Actuarial Standards Board Update

By Jim Christie, FCIA

New ASB Priorities

The Actuarial Standards Board (ASB) conducted an environmental scan to help identify any areas where either new standards are needed or existing standards need updating. We determined that the following topics should be set as our next priority areas:

  1. Updating pension standards to specifically address target benefit plans;
  2. Creation of standards respecting investment returns;
  3. Evolving practice in the Own Risk Solvency Assessment/enterprise risk management field; and
  4. Consistency of standards between practice areas.

Over our next few meetings, we will be assessing how to best proceed in these areas.

Integration of ISAPs into Canadian Standards

The International Actuarial Association (IAA) continues to ramp up its development of International Actuarial Standards of Practice (ISAPs). Both the CIA and ASB subscribe to the IAA’s goal of having national actuarial standards converge, with the ISAPs serving as guideposts on that journey.

The approach taken by the ASB to address ISAP 1 (General Actuarial Practice) was to review it and determine what changes, if any, had to be made to our existing General Standards in the consolidated Standards of Practice (CSOP) to bring them in line with ISAP 1. We refer to this approach as "internationalizing CSOP".

For ISAP 2 (Social Security), there was no equivalent Canadian standard so our approach is to take ISAP 2 and determine what changes are necessary to fit it into our existing CSOP. In this case we plan on adding a new part 7000 to cover social security. The process should be relatively straightforward as with a new part we only have to ensure defined terms are consistent with the CSOP, determine the scope of practice to which part 7000 should apply, and ensure its advice does not conflict with the rest of the CSOP. We refer to this approach as "Canadianizing ISAPs".

The designated group (DG) looking at ISAP 4 (International Financial Reporting Standards 4, or IFRS 4 – phase II) has asked the ASB to consider adopting a structure for the standards that would be closer to that of the ISAPs (i.e., a different approach to integrating the ISAPs into the Canadian standards). This would allow quicker adoption of ISAPs in Canada and make our standards consistent with ISAPs rather than just converging toward them. For ISAP 4, the ASB felt the DG’s proposed approach of starting with the final version of ISAP 4 and making only minimal changes to narrow the range of practice to address any specific Canadian issues was an acceptable strategy.

Updates of current activities

A DG chaired by Bob Howard continues to work on an exposure draft (ED) on the use of models. The DG would prefer to have a draft educational note released with the ED to minimize any misunderstanding and confusion amongst practitioners about the standard. The Practice Council has been asked to develop an educational note on what is or is not a model. The ASB expects to approve issuing the ED shortly after the April ASB meeting with or without the draft educational note.

The ASB approved release of the final standard revising the general and practice-specific standards to enhance Consistency of Reporting and Conformance with International Standard of Actuarial Practice 1, effective March 31, 2015. The earlier proposed addition of clauses regarding consideration of peer review were not included in final standard since the ISAP 1 wording does not give the actuarial professional any practical advice on which work should or not be peer reviewed. Consideration may be given to a standalone project to develop the peer review aspect of ISAP1 at a later date.

A DG chaired by Ed Gibson continues to review ISAP 2 (Social Security). There is currently no part of our standards addressing social security. The deadline for comments on the NOI to incorporate the principles of ISAP2 – Financial Analysis of Social Security Programs into the Canadian standards was November 30, 2014. A summary of comments received was due to be presented at this month’s ASB meeting, and the DG will target production of an ED for the April ASB meeting.

The International Accounting Standards Board released an ED on IFRS 4 (Insurance Contracts) in 2013. A final version is not expected until end of 2015, to be effective in 2019. In anticipation of the final version of IFRS 4, the IAA has begun working on a related ISAP 4. The IAA plans to issue the final version of ISAP 4 in 2017. A DG chaired by Simon Curtis is proactively monitoring the IAA’s progress on this ISAP. Ultimately this DG will recommend to the ASB what revisions to our standards are necessary to address ISAP 4. The ASB is on hold at this point, pending development of an international actuarial standard (ISAP 4) by the IAA. Our preference is to implement a standard that is consistent with global actuarial practice.

The ASB approved release of an initial communication of a Promulgation of the Mortality Table referenced in the standards for Pension Plans (subsection 3530) with a comment deadline of February 15, 2015. The anticipated date for the release of the final communication is May 1, 2015, and the proposed effective date of the promulgated table is August1, 2015. The DG, chaired by Conrad Ferguson, expects significant comments on the recommendations.

With regard to marriage breakdown, the projection scale is an area of concern for actuarial evidence practitioners. A draft of the DG’s proposal was released to the Committee on Actuarial Evidence for consultation. It was anticipated that the initial promulgation would be ready for approval at this month’s ASB meeting. It will likely be more or less consistent with the pension promulgation.

With the planned review of promulgated mortality tables and mortality improvement scales, the ASB discussed the need to review the other assumptions underlying pension commuted values and marriage breakdown capitalized costs. The ASB developed a two-phase approach designed to minimize controversy during this review. The first DG, chaired by Gavin Benjamin and focused on the pension standards, anticipates minimal changes to section 3500 though work is still required to determine if the 90 bps and related formula remains reasonable. The second DG, focused on the marriage breakdown, is expected to start work later this year.

The ASB noted that existing actuarial standards do not address the volatility associated with stochastic modelling of investment returns for all pension funding (not just shared risk plans). Based on what has been done for life insurance standards it was not felt that mandating a particular stochastic model was the appropriate approach, but rather (as with life insurance) it would be better to prescribe calibration criteria for the outputs of any stochastic model used. A DG chaired by Tony Williams has begun to address the calibration criteria of pension asset returns.

A DG chaired by Paul Della Penna continues work on the quinquennial review of the General section (part 1000) of our standards. The DG is opting to prepare a draft ED before presenting the notice of intent (NOI) to the ASB. It was noted that there are likely to be significant changes to subsection 1530 – Data. The DG is behind schedule and does not expect to have an NOI ready for ASB discussion until April.

The ASB has appointed a DG chaired by Josephine Marks to undertake a quinquennial review of the Insurance section (part 2000) of our standards. The DG is reviewing all of the material that has been submitted regarding issues that were raised over the past few years. It is also consulting several CIA practice committees, regulators, and other stakeholders prior to developing an NOI. 

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

Canadian Institute of Actuaries/Institut canadien des actuaires
http://www.cia-ica.ca/