CIA (e)Bulletin/(e)Bulletin de l'ICA

Canadian Institute of Actuaries/Institut canadien des actuaires

November 2013
Elliott Bauer
D.W. Simpson & Company
North American Search Group
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By Jacques Lafrance, FCIA
President, CIA

The theme of expanding the actuarial profession is coming up more and more in our discussions, both within the Institute and in meetings with actuarial organizations from several countries. For example, the hot-button topic at our most recent meeting of the North American Actuarial Council (NAAC)* was a vision whereby a significant proportion of our members would be working in fields not limited to insurance and pension plans.

One of the driving forces behind these discussions is some pessimism surrounding our usual areas of practice. The general feeling is that these fields are shrinking or, at best, exhibiting lacklustre growth when it comes to employment for actuaries. That said, recent developments—such as tremendous advances in technology, easier access to large databases, and the increased interest in risk-related issues—could offer our profession opportunities to expand its reach.

What can we bring to employers in all sectors? A great deal indeed. I would like to point out, in this regard, the study carried out by the International Actuarial Association aimed at developing a value proposition for our profession. Here is an excerpt: Actuaries are equipped to help their clients (including employers) make informed choices and develop efficient solutions to safeguard their future in an ever-changing world. An actuary is a professional trained in evaluating the current financial implications of future contingent events.

A number of fields seem within reach. We can safely say that our skill set and training stand us in good stead to contribute to the success of the non-insurance financial sector, particularly banking. What’s more, our expertise in dynamic solvency testing and enterprise risk management (ERM) positions us well not only in this sector but in a number of others as well. Indeed, wise application of these concepts can enable business leaders to make more informed decisions with respect to financial management and the commercialization of their products.

The road to expanding our fields of practice will not necessarily be an easy one. Our education system will need to evolve to offer our new members the training they need to break into non-traditional fields of practice. The same will be true of the continuing professional development offered to our members. This will require a coordinated effort on the part of the Institute, our education partners, and universities offering an actuarial program.

We will also need to develop and implement a strategy aimed at better promoting actuaries’ talents and competencies to employers in a variety of sectors. Needless to say, we should begin by targeting the financial sector as a whole, since this is the sector that seems most easily within our reach. An increased presence on our part in the debates being waged in the public space and in the media will also help enhance the visibility of our profession.

A number of the Institute’s groups, including the Board, are pondering this question. One of the initiatives underway consists of learning what makes actuaries in other countries successful. For example, South Africa’s actuaries have become the professionals of choice in the financial sector as a whole. The Actuarial Society of South Africa is working with the Institute of Actuaries of Australia to develop a training and eligibility framework for the non-insurance financial sector. We are following this project closely.

If our profession is to increase its foothold in new areas, we must exhibit rigour, persistence and boldness. It is up to us to meet this challenge.

Jacques Lafrance, FCIA, is President of the Canadian Institute of Actuaries.

* The NAAC brings together leaders of actuarial organizations from Canada, Mexico and the United States to foster cooperation among member organizations. Expanding the actuarial profession figures among its objectives.
 
Spotlight

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.

 
MOVERS AND SHAKERS
Caroline Blouin, vice-president of human resources at RBC Wealth Management and RBC Insurance, discussed the company’s financial literacy program for its employees in the November issue of Benefits Canada.

Writing in the National Post, Barry Gros suggested that pensions should have a rejig, and solutions like target benefit plans would help public-sector workers.

CIA President Jacques Lafrance was quoted in Les affaires on countries that increased their retirement age: he said it was that or face "financial disaster". M. Lafrance was also featured in Canadian HR Reporter and Investment Executive, highlighting the Institute’s new Canadian mortality figures.

Syed Ali Murtaza is now an independent actuarial consultant at Financial Actuarial Solutions. He has several years’ actuarial experience, gained at Canadian life insurance companies.

Sylvia Pozezanac has been named managing director and global head of consultant relations for the strategic solutions group at Prudential Financial. She is responsible for building senior-level relationships with global investment, employee benefit, and retirement consultants on behalf of Prudential’s U.S. businesses. Ms. Pozezanac previously spent 26 years at Towers Watson (including one of its predecessor companies, Towers Perrin).

