Actuarial Standards Board (ASB) Update

 

By Ty Faulds, FCIA

ASB Membership

The ASB is very pleased to welcome Stephen Cheng and Jacqueline Friedland to our board and to thank Jim Christie, Jay Jeffery, Luc Farmer, and Camil Lévesque for all of their support over the last several years. The current membership of the ASB includes Stephen Cheng, Ty Faulds (Chair), Conrad Ferguson, Jacqueline Friedland, Alexis Gerbeau, Edward Gibson, Laura Newman, Dave Oakden, Catherine Robertson, and Tony Williams—and on an ex officio basis, Pierre Dionne, Chair of the Practice Council and Michel Simard, Executive Director of the CIA. Please feel free to approach any of us with any suggestions or questions you might have.

International Developments

The Actuarial Standards Committee (ASC) of the International Actuarial Association (IAA) has been very active in developing model standards of practice. The ASB is committed to reviewing and amending the Canadian Standards of Practice (SOP) to ensure that work in compliance with the SOPs will also be in accordance with the International Standards of Actuarial Practice (ISAPs). Changes were made to the SOPs largely to converge to ISAP 1– General Actuarial Practice in September 2014, and we continue to monitor international developments related to peer reviews where we provided feedback to the ASC on some concerns we had with the model standard.

The ASB approved the Exposure Draft for Standards of Practice – Establishment of Social Security Practice-Specific Standards as recommended by a designated group (DG) chaired by Edward Gibson. This ED, published in October with a comment deadline of January 8, 2016, aims to incorporate the principles of ISAP 2 into the Canadian Standards of Practice by creation of a new part 7000 in our standards, as we currently do not specifically address social security.

ISAP 3 (Actuarial Practice in Relation to IAS 19 Employee Benefits) was adopted by the IAA in April of this year. The ASB has formed a DG to consider convergence with this model standard and is currently conducting a search for a chair for this DG. If you are interested in leading this group please don’t hesitate to contact me at ty.faulds@londonlife.com.

The International Accounting Standards Board is not expected to release the final version of IFRS X (Insurance Contracts) until 2016, to be effective, tentatively, in 2019. In anticipation of this, the IAA has begun working on a related ISAP 4. The ASB approved the Notice of Intent to Incorporate Principles of International Standard of Actuarial Practice 4 – Actuarial Practice in Relation to IFRS X Insurance Contracts into the Canadian Standards of Practice as recommended by a DG chaired by Simon Curtis. This NOI proposed a stand-alone approach to convergence intended to minimize the potential for unintended "in Canada" interpretations of the guidance in ISAP 4. This DG will now have to wait for the IAA publications before starting work on the ED.

A Statement of Intent (SOI) for ISAP 1A – Governance of Models was approved by the IAA in October 2015 with an expected completion date in 2017. In the meantime, the ASB approved the Exposure Draft for Standards of Practice ─ Use of Models as recommended by a DG chaired by Bob Howard. This ED, published in October with a comment deadline of December 5, 2015, covers most of the material addressed in the IAA’s SOI but does not address standards for the development of models which are proposed in the SOI. The Practice Council published a companion draft educational note to further clarify the guidance in the standards and in particular on what is or is not a model.

The ASB is following the IAA’s plans associated with Enterprise Risk Management model standards (ISAP 5 and ISAP 6) with interest and hopes to use these as a springboard to implement similar standards in Canada. The IAA published an ED for ISAP 5 – Insurer Enterprise Risk Models in October with a comment deadline of March 31, 2016. The ASB is considering commenting on this ED.

Mortality Improvements

The ASB released the Final Communication of a Promulgation of the Mortality Table Referenced in the Standards of Practice for Pension Plans (Subsection 3530) and a Promulgation of the Mortality Table Referenced in the Standards of Practice for Actuarial Evidence (Subsection 4530) in June, both with effective dates of October 1, 2015. Recent research from the UK and the U.S. has indicated some slowing down of the recent mortality improvement trends we’ve been observing. We’re following the research and developments related to mortality improvements with interest, as this assumption is a critical estimate in a number of our practice areas, including these recent promulgations. The ASB has formed a designated group to consider these developments for life insurance, chaired by Dominic Hains, as we expect changes will need to be made in this area and will consider any implications for the other practice areas as the experience is reviewed. This DG will draw heavily on the work of the cross-practice area, Task Force on Mortality Improvement, chaired by Alexis Gerbeau.

Shared Risk Pension Plans

One of the ASB priorities identified last fall was to ensure appropriate standards are in place for shared risk pension plans, and a number of DGs have this as a significant portion of their mandate.

The ASB approved the Notice of Intent – Amendments to Section 3500 of the Practice-Specific Standards for Pension Plans – Pension Commuted Values as recommended by the DG, chaired by Gavin Benjamin. This NOI is focused on a review of the assumptions underlying pension commuted values other than mortality and includes thoughts on variations for shared risk plans. A second DG focused on assumptions (other than mortality) underlying the capitalized value of pension plan benefits for marriage breakdown is expected to start work after enough progress has been made on the pension side.

The ASB has two other DGs working on pension standards with a focus on shared risk plans. Tony Williams is currently chairing a DG that is working on developing an NOI to address the calibration criteria of pension stochastic models. Existing actuarial standards do not address the volatility associated with stochastic modelling of investment returns for pension funding. The DG will not be mandating a particular stochastic model for investment returns, but rather (as with life insurance) will prescribe calibration criteria for the outputs of any stochastic model used. Geoffrey Melbourne is chairing a DG that is also working on developing an NOI to review pension valuation disclosure standards as they relate to shared risk plans, target benefit plans, and stress testing. These groups will need to work closely together to ensure consistency.

Continued Low Interest Rates

A continuation of the low interest rate environment has prompted the ASB to monitor these developments closely and consider the frequency of updates to the related promulgations for the life insurance practice area. We are working through a process to review research on these annually with the Committee on Life Insurance Financial Reporting.

Business-as-Usual Projects

As part of our strategies, the ASB is committed to routinely reviewing all standards on a rotating basis. Under this initiative, the ASB approved the Notice of Intent – Revisions to General Standards (Part 1000) as recommended by the DG, chaired by Paul Della Penna and the Notice of Intent to Revise the Practice-Specific Standards for Insurance (Part 2000) as recommended by the DG, chaired by Josephine Marks, both issued in June 2015. These DGs are considering the feedback received and are well along in drafting EDs, hopefully to be released early in the New Year.

Ty Faulds, FCIA, is Chair of the Actuarial Standards Board.

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