the structure of the margins for adverse deviations given the expected change in structure of improvement scales. The ASB will consider any implications for the other practice areas as the experience is reviewed.

Continued Low Interest Rates

As mentioned in my last update, a continuation of the low interest rate environment has prompted the ASB to monitor these developments closely and consider increasing the frequency of updates to the related promulgations for the life insurance practice area. We are working through a process to review research on these annually with the Committee on Life Insurance Financial Reporting. This involves reviewing and updating the calibration criteria for stochastic risk-free interest rates models and then determining the corresponding changes to the ultimate reinvestment rates (URRs). Given the amount of work required to establish this routine process, we do not expect it to be in time for a revision to the promulgated criteria and rates for this year end. At our last ASB meeting, we discussed whether we should consider changes to these criteria absent this supporting research.

While the ASB will continue this discussion at our next meeting, I have the following observations. Below, I’ve updated the tables on pages 11/12 of the 2013 research paper Calibration of Stochastic Risk-Free Interest Rate Models for Use in CALM Valuation for experience up to the end of 2015. Given the similarity in the two parameter sets on page 12, I’ve included only set two below.

Calibration Criteria


CIR Set 2

BS Set 2













































My observations are

  • For these relatively common forms of stochastic models, the 10th percentile seems to be the constraining criteria for the left tail. At this percentile, the historical experience has only declined 6 basis points (bps);
  • These models calibrated to the current criteria produce results below or similar to the updated historical experience for the 5th and 2.5th percentiles; and
  • The URRs for deterministic scenarios were designed to be reasonably consistent with stochastic models calibrated to these criteria.

Pension Initiatives

Very extensive feedback has been received on the Notice of Intent – Amendments to Section 3500 of the Practice-Specific Standards for Pension Plans – Pension Commuted Values. The DG, chaired by Gavin Benjamin, expects that the review of this feedback and development of the exposure draft will take them through the summer. As a reminder, this initiative is focused on a review of the assumptions underlying pension commuted values other than mortality and includes thoughts on variations for shared-risk plans. A second DG focused on assumptions underlying marriage breakdown capitalized costs is expected to start work after enough progress has been made on the pension side.

The ASB has discussed a draft of the notice of intent (NOI) to address the calibration criteria of pension asset returns proposed by the DG chaired by Tony Williams at our last two meetings. Existing actuarial standards do not address the volatility associated with stochastic modelling of investment returns for pension funding. The DG will not be mandating a particular stochastic model for investment returns, but rather (as with life insurance) will prescribe calibration criteria for the outputs of any stochastic model used. One of the ASB’s goals is to drive consistency in standards unless there is a good reason for the inconsistency; however, on an initial review, the DG has expressed some discomfort with simply adopting the calibration criteria in place for life insurers. We expect to approve this NOI by our next meeting. Given this consistency goal, actuaries practicing in life insurance financial reporting may want to follow this initiative closely as well.

The DG chaired by Geoffrey Melbourne is making good progress on developing a NOI to review pension valuation disclosures as they relate to shared-risk plans, target benefit plans, and stress testing. A draft is currently being discussed with the relevant practice committees and the DG hopes to bring a proposal to the next ASB meeting.

The Use of Models

The ASB also discussed the feedback received on the Exposure Draft for Standards of Practice ─ Use of Models which covers most of the material addressed in the International Actuarial Association’s (IAA’s) statement of intent (SOI) on the governance of models. The DG chaired by Bob Howard has recommended a number of changes that it feels will largely address the concerns raised. The ASB supported these recommendations which the DG is incorporating into an exposure draft (ED) for re-exposure. This redraft is currently being discussed with the relevant practice committees and the DG hopes to bring a proposal to the next ASB meeting.

International Developments

The Actuarial Standards Committee (ASC) has been very active in developing model standards of practice and you can view the current status of these at the link provided. The ASB remains committed to converging with these model standards and has made significant progress on a number of related projects.

The ASB discussed the feedback received on the Exposure Draft for Standards of Practice – Establishment of Social Security Practice-Specific Standards which aims to incorporate the principles of ISAP 2 into the Canadian Standards of Practice. The DG chaired by Ed Gibson has recommended a number of changes that the ASB is considering and may recommend a re-exposure after its June meeting. Our guidelines on re-exposure can be found here

ISAP 3 (Actuarial Work under IAS 19 – Employee Benefits) was adopted by the IAA in April 2015. The ASB has formed a DG to consider convergence with this model standard and at our April meeting appointed a chair (Catherine Robertson) to lead this DG.

The ASB is following the IAA’s plans associated with enterprise risk management model standards (ISAP 5 and ISAP 6) with interest and hopes to use these as a springboard to implement similar standards in Canada. The ASB provided comments to the IAA on the ED for ISAP 5 – Insurer Enterprise Risk Models in March 2016.

Business-as-Usual Projects

As part of our strategy, the ASB is committed to routinely reviewing all standards on a rotating basis. Under this initiative, the ASB has reviewed an exposure draft under development by the DG chaired by Josephine Marks. This draft is making its way through the due process steps and should be ready to be recommended shortly. The DG reviewing revisions to the General Standards (chaired by Paul Della Penna) continues to make progress on its exposure draft.

Ty Faulds, FCIA, is Chair of the Actuarial Standards Board.


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