Riley St. Jacques has joined PBI Actuarial Consultants as a senior consulting actuary. He will be a member of PBI’s leadership team and focus on business development and new client management activities. Mr. St. Jacques has more than 14 years of industry experience and previously worked as a vice-president of plan benefits for an insurance and group benefits firm based in Edmonton.

PBI also announced that H. Clare Pitcher and Cynthia (Cindy) Rynne will be the senior consulting actuaries leading its newly-opened Toronto office. They have over 50 years of combined experience as actuaries in the field of pensions, consulting to large Ontario multi-employer plans, and public and private sector pension plans. In addition to providing support to the current consulting team serving some of PBI’s larger national clients, together they will focus on the company’s growth in Central Canada.

Senior consulting actuary Kevin Tighe and Canadian retirement innovation leader Ian Markham, both at Towers Watson, wrote about the benefits of de-risking defined benefits plans in Benefits Canada.

Fred Vettese wrote about occupational pensions in Benefits Canada magazine. He said: "The level of basic benefits should come under scrutiny."
 
Institute News

By Rob Stapleford, FCIA

These are interesting and exciting times for the CIA on the education front. In Jason Vary’s September (e)Bulletin article "The Canadian Education System – A Balanced Approach", he wrote about the CIA taking greater control of and accountability for the education of actuaries in Canada, and the work that is currently underway to define a Canadian education syllabus that will form the basis of how education providers and partners are selected.

The University Accreditation Program (UAP) is one of the key sources of education for Associate-level qualification, and, for the first time in Canada, makes it possible to become an ACIA without first achieving another actuarial designation. In a few years the CIA will be granting Fellowship to these members upon their successful completion of the additional education and examination requirements. The FCIA being awarded as a stand-alone designation, i.e., "not having to be aligned to another (actuarial) credential", is one of the Institute’s Long-Term Strategic Goals. Soon, you will see actuarial candidates at job interviews who have CIA exemptions for some of the preliminary exams. This is one reason why the CIA’s diligence with respect to high standards in the development and maintenance of the UAP is essential. The Accreditation Committee (AC), Eligibility and Education Council (EEC), and CIA Board, in partnership with our accredited Canadian universities, have been working hard since 2010—when the CIA Board reaffirmed its commitment to the UAP—to ensure these standards are established and maintained.

In October, you heard about the Society of Actuaries’ (SOA) decision not to recognize CIA UAP exemptions. In spite of this, the CIA remains committed to the program, which is directly aligned with the Institute’s long-term strategy. The CIA believes that the UAP is efficient and that the structured class setting is the right environment for preliminary education and assessment. Ultimately, the SOA decision means that CIA candidates who are focused on the ASA and FSA designations will need to write the preliminary exams instead of pursuing UAP credit. Successful UAP candidates will achieve the ACIA and FCIA through a combination of exam exemptions and the completion of the remaining CIA education requirements, most of which are outsourced to the SOA for the retirement, individual life, group, and finance tracks. Logistically, this works through the CIA’s agreement with the SOA that they will track and allow UAP candidates to seamlessly complete the remaining education and examination requirements for the ACIA and FCIA, even though some preliminary exams would be replaced by CIA exemptions.

The CIA recognizes the Casualty Actuarial Society (CAS) education system for property and casualty (P&C) education, and the CAS recognizes CIA exemptions, so it is currently possible for a CIA candidate to achieve the ACAS and FCAS designations through the UAP route. The Institute and Faculty of Actuaries of the UK also recognizes CIA exemptions, and the American Academy of Actuaries recognizes the FCIA designation (achieved through any means) towards the attainment of the MAAA designation, with the appropriate U.S. work experience. Therefore, there are still many options for UAP candidates who are concerned with working outside of Canada. In Canada, the FCIA is the only legally-recognized actuarial qualification.

The UAP completed its inaugural year in the summer of 2013. Now, in year two of its implementation, the AC is focused on evaluation and improvement. To this end, the AC, Accreditation Actuaries (AcAs), and CIA staff met in early October to assess key policy issues, discuss quantitative measurements, commence planning for the three-year review, and obtain feedback from the AcAs. After a thorough review of the first year, and almost 40 exam exemptions being granted, the AC feels that the program is working well. The following section provides highlights of the discussions and outcomes of the meeting.

