An International Update

By Dave Pelletier, FCIA

International Actuarial Association (IAA)

The IAA is the organization of the various actuarial associations worldwide (including the CIA). It operates primarily through a series of committees, some with "open" membership where each member association can appoint a delegate, and others of limited membership (some important examples being the Executive Committee, the Nominations Committee, and the Actuarial Standards Committee) where the members are appointed by the IAA Council. The IAA’s committees and Council gather together twice per year for meetings, and the CIA is delighted to be hosting the autumn sessions this year in Vancouver in October.

The IAA holds the International Congress of Actuaries every four years. It is now entertaining expressions of interest from member associations to hold the 2026 congress, and the CIA Board has agreed to submit a letter of intent for this purpose, proposing Vancouver as the host city. Bob McKay is leading the International Relations Council (IRC) working group to develop the full bid, due to the IAA in February.

The CIA has played a prominent role within the IAA over the years, recently most notably with Rob Brown serving as IAA President during 2014. Effective January 1, 2016, several more CIA members, subject to final IAA Council approval in October, will be holding IAA leadership and limited membership committee positions:

These individuals do not serve in these positions as CIA delegates, but rather to represent the interests of the IAA and the international profession as a whole.

As reported in the past, the IAA, through its Actuarial Standards Committee, is developing International Standards of Actuarial Practice (ISAPs) as models for local actuarial standard setters to consider adopting or adapting. Our IRC committees have commented on both the statements of intent (SOIs) from the IAA to develop such standards and the exposure drafts of the ISAPs themselves. Recent work by our Committee on International Insurance Regulation (CIIR—chaired by Robert Berendsen) has included providing comment to the IAA on SOIs for ISAPs 5 and 6 relating to ERM models and programs, and an SOI for ISAP 7 relating to current estimates in the context of the capital standards being developed by the International Association of Insurance Supervisors (IAIS). In coming months, we expect the CIIR will be providing feedback on the exposure drafts.

International Association of Insurance Supervisors (IAIS)

The IAIS is the worldwide association of insurance regulators. Canadian entities that are members include OSFI, Quebec’s AMF, and BC’s FICOM. Lately it’s been carrying out consultations on three documents of particular interest:

Committees of the IAA have provided comment in all three consultations. We agreed that IAA comment would be sufficient with respect to the first two consultations, but that the CIA through the CIIR should comment separately on the third.

As Robert explained in his May (e)Bulletin article, the IAIS is in the midst of its three-step plan to develop new insurance capital standards, with the intention that these new standards be adopted by member insurance supervisors, including Canadian regulators. The CIIR previously provided feedback on the IAIS proposals for Basic Capital Requirement (BCR) and the broader Insurance Capital Standard (ICS). This summer, the CIIR developed feedback on the IAIS consultation document on HLA capital requirements for G-SIIs. While the feedback was supportive in several respects, we expressed concern in some key areas, particularly concerning which insurer businesses were targeted for HLA capital requirements, and the potential for the HLA requirement to be difficult to forecast and manage by the affected insurers.

We expect the IAIS will publish an updated consultation paper on HLA before year-end, and the CIIR will once again provide comment. We also expect to comment on the next round of proposals for the ICS, sometime in 2016.

International Accounting Standards Board (IASB)

In June, the IASB issued an exposure draft on proposed changes to IAS19—Employee Benefits and IFRIC 14—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. Our International Pension and Employee Benefits Standards Committee (chaired by Catherine Robertson) is in the process of drafting a CIA response in advance of the October 19, 2015 deadline.

IFRIC 14 limits the surplus, or net defined benefit asset, that can be recognized in financial statements to the lower of the surplus and the asset ceiling (i.e., the economic benefit available in the form of refunds and/or reductions in future contributions). The proposed change will require an entity to limit the amount of surplus recognized if another party can use the surplus for another purpose without the entity’s consent in a manner which affects plan members’ benefits (e.g., using surplus to enhance the benefits). The availability of a refund of surplus is not impacted in the situation where another party has the power to purchase annuities without the entity’s consent, provided the purchase does not affect the benefits of the plan members.

The amendment also proposes that an entity will not be considered to have an unconditional right to a refund when assuming the gradual settlement of plan liabilities over time if other parties can wind up the plan without the entity’s consent.

These two proposals are unlikely to impact many Canadian defined benefit plans reporting under IAS 19, since most entities sponsoring registered plans do not have an unconditional right to surplus at present, and most unregistered plans are unlikely to provide other parties with powers to enhance benefits or wind up the plan without the entity’s consent.

The proposed change to IAS19 is that, where the net defined benefit asset (liability) is required to be remeasured due to a plan amendment, curtailment, or settlement during a period, the current service cost and net interest for the period after the remeasurement is to be determined using the assumptions used for the remeasurement. Presently, the current service cost and net interest are ordinarily determined using assumptions at the start of the period.

The IASB has identified the expected benefits from this amendment to include providing more relevant information, enhancing understandability, and eliminating diversity. It also concluded that the expected benefits outweigh any additional costs.

This proposal represents a departure from existing practice in Canada. We intend to question the IASB on whether the additional cost in complying actually does add any net benefit to the users of the statements, as the proposal reduces transparency and comparability of financial reporting, since only the affected plan will be remeasured.

On the insurance front, the IASB continues its lengthy development process of a revised IFRS on insurance contracts. Covering these deliberations in detail would require an article in itself, and one is planned in the next few months once some of the final decisions (particularly those relating to "contracts with participating features", which are more than just traditional Canadian participating products) are more clear. But quoting from an IASB agenda paper this month:

"The IASB has now substantially completed its deliberations on most of the proposals in the 2013 ED and is currently finalising its deliberations on the most difficult of the issues on which it originally sought input, i.e., those relating to the accounting for contracts with participating features. The IASB expects to complete its deliberations on insurance contracts in 2015, with a view to issuing the new Standard in 2016."

The effective date of the revised standard then would probably not be before 2020.

The IAA has been an active commenter on past IASB consultations and is also hard at work producing an ISAP to support the final IFRS; the IAA’s task force chair is Micheline Dionne. Our own Committee on International Insurance Accounting (chaired by Denise Lang) continues to monitor both the IASB’s progress and the IAA’s progress with their respective standards, and will provide feedback during any consultation processes.

Dave Pelletier, FCIA, is Chair of the International Relations Council.

Canadian Institute of Actuaries/Institut canadien des actuaires