An ISAP Update

By Dave Pelletier, FCIA

OK, you ask, so what’s an ISAP?

The ISAPs are the International Standards of Actuarial Practice. These are being developed by the Actuarial Standards Committee (ASC) of the International Actuarial Association (IAA) to help achieve one of the IAA’s Strategic Objectives, which reads in part:

"Promote the development and issuance of actuarial standards in the jurisdictions of all Full Member Associations, and the global convergence of actuarial standards."

The ISAPs are primarily to serve as model standards. Actuarial standard-setters around the world are encouraged by the IAA to consider utilizing them where relevant and appropriate in various ways, which could include:

To date, two ISAPs have been approved by the IAA Council. ISAP 1 deals with general actuarial practice, while ISAP 2 deals with financial analysis of social security programs. (The Actuarial Standards Board is currently determining what steps to take if it wishes to achieve "substantial consistency" with these ISAPs.)

Five more ISAPs are underway.

ISAP 3 deals with actuarial work in relation to International Accounting Standard 19 (IAS 19), which in turn deals with accounting for employee benefits. It has completed the exposure draft (ED) stage, and will shortly be undergoing the "final review" stage as called for by the recently revised due process for ISAPs. That part of due process calls for the ASC to distribute to all concerned the proposed final ISAP, along with its report covering the comments received on the ED and how they were dealt with, with a 30-day comment period to provide the recipients the opportunity to identify any unintended consequence that may have crept in as the ED was modified, and to express any concern about how their comments were considered. The IAA is publishing this "final review" version in the next few days, with a comment deadline of November 30 (somewhat later than the minimum 30-day period would have called for). Approval of this ISAP by the IAA Council is targeted for its April meeting.

ISAP 4 is to deal with actuarial work in relation to the new international financial reporting standard (IFRS) covering insurance contracts. This ISAP is intended to help lead to a more consistent application of the insurance contracts’ IFRS worldwide (analogous to the intent of ISAP 3 with respect to IAS 19). It will be accompanied by a number of international actuarial notes (IANs), analogous to the CIA’s educational notes. Earlier this month, the IAA Council approved the statement of intent (SOI) regarding this ISAP and work is underway. However, the timing of this ISAP is clearly dependent on the International Accounting Standards Board’s progress with the IFRS itself. For example, the ED on this one is targeted for early in the second half of 2015, based on the expected publication date of the IFRS itself, but that has been a moving target for many years. The effective date of the IFRS itself is expected to be three years after its publication, which suggests 2019. The ASC’s task force working on this ISAP will have its hands full as it finalizes the ED, reacts to (probably extensive) comments on it, and then prepares the final ISAP. 2017 is the target date for Council approval.

ISAPs 5 and 6 are to deal with insurer enterprise risk management (ERM). Interestingly, ERM was one of the five topics on which the ASC was first asked to develop a standard when it was created in late 2010. However, the SOI prepared at that time was felt to be too broad in scope, and it was withdrawn. This year, however, that request was renewed, but suggesting a narrower focus. At its meeting this month, the IAA Council approved SOIs for two ISAPs in this area, one dealing with insurer enterprise risk models, and the second dealing with ERM work done in accordance with regulatory requirements consistent with principles and standards—specifically Insurance Core Principles 8 and 16—published by the International Association of Insurance Supervisors (IAIS). These are targeted for ultimate Council approval in 2016.

ISAP 7 is intended to deal with actuarial work in connection with the recently announced Basic Capital Requirement and possibly Insurance Capital Standard proposed by the IAIS, to be applied to the global systemically important insurers (roughly 10 worldwide, none Canadian) and the internationally active insurance groups (about 60 worldwide, with at least two Canadian companies included). The IAIS is eager to have an ISAP in place to support its requirements, and in June the ASC published a draft SOI for such an ISAP. Several comments were received by the ASC, and it expects to be getting the proposed final SOI to the IAA Council by November or December for an electronic vote.

The Professionalism Committee of the IAA, as part of an annual questionnaire to the IAA’s member associations around the world, carried out a survey at the beginning of 2014 on what those member associations (and associated standard-setters) had done so far with respect to the two ISAPs approved to date. By that point, 18 associations had taken some kind of action along the lines of those shown above, while many more have them under consideration. As anticipated, smaller associations without standards so far find it easier and quicker to make good use of the ISAPs, as the larger associations with an already well-established body of standards have to consider how to deal with these models, if at all. The Professionalism Committee will be carrying out this survey annually, and it will be interesting to see what progress is made, in particular as ISAPs 3 and 4, dealing with subject matter that affects the work of many actuaries worldwide, come on stream.

Dave Pelletier, FCIA, is Chair of the IAA’s Actuarial Standards Committee.

Canadian Institute of Actuaries/Institut canadien des actuaires