Exemption Grades

The percentage of students who achieved the exemption grades in each of the accredited universities over the past year was reviewed and compared with the AC’s initial predictions. The predictions were made based on actual student grades over the past two offerings of each course and by comparing these numbers with the SOA/CAS passing percentages by university for the relevant exams, as well as the overall passing percentages of the exam writer population. Exemption grades were set for each course with the overall goal of making the achievement of exemptions at least as difficult as passing the corresponding exam. The AC considered that the data represented only one year of the program and would need to be analyzed over several years in order to draw any significant conclusions. However, the AC was comfortable with the fact that the actual number of students achieving the exemption grade was lower than predicted, and was lower than the overall SOA university statistics.

It was noted that the lower-than-anticipated percentage of students achieving exemptions could be one indicator that it is harder to achieve UAP exemptions than it is to pass the corresponding exam. The UAP may also be segmenting the strongest students. The AC recognized that these results must be interpreted with care as they may be influenced by many factors, and it will continue to monitor future grades carefully. The AC will study each student cohort as they progress through the degree program, and will continue to assess, where possible, through the later exams towards Fellowship in the CIA.

Grade Inflation

In 2013, the External Examiners were asked to assess the universities on the potential for grade inflation and it became clear that a common definition of grade inflation was required. The AC and AcAs agreed that two types of grade inflation could be possible:

  • Good grade inflation—students work harder to achieve the exemption grade in all courses, leading to overall higher percentages of students achieving the exemption grade year over year; and
  • Bad grade inflation—instructors mark students more leniently, resulting in a higher percentage of students achieving the exemption grade year over year.

Bad grade inflation could also occur through the university setting benchmark percentages for students to achieve the exemption grade. The AC concluded that it can put trust in the quality control mechanisms of the UAP policy and guidelines (including the External Examiner reviews), the professionalism of the appointed AcAs, and the university’s internal processes for examination and grading and quality control. Success in maintaining high standards and good practices comes from good communication between the CIA, each AcA, and the course instructors. The AcAs agreed that making the exemption grade easier to achieve for students does a disservice to all, and they would remind course instructors of their responsibility to the university, to the UAP agreement, and to the students.

Student Feedback/Concerns

Feedback from students indicates that they are concerned about their future career options. The AC and AcAs concluded that the CIA should do more to promote the program with students and employers in Canada and to increase the FCIA brand recognition internationally. Promoting the value and portability of the FCIA designation will give students greater confidence in following the UAP route. Employers need to be knowledgeable about the program and while there is no evidence to suggest that they would make biased hiring decisions to choose a candidate with exams over one with exemptions, the more knowledgeable they are about the program and the CIA’s standards, the better.

Academic Involvement

It was generally agreed that more academics should get involved with the CIA and the Institute should encourage academic participation as they can provide great insight to the CIA even beyond the UAP. The program has the potential to enhance academic independence and to create greater awareness of the strength of academic-based actuarial education, but will not reach its full potential without excellent collaboration between academics and practitioners.

Review of the UAP

The strategic review of the UAP in 2014–2015 will be important to the AC, EEC, and Board, as well as to employers, education partners, and CIA members. In particular, the CAS agreement to recognize CIA exemptions granted through the UAP requires such a review. Short-term review measures include instructors’ adherence to the syllabus, student data monitoring, a review of examination scripts and sample student examinations, and qualitative information from AcAs, instructors, and External Examiners. Longer-term measures will come from employers and UAP candidate results on Fellowship examinations. Therefore, having data sharing among the CIA/SOA/CAS is critical.

In conclusion, ultimately the CIA is accountable for the designations it administers and must ensure that the standards for the ACIA and FCIA designations continue to be very high. The UAP must produce candidates that have the requisite knowledge and skills for ACIA-level education so that they have the technical base of knowledge that they need as they prepare for the practical aspects of the Fellowship exams.

The AC continues to uphold the CIA’s strong standards to ensure that the program remains a viable and trusted element of the Canadian Education System.

For more information on the UAP please visit the CIA website. As always, your feedback and comments are welcome and can be directed to accreditation@cia-ica.ca.

Rob Stapleford, FCIA, is Chair of the Accreditation Committee.

