The Actuarial Standards Board - An Update

By Dave Pelletier, FCIA

This article is an update of activity of the Actuarial Standards Board (ASB) since my previous report for the (e)Bulletin in June of last year. The timing, however, is a bit awkward in that the ASB is having its next meeting right at the end of this month, probably the date this edition of the (e)Bulletin is published. So in some cases I’ll be speculating on the outcome of that meeting.

Final Standards Approved

In the pension area, we issued a notice of intent in June to deal with certain issues arising from the pension standards revisions three years ago that practitioners had brought to the attention of the Committee on Pension Plan Financial Reporting (PPFRC) and the ASB. Former ASB member Stephen Butterfield chaired this designated group, which moved very efficiently through the stages of the exposure draft, thorough consideration of comments received, and preparation of the final standard, enabling the ASB to approve the final standard in December, with an effective date of December 30, 2012.

Also in the pension area, in August we approved revisions to the standards in order to provide exemptions for certain external user reporting requirements for pension valuations where the hypothetical wind-up valuation or solvency valuation is based on an extrapolation of results disclosed in a previous external user report. Michael Banks’ designated group moved these revisions along very effectively as well. These revisions were effective as of the date of publication in August, and early implementation was permitted such that the revisions could be applied to any report which had not been completed at the date of publication, regardless of the report’s effective date.

In the insurance area, in July we promulgated a revised set of calibration criteria for models used in the valuation of insurers’ segregated fund guarantees, to be effective October 15, 2012. We also approved, using the "minor revisions" provisions of our due process, minor changes to the wording of the Appointed Actuary opinions to better reflect International Financial Reporting Standards (IFRS) terminology.

Final Standards on the Verge of Approval

Part 6000 of the Standards of Practice deals with post-employment benefit plans, other than pensions. The designated group chaired by Ellen Whelan has completed its work on the final standard, a substantial rewrite of the existing standard, including its analysis of the numerous comments received on the exposure draft published in March. At its December meeting, the ASB reviewed the DG’s preliminary recommendations; the recommended final standard is on the ASB’s agenda for approval this month.

Another revision to standards near approval is in the area of insurance policyholder dividends. When the Consolidated Standards of Practice (CSOP) were developed, all former standards or "recommendations" of the CIA were repealed immediately or very shortly thereafter, as their content had been appropriately incorporated into CSOP, with the exception of the Dividend Recommendations. It was the intent either to have them CSOPped as well or to convert them into educational notes or both, but this never happened. As a result they are still technically in force, but parts are no longer appropriate. An exposure draft of the changes was published in August, and Steve Haist’s designated group is bringing its proposed final standard to the ASB for approval this month. The effective date of these changes will be later in 2013, following publication by the CIA of an educational note supporting this new standard, including among other matters some of the material from the former "Recommendations" not incorporated in the new standard.

A third revision to standards up for approval this month by the ASB deals with the narrowing of the range of practice in certain areas of insurance company valuation. An exposure draft was published in October. No comments were received by the designated group chaired by Ty Faulds, and we expect to approve the final standard substantially unchanged from that exposure draft.

A fourth change in standards expected to be approved this month is the provision of standard wording for Appointed Actuary opinions with respect to internal models used in determining required capital for segregated fund guarantees. Steve Haist’s designated group is submitting the proposed wording, considering the comments received on the exposure draft published in November, to the ASB’s meeting this month for approval. This is to be effective immediately on publication.

An important caveat: surprises do happen, and while the four items described above could well be approved by the ASB at its January 31 meeting, nothing can be guaranteed! Watch for developments on each of these through the CIA’s regular announcements.

Exposure Drafts

Part 4000 of the Standards of Practice covers actuarial evidence work. An exposure draft of a proposed substantial rewrite of this part (with the exception of the portion dealing with marriage breakdown) was published in September, with a comment deadline of November 30, 2012. The designated group chaired by Nancy Yake is currently considering the comments received. The targeted effective date for these revisions is December 31, 2013.

Notices of Intent

Earlier in 2012, considering the comments received on a notice of intent regarding assumptions used for hypothetical windup and solvency valuations, the ASB had agreed to not proceed with a revised standard, but stated that as the PPFRC considered possible additional guidance in this area, there might be a further notice of intent with more limited changes if deemed necessary. Indeed, the PPFRC is recommending changes to its educational note, and the ASB, on the recommendation of the reconstituted designated group chaired by Michael Banks, published a notice of intent on October 15. Given the date of publication of the PPFRC’s educational note, the comment deadline on the ASB’s notice of intent was extended to January 29.

Given that the effective date of IFRS 4 – Phase II, dealing with the financial reporting for insurance contracts, is now unlikely to be before 2018, the ASB agreed to move ahead in the meantime with some changes to the Canadian Asset Liability Method (CALM) methodology. On December 21, we published a notice of intent to revise the portion of the standards dealing with economic reinvestment assumptions for life and health insurance valuation. The aspects covered include the use of non-fixed-income assets in liability valuation, the determination of the ultimate interest rate (URR), and achieving greater consistency in the results obtained through applying stochastic versus deterministic approaches. The comment deadline is March 15, and a year-end 2013 effective date is targeted.

Other Activity on Standards

The ASB published a notice of intent with respect to a standard on modelling in September 2011. The designated group with the ASB had some difficulty in dealing with the range of comments received and determining the best way forward, and at its last meeting the ASB appointed a working group to recommend the next steps. Those recommendations will be discussed at the ASB’s meeting this month.

Some proposed changes potentially touching all practice areas would result in greater consistency in external user reporting requirements across practice areas and additional disclosure of certain items. As outlined in the notice of intent published in June, the general standards dealing with this area would be expanded, while each of the practice-specific standards would be amended to remove duplication with the revised general standards, while retaining any necessary practice-specific differentiations. The designated group chaired by Michael Banks is currently consulting with the various practice committees prior to bringing a proposed exposure draft to the ASB, targeted for its March meeting.

Other Activity

Given that the International Actuarial Association has approved its first International Standard of Actuarial Practice, the ASB established a working group, to be chaired by Jim Christie, to examine the various options available to the ASB for dealing with this and future ISAPs. An article in the February (e)Bulletin will provide more background on the role of such ISAPs and the convergence of standards internationally.

Whose Standards?

An interesting question was raised lately by an ASB member, who’d noticed a reference to "the Standards of Practice of the Actuarial Standards Board". It was agreed that, while it is the ASB that sets the standards, in accordance with the Bylaws of the CIA they are for its members, and the more appropriate shorthand reference to the standards should read "the Standards of Practice of the Canadian Institute of Actuaries".

ASB Membership

Nancy Yake attended her last meeting as an ASB member in December. Nancy has been an excellent and prolific contributor to the work of the ASB over many years, chairing and participating in several designated groups across many practice areas (most notably lately chairing the designated group revising the actuarial evidence standards) as well as the revision of our due process.

We were very pleased to welcome two new members onto the ASB since the last article. Jim Christie, a P&C practitioner and immediate Past President of the CIA, came on as Vice-chair, and will be taking the chair position on July 1 this year. Also joining the ASB was Laura Newman, of the pension practice area. We look forward to the contributions of both of them over the next few years.

Dave Pelletier, FCIA, is Chair of the Actuarial Standards Board.