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 last report for the (e)Bulletin in January. We’ve had two meetings since then.

Final Standards Approved

In that last article, I mentioned several standards that were on the verge of approval at our meeting taking place the very day that the article was being published. I’m glad to report that all were in fact approved, although publication of two has been delayed.

One in particular is the updated part 6000 of the Standards of Practice, dealing with post-employment benefit plans other than pensions. It was approved, but some touch-ups not requiring further full ASB approval have taken an inordinately long time to be finalized. However, they should be published by the time this article is out, with an effective date of June 30.

Another revision to standards that was approved is in the area of insurance policyholder dividends. In this case, the revisions are indeed final, but we’re delaying publication until the CIA’s educational note supporting this new standard, including—among other matters—some of the material from the former "Recommendations" not incorporated in the new standard, is complete. The effective date of these changes will be later in 2013, following publication of both documents.

The revision to standards regarding the narrowing of the range of practice in certain areas of insurance company valuation (this does not include the economic reinvestment assumptions, which is the subject of a separate process discussed below) was indeed approved and published, with an effective date of March 15.

Finally, we approved standard wording for Appointed Actuary opinions with respect to internal models used in determining required capital for segregated fund guarantees, with an effective date of February 7.

Exposure Drafts

As reported previously, the ASB published a notice of intent in October regarding changes to part 3000 dealing with assumptions used for hypothetical wind-up and solvency valuations, in conjunction with proposed changes by the Committee on Pension Plan Financial Reporting to its educational note on this subject. Based on the recommendation of the designated group (DG) chaired by Michael Banks, the ASB published its exposure draft of the revised standard on April 3, with a comment deadline of June 3. We are hoping to approve the final standard by September with an effective date shortly thereafter.

Notices of Intent

Pensioner mortality is an area that has been receiving increasing attention. In keeping with the "principles-based" nature of our standards, the ASB does not specify a table per se for use in going concern valuations. We do specify the table for use in the pension commuted value standard, given that it determines benefits payable to individuals where actuarial judgement should not be a consideration. However, given that the solvency and hypothetical wind-up valuation calculations for pension plans make use of the commuted value basis for those assumed to take their commuted values, the mortality basis used in the commuted value standard does impact funding requirements.

The CIA has been researching the area of pensioner mortality for some time, and the ASB expects to make use of that research in specifying a revised mortality table for the pension commuted value standard in the coming months. However, unlike other instances in the standards where specific tables or factors are set by a promulgation process (with a two-step rather than the usual three-step due process), the name of the mortality table is currently "hard-coded" in the pension commuted value standard. We published a notice of intent in March to change that to the more normal promulgation process, and we expect to be publishing an exposure draft shortly (in fact, perhaps before this article is published). It should be noted that at this point, it’s only the process of specifying the table that is being changed; the change in the table itself will come only after receipt of the CIA research, deliberation by the ASB, and publication of our "Initial Communication" with our intent in the coming months. Conrad Ferguson is leading our DG in this area.

Other Activity on Standards

As reported previously, a DG chaired by Nancy Yake has been carrying out a rewrite of most of part 4000 of the Standards of Practice, dealing with actuarial evidence work. It has conducted an extensive consultation process, and we look forward to considering its proposed final standard at our June meeting.

Another major ASB initiative involves proposed changes to the economic reinvestment assumptions utilized in the Canadian asset liability method (CALM) for life insurer valuations. Ty Faulds is chairing this DG, which has been having weekly or twice-weekly meetings over the last few months, as well as sponsoring a webcast and carrying out an impact study with participating life insurers. 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 for the notice of intent was March 15, and the DG’s objective is to get an exposure draft to the ASB for its consideration at its June meeting, publication shortly thereafter, and production of a final standard by year-end. While it was originally intended that these changes be effective this year, the DG may well recommend to the ASB an effective date one year later (by year-end 2014), which will give insurers and their stakeholders additional time to deal with the complexity and implications of the revisions.

The ASB published a notice of intent with respect to a standard on modelling in September 2011. A previous DG along with the ASB had some difficulty in dealing with the range of comments received and determining the best way forward. A new group has been formed with Bob Howard as chair, and the ASB is expecting to receive a revised notice of intent for consideration at its June meeting.

An article in the February (e)Bulletin discussed the recent and upcoming activity of the International Actuarial Association (IAA) in the development of International Standards of Actuarial Practice. The IAA approved its first one (ISAP 1, on General Actuarial Practice) in November. As described in that article and consistent with the long-run goal of international convergence of actuarial standards, the ASB would like to be able to state that the Canadian profession’s standards are "substantially consistent" with ISAP 1. A DG chaired by Michael Banks has outlined the very few areas where ISAP 1 potentially goes beyond our standards, and is in the process of preparing a notice of intent for the ASB’s June meeting regarding proposed changes to our standards to deal with those areas. This group is also proposing changes to achieve greater consistency, where appropriate, in external user reporting requirements across practice areas.

The ASB will also be considering the insertion of a brief reminder in the practice-specific standards that the general standards apply equally to all work (in the absence of a notwithstanding clause). At times, external users referring to just the portion of our standards dealing with one practice area have not been aware of the importance and relevance of the general standards, and sometimes actuaries can use a reminder as well. Jay Jeffery is leading this minor change, which will be carried out under the portion of our due process dealing with minor changes.

Other Activity

At our March meeting, we approved a revised policy and process manual for our standards. We were assisted in this effort by the Head Office (Lynn Blackburn, Kelly-Anne Maddox, and editor Andrew Melvin) and the Standards of Practice Editing Committee (better known as SPEC), led by its chair Paul Della Penna. Some of the changes are intended to enhance the efficiency of the drafting process; others (including the introduction of bullets!) are meant to improve the readability of the standards.

We’ve also had some interesting discussions on the pension area, arising in part from the need to deal with improving pensioner mortality discussed above but also from issues raised regarding the role of the actuary and actuarial standards as compared to that played by the regulator. This will continue in the coming months.

ASB Membership

Two additional members for the ASB have been appointed by the Actuarial Standards Oversight Council. Edward Gibson, a life practitioner and until recently chair of the Committee on Life Insurance Financial Reporting, comes on board on July 1. Tony Williams, primarily a pension and investment consultant and until recently chair of the Committee on Investment Practice, will be joining effective January 1. We’re very pleased to have Edward and Tony as part of the ASB.

Three of us are rolling off the ASB effective June 30. Jacques Tremblay has served for four years and Steve Haist three. Both have chaired various DGs during their time on the ASB and made useful contributions, which have been appreciated. My own three-year period as chair comes to an end as well on June 30. While at times a bit frustrating, it’s been fun as well, and I’m grateful to the other members of the ASB, to the members and particularly the chairs of the DGs, to the members of ASOC, to the CIA leadership, to the Head Office, and to those who have submitted comments on our notices of intent and exposure drafts, all helping to make for a better set of standards and a better process for getting there. I know that incoming chair Jim Christie will be able to count on the same support going forward, and enjoy it as much as I have.

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