 

 

By Mike Hale, FCIA

On October 23, the CIA submitted its comments on the International Accounting Standards Board’s (IASB) exposure draft (ED) on accounting for insurance contracts (International Financial Reporting Standard 4, or IFRS4).

The comments were prepared by the Subcommittee on International Accounting and Actuarial Standards following the due process of the Committee on International Relations.

I have had the good fortune to chair this subcommittee at a time of accelerating standards development at both the IASB and the International Actuarial Association (IAA). The work has been made easy by the knowledgeable and committed team, each of whom has thoughtfully contributed at every stage of our efforts.

The CIA submission is on the Institute’s website and, for those familiar with the ED, is an easy read. In the outline below, I am attempting to bring out the highlights for a broader audience.

The IASB made a number of changes from the earlier ED, most notably:

  1. Making available a top-down approach for determining yield curves using returns on reference assets and deducting all of the elements (mainly credit risk) not relevant to the insurance liabilities. This is an allowable alternative to this bottom-up approach (risk-free rates plus an illiquidity premium).

This was coupled with some guidance, drawn from the Fair Value Measurement Standard, with respect to discount rates at durations where there are no observable market rates.

In the CIA submission, we welcomed the greater flexibility and required use of appropriate judgement in the ED, and underlined the inappropriateness of using simple extrapolation for yield curves.

  1. Requiring use of Other Comprehensive Income (OCI) to smooth the Profit and Loss (P&L) impact of changes in the liabilities arising from changes in the yield curve. Using OCI involves retaining the yield curves at issue for in-force business, extensive work to estimate the needed initial values, and cumbersome explanations.
In the CIA submission we recommended strongly that use of OCI be optional. We believe that many companies would prefer a fair-value approach in light of the increased stability available in longer discount rate assumptions under the ED. For companies opting to use OCI we advocated simpler approaches to determine initial values at the effective date of the new standard.
  1. Requiring a "mirroring" concept (essentially valuing the future cash flows at the carrying value of the underlying assets) where the contract requires the company to hold underlying items and specifies a link between payments to policyholders and returns on those items.
In the CIA submission, we recommended extending mirroring to situations where underlying items are held to match rates credited to policyholders in the absence of a contractual requirement (e.g., index-linked contracts).

We also made the case for recognizing that signing a participating contract invokes a legal and regulatory regime that bases payments to policyholders on the results of the underlying items.
  1. Requiring a new revenue measure incorporating an "earned premium" equal to the expected benefit payments (excluding investment components) and expenses (including a component for recovery of acquisition costs). Income statement benefit payments and expenses would be similarly adjusted.
In the CIA submission, we indicated that we saw little value in this approach to determining the revenue line and a lot of cost in changing valuation and administrative systems to separate out the investment component. We understand that the IASB believes the revenue approach in the ED is consistent with that for other types of business.
  1. Requiring a Contractual Service Margin (CSM) to be held in the liability so that no profit is recognized at issue but is released from the CSM over time as contract services are delivered.
The ED has a simple allocation of changes:
  • Changes in future cash flows go through the CSM;
  • Changes in yield curves go through OCI; and
  • Changes in the Risk Margin (the add-on to the expected liability that would be required to transfer the liability) go through P&L.

In the CIA submission, we strongly recommended that changes in the risk margin also go through the CSM because of the close relationship between expected cash flows and the risk margin.

Finally, recognizing that no matter what comes out in the final standard, there will be a need for major systems development and education efforts, we urged the IASB to allow ample time for implementation and to create an implementation oversight group to monitor progress. An important aspect of this will be promoting adoption of IFRS4 in key jurisdictions around the world.

We are looking forward now to promulgation of the final standard and the development of related IAA guidance for actuaries, hopefully suitable for adoption by Canada.

Mike Hale, FCIA, is Chair of the Subcommittee on International Accounting and Actuarial Standards.

 
A new study from insurance experts using extensive modelling reveals that Canada will suffer significant economic and insured costs if it does not prepare for a major earthquake.

Commissioned by the Insurance Bureau of Canada (IBC) to analyze the impact of two major seismic events, the report was produced by AIR Worldwide. It forecast extensive losses if modelled scenarios involving a 9.0-magnitude earthquake off the west coast of Vancouver Island and a 7.1-magnitude quake about 100 km northeast of Québec City came to be.

