Actuarial Standards Board Update

By Jim Christie, FCIA

As this is my first (e)Bulletin article since becoming Chair of the Actuarial Standards Board (ASB) in July, I will first summarize the progress of the ASB on various projects during the past year and then comment on its current efforts on standards.

Recent Activities

The revised standards on post-employment benefit plans became effective on May 31 thanks to the efforts of a designated group (DG) chaired by Ellen Whelan.

An updated version of the actuarial evidence standards was approved by the ASB in June, covering all actuarial evidence standards other than those dealing with marriage breakdown. This standard will be effective on December 31. It is important for members to appreciate that these standards apply to all actuaries when they are acting as expert witnesses, and not just to actuarial evidence practice. Special thanks to the DG chaired by Nancy Yake.

In September the ASB approved revisions to the pension standards for hypothetical wind-up and solvency valuations. Changes were coordinated with the release of a corresponding educational note by the CIA and were effective immediately. The DG was chaired by Michael Banks.

The ASB felt it was desirable to make clear in the practice-specific standards that the general standards apply equally to work in any given practice. While this was not a practical change to previous standards, the additional wording was added effective June 30, 2013, to ensure that non-actuaries who referred only to specific sections of our standards would be aware of the overriding requirement of the general standards. The DG was chaired by Jay Jeffrey.

The pension commuted value standard has been revised to allow the ASB to promulgate the applicable mortality table (rather than the table being hard-coded in the standard), as is already the case for the marriage breakdown commuted value standard. Initially the ASB promulgated the existing mortality rates (the UP94 table) and mortality projection (Scale AA) to be effective February 1, 2014.

A DG chaired by Steve Haist has recommended revisions to the dividend recommendations standard for life insurance to bring the current wording in line with Standards of Practice language. These changes should have no impact on current practice. The ASB is expected to approve this in December 2013, to become effective in 2014, after the CIA has completed the accompanying educational note.

Future Efforts

Larger-than-anticipated increases in longevity are raising concerns about the mortality tables and mortality improvement scale promulgated for use in the pension commuted value and marriage breakdown capitalized value standards, as well as the mortality improvement assumptions used for pension plan valuations generally. The CIA has recently published a draft report including new mortality tables and a mortality improvement scale based on Canadian experience. In early 2014, a DG chaired by Conrad Ferguson will recommend to the ASB what mortality basis is appropriate for both the pension commuted value and marriage breakdown capitalized value standards, and develop an initial communication to CIA members and other interested parties for the proposed assumptions.

The ASB will also consider whether changes are necessary to the mortality improvement rates promulgated for life insurance.

A DG chaired by Ty Faulds has put tremendous effort into developing changes to the economic reinvestment assumptions for life insurance related to 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 vs. deterministic approaches. Two quantitative impact studies (QIS) have been conducted to estimate the aggregate impact on the life insurance industry of various potential changes. The DG expects to present an exposure draft (ED) for the ASB’s consideration in December. Currently we anticipate any changes to standards would be finalized in April 2014 to be effective October 15, 2014.

The International Actuarial Association (IAA) approved ISAP 1 (General Actuarial Practice) in November 2012. A notice of intent (NOI) was published in August 2013 proposing changes to the general standards to support convergence with ISAP 1. In addition, an earlier NOI proposed changes to address some inconsistencies across practice areas in the reporting and disclosure requirements regarding assumptions, margins, methods, and related rationales. The DG chaired by Michael Banks that is dealing with these matters plans to develop an ED for the ASB’s consideration in early 2014.

The IAA approved ISAP 2 (Social Security) in October. There is currently no section of our standards addressing social security, so the ASB will be appointing a working group of actuaries working in this area to review ISAP 2 and recommend a course of action for the ASB to follow.

The IAA issued an ED on ISAP 3 (Employee Benefits under IAS 19) in November. The ASB will be appointing a working group to develop comments on the ISAP 3 ED.

The International Accounting Standards Board (IASB) released an ED on IFRS 4 (Insurance Contracts) in June. In anticipation of a final version of IFRS 4 becoming effective in 2018, the IAA has begun working on a related ISAP X. The ASB has appointed a DG chaired by Simon Curtis to monitor and comment upon NOIs and EDs of this ISAP. Ultimately the DG will recommend to the ASB revisions to our standards to address ISAP X.

A reconstituted DG, chaired by Bob Howard, is meeting regularly to look at standards for modelling. The DG intends to present a revised NOI and a "discussion draft" of the proposed changes for discussion at the January 2014 ASB meeting. The discussion draft would demonstrate better to the ASB (and then to the CIA membership and others) just what the new standards would cover. Release of a revised NOI including the discussion draft will likely be an intermediate step before proceeding to a formal ED.

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

Canadian Institute of Actuaries/Institut canadien des actuaires