This, the report concluded, demonstrated the need for a national strategy on earthquake response.

AIR, a catastrophe modelling firm, developed the western and eastern scenarios and estimated total economic loss and insured loss for both. The two selected regions are at particular risk as a result of their large population density and elevated level of seismic activity, AIR’s experts warned: "Although these two seismic source zones cover only a small fraction of Canada by area, they impact about 40% of the national population."

For the western scenario, economic losses would be $74.7 bn* and insured losses $20.4 bn; for the eastern scenario, those losses would be $60.6 bn and $12.2 bn, respectively.

The breakdown for insured losses in both scenarios by peril are as follows:
  • Western scenario—shake, $17.1 bn; tsunami, $1.1 bn; fire following the event, $337m; and liquefaction and landslide, $1.9 bn.
  • Eastern scenario – shake, $11.5 bn; fire following event, $628m; and liquefaction and landslide, $56m.
With regard to expected economic losses, for the western scenario, the perils of shake, tsunami, fire following event, and liquefaction and landslide would produce direct loss of $58.6 bn for property, $1.9 bn for infrastructure, and $1.5 bn for public assets. The total direct loss would be $62 bn, while indirect loss is pegged at $12.7 bn.

For the eastern scenario, the perils of shake, fire following event, and liquefaction and landslide would produce direct loss of $45.9 bn for property, $2.0 bn for infrastructure and $1.4 bn for public assets. The total direct loss would be $49.3 bn, while indirect losses are pegged at $11.3 bn.

AIR says the study is a hypothetical exercise rather than a prediction of future events. That said, the impact of the events and their projected loss costs can be seen as good indicators for the likely outcome of similar events, the company adds. Both scenarios are attributable to established seismic sources and similar to earthquakes known to have taken place in the past: "Earthquakes of the magnitude modelled are low-frequency events in these locations, considered to have a 0.2% probability of occurring in any one year, but sufficiently threatening and devastating to warrant prudent planning and preparation now."

The IBC said the findings of the peer-reviewed analysis left "no doubt that Canada is not prepared to handle a major earthquake, which could happen at any time, and that the economic impact would be significant."

Its president and CEO, Don Forgeron, said: "The risk of a major earthquake affects us all, not just those living in high-risk areas. Events of this magnitude have a domino effect on the Canadian economy triggered by property damage, supply chain interruption, loss of services, infrastructure failure, and business interruption."

He added: "Insurers, governments and all Canadians have a responsibility to prepare. If a mega-earthquake should strike in a densely populated area, insurance alone will not pay for all the damage."

However, Mr. Forgeron said, the study demonstrated that mitigation—such as more resilient buildings and infrastructure—"can further reduce economic losses by a third or more. That’s why we are calling for an integrated preparatory approach to the earthquake threat."

The IBC plans to do its part to advance a national conversation on how to prepare for a mega-earthquake, which is a greater than 1-in-500-year event and exceeds the industry’s capacity to respond. The bureau is committed to working closely with governments, the financial services industry, and non-government organizations to ensure a national response framework is in place before such an earthquake hits.

Mr. Forgeron added: "The study is a valuable tool and will be shared with governments, regulators, disaster preparedness organizations, the banking community, the insurance industry and the public."

Things have changed—as has understanding of the potential impact of a major earthquake—since Munich Re released the last study of the economic impact of an earthquake in Canada more than 20 years ago. Among these changes, the report points to urban and infrastructure development, economic and population growth, advances in earthquake research and building codes, and legislative changes. Its authors add: "Furthermore, recent experience has shown that risk such as tsunami, liquefaction and business interruption may not have been fully understood or taken into consideration when assessing earthquake risk in the past."

The report, Study of Impact and the Insurance and Economic Cost of a Major Earthquake in British Columbia and Ontario/Quebec, is available here.

*All figures given are approximate.
 

Enterprise risk management (ERM) has a lot of advantages for actuaries and their companies or clients. In certain circumstances, it can also be fairly easy to introduce into a company.

That was the case for CIA member Pierre Laurin, director and head of Canadian property and casualty at Towers Watson. His experience in this area dates back to the early 1990s, when he helped develop risk management concepts while working as group chief actuary at Zurich Financial Services.

He said: "What we did then was not named ERM at the time. We only knew that the company had no measures to evaluate its own risk position, and it was necessary to see whether we were doing well.

"It was easier to introduce than I expected, as we had a fair amount of ‘buy in’ from management and other parts of the company. People were, for the most part, very interested in the concept. They saw that it made good business sense.

"The company is based in Europe, where ERM concepts were developed earlier, and the process was there to be promoted."

M. Laurin left Zurich for Towers Watson in 2005, and he says his new company is heavily involved in ERM. "I do a lot of work in this area: setting the risk appetite, reviewing the Own Risk and Solvency Assessment, stress testing, and more. ERM has lots of different aspects and affects lots of different areas. Reinsurance optimization, for example, is based on ERM concepts, and people should be asking, ‘What is the cost of the capital I am buying?’ Approaches to asset and liability management and operational risk are also related to the impact on capital.

"My gut feeling is that people see ERM as a tool that is required. The 2008 financial crisis highlighted the need to have improved models with convergences at the tail end of the risk curve. Companies said, ‘We need to get better numbers to understand what is going on.’ Now the concept has matured, and more people ask, ‘What will be the impact of this on my business? Will I improve my business by doing that?’ An ERM framework can demonstrate that things are working."

Despite its value, M. Laurin added, actuaries can encounter opposition to the idea of a framework that looks at every aspect of a company. "To implement an ERM process, sometimes you have to consider short-term goals. It’s a long-term process that can take five or six years to complete, but most managers will ask for short-term returns.

"Also, most people work in silos and think, ‘What will impact me is more important than anything else.’ You have to have a top-down element; it has to start from the board. But you also have to have a bottom-up approach to develop it properly."

Working in ERM can be fun, he said, as it changes actuaries’ sphere of influence. "Traditional actuaries are in pricing or reserving, for example, but ERM will look at the impact on capital. It gives you a broader view of the company and opens up a new field.

"Starting actuaries will have a fairly steep learning curve, but we are well trained for ERM and have the right background. We think in terms of a holistic perspective, and we are comfortable with uncertainty. For actuaries, ERM is here to stay."

 
 
Gary Walters

1. Why did you become an actuary?
As a Maths major there was no obvious career path so I did a battery of those career tests in my final year at university. Most of the options were a broker of some sort (shipping, insurance, stock, etc.), but actuary also came up and sounded a lot less like selling. Furthermore, I had a gap year and summer job as a clerk at a small life insurance company, where the one and only actuary started showing me some of the things he did. I really didn’t understand what he did, but it did look like problem-solving, which seemed fun. (He also commented that it was well paid.) Seemed like it was worth a try!

2. When you tell people you’re an actuary, what do they think you do?
Infuriatingly, they generally think we are a type of technical accountant (even more esoteric than a tax accountant!). Try adding to that explaining reinsurance. Now they really are convinced there is someone more interesting to talk to at the party!

3. Who has inspired you the most during your career? Did you have a mentor in your early career?
Peter Clark, a senior actuary at the company I worked for in the UK (and incidentally the person who first interviewed me in a very nice corner office) acted as someone I bounced things off career-wise after I moved to Canada. As President of the Institute of Actuaries in the UK he stayed with us several times while visiting Toronto and tried (and failed) to get my wife to understand and appreciate the Goons (a British radio comedy act from the 1950s).

4. What do you enjoy most about your job?
I enjoy mentoring my staff, challenging the status quo (particularly going back to principles rather than relying on rules that have developed over the years) and looking for new ways to approach problems.

5. What career would you follow if you weren’t an actuary?
Likely a teacher (or maybe professor)—I taught at the Practice Education Course (PEC) for many years and loved it.

6. What are your hobbies?
Downhill skiing, photography, travelling, reading, drinking wine, opera, gardening, and going to the cottage.

7. What is your favourite music, book, and film?
Music: I am an opera lover, but all classical music and musical theatre (especially Les Miserables). Movies: Schindler’s List, The Shawshank Redemption, and Life is Beautiful. Books: The Lord of the Rings.

8. Where is your dream vacation destination?
Taking my family on a relaxed trip to see the parts of Britain I remember as a child and those I never visited but wanted to.

9. What do you do better than anyone you know?
I was for several years one of a small panel of international badminton referees, being the lead official at a Commonwealth games and a world junior championships, and attending two Olympics.

10. If you could be anybody else, alive or dead, who would it be, and why?
Tough one. I have been fortunate enough to be able to do much of what I really wanted in my life and so I am really quite happy being me!

Gary Walters is senior vice-president, pricing and group reinsurance, at RGA.
 

Franco Quan with Al Edwards of the AFC.

The Actuarial Foundation of Canada (AFC) is pleased to congratulate the winner of the Hugh G. White Memorial Scholarship for 2013: Franco Quan, an outstanding student from the London Central Secondary School in Ontario. Franco was presented with the award by Al Edwards, Vice-chair of the AFC, at the high school’s graduation ceremony in October.

Franco’s passion for mathematics started at an early age. Over the years he has received a number of science and math awards, beginning with a Certificate of Merit in the Scientific Journey – Pathways to Discovery contest in Grade 5. His love of sports has led him to see the great potential for using data management and statistical analysis to derive information and make predictions about his favourite athletic events.

This year Franco is continuing his math studies at the University of Waterloo. Although it is still early for him to make any career decisions, he has expressed an interest in pursuing opportunities in computational mathematics, computer science, statistics, and actuarial science. A co-op term in one of these fields would provide him with useful insight for making future career decisions.

Although Franco has worked hard on his studies and achieved a great deal of academic success, he still has found time to volunteer. For three summers from 2010–2012, he enjoyed applying his knowledge of computer science at the Bit by Bit Computer Camp held at Western University.

When not studying, working or volunteering, Franco enjoys reading fantasy and science fiction, playing chess and video games, and going to the park with friends.

He reflects many of the qualities that the late Hugh White, a former Secretary-Treasurer of the CIA and a former Director of the AFC, held dear: a passion for mathematics, excellence, and education, and a desire to give back to the community. Congratulations Franco, and best wishes for your future endeavours.

Note: the Hugh G. White Memorial Scholarship is awarded annually to the students at the London Central Secondary School and the Erin District High School with the highest mathematics mark from among the graduating class members who have applied and been accepted into a Canadian university program leading to a degree in actuarial science, mathematics, statistics, or computer science. For more information about the scholarship and previous winners, please visit the AFC’s website at www.afc-fac.ca.
 
THIS MONTH'S PUBLICATIONS

November's published documents:

BA078
Agenda: Board Meeting No 78 (November 28, 2013)
RFPONABLTD
Request for Proposals Regarding Ontario Accident Benefits Long Term Disability Research Project As at November 25, 2013
ORG1113
Organization of CIA Head Office
213102T Fuzzy Logic Examples
213102 Research Paper: Applying Fuzzy Logic to Risk Assessment and Decision-Making
213099 Educational Note Supplement: Guidance for Assumptions for Hypothetical Wind-Up and Solvency Valuations Update – Effective September 30, 2013, and Applicable to Valuations with Effective Dates Between September 30, 2013, and December 30, 2013
213098 Risk Management: Part Four – Incentive Compensation: The Critical Blind Spot in ERM Today
213095 Discipline Bulletin: Volume 20, no 1 (November 2013)
213077 Revised Educational Note—Dynamic Capital Adequacy Testing
OG2014 Orientation Guide 2013-2014
CECM2014 CE Committee Meetings for 2014
TIMELINE2014
2014 Annual Meeting Timeline
IMS
Information with Respect to Meeting Sessions
SREI
Information with Respect to Speaker Recruitment and Expenses
SES3-1INV2013
Session 3: ORSA Framework: Implementation Issues and Challenges (Rioux)
SES1INV2013
Session 1: Volatility Management (Papageorgiou)
SES2INV2013
SES2INV2013
Session 2: Financial Economics and Pensions (Gold)
SES5-1INV2013
Session 5: The use of Economic Capital in ORSA (Ozdemir)
213097
Submission to IFRS: IFRS Exposure Draft – Insurance Contracts
SES5INV2013
Session 5: Economic Capital (Finn)
SES3INV2013
Session 3: ORSA (Curtis)
SES1PEN2013
Session 1: PPFRC Update
SES4INV2013
Session 4: Investment Implications of Target Benefit Plans (McCrossan)
SES4-1INV2013
Session 4: Investment Implications of Target Benefit Plans (Bullock)
SES7INV2013
Session 7: The Global Economic Landscape and Investing in Emerging Markets (Dehn)
SES6PEN2013
Session 6: Retirement Savings: What should be the role of the Public vs Private sectors?
SES3PEN2013
Session 3: Update on the Canadian Pensioners Mortality Study
213096
Communiqué: Retirement age crisis? No. Questioning retirement age conditions? Canada’s actuaries say yes.
EECA109
Eligibility and Education Council Agenda - Meeting nº 109 (October 31, 2013)
EECMOTION
Eligibility and Education Council Motions (October 31, 2013)
EB1013
(e)Bulletin October 2013
EB1013PDF
(e)Bulletin October 2013 (pdf version)
SES4PEN2013
Session 4: Canadian Accounting Standards: The New Standards for Private Enterprises and Not-for-Profit Organizations (Estey)
SES5PEN2013
Session 5: ASB Update on New Actuarial Evidence Standards of Practice (Yake)
MSCM101
Member Services Council Minutes - Meeting nº 101 (August 27, 2013)
SES2PEN2013
Session 2: Regulators Update (Wong)
213094
Educational Note: Guidance for the 2013 Valuation of Insurance Contract Liabilities of Life Insurers
SP020114
Standards of Practice – Pensions (February 1, 2014)
SC020114
Standards of Practice (February 1, 2014)
213093
Educational Note Supplement: Canadian Pensioners Mortality
MSCA102
Member Services Council Agenda - Meeting nº 102 (October 29, 2013)
ORG102813
Organization of CIA Head Office
213090
Final Standards – Revision to the Practice-Specific Standards for Pension Plans – Mortality Assumption for Pension Commuted Values and Promulgation of Mortality Table
213089
Memorandum: Final Standards – Revision to the Practice-Specific Standards for Pension Plans – Mortality Assumption for Pension Commuted Values and Promulgation of Mortality Table
213091
Memorandum: Final Communication – Promulgation of Current Mortality Table for Pension Commuted Values

November's tweets from @CIA_Actuaries:

Changes in store for nuclear liability insurance in Canada http://www.canadianunderwriter.ca/news/eyeing-nuclear-liability/1002741171/ ... via @CdnUnderwriter

Good luck #actuary Jean-Guy Sauriol @Maple_Lys http://bit.ly/17AB3zW #GrandAdventure

Op-ed from CIA member Rob Brown, on insurers' access to genetic test data, is featured on iPolitics site http://bit.ly/ciaica324

Insurance industry in Toronto had "below average" growth over 10 years, says @ConfBoardofCda report http://bit.ly/ciaica323

Mutual insurers to amalgamate: Farmers’, Glengarry, and Lanark will form Commonwell Mutual on Jan. 1 http://bit.ly/ciaica322

CIA mortality research featured in @MacleansMagarticle on seniors: "the sunset years of life keep lasting longer" http://bit.ly/ciaica321

Canadian Council of Insurance Regulators releases final paper on use of electronic commerce in insurance products http://bit.ly/ciaica320

Presentation from Senior Deputy Governor of Bank of Canada to AMF on risk management, financial reform http://bit.ly/ciaica318

Financial Stability Board issues papers to help regulators strengthen risk management at financial institutions http://bit.ly/ciaica317

"Underinsurance is a real risk for Canadians who rely on group insurance" says @LIMRA http://bit.ly/ciaica316

As cost of water damage rises, experts call for plan for sustainable and suitable coverage from insurers http://bit.ly/ciaica315

@CLHIA calls on government to consider issuing ultra-long government bonds. Forecasts strong demand http://bit.ly/ciaica314

#Alberta government issues response to CIA note on alternative settlement methods for valuations http://bit.ly/ciaica313

@OSFIBSIF releases update to Life Insurance Regulatory Framework, including summary of work and timelines http://bit.ly/ciaica312

#FCIA#Actuaries kick off #CIAPensionSeminar today in #Toronto http://bit.ly/1eH4wd3

#pensions: CIA member Fred Vettese offers an early impression of what an expanded #CPP might look like http://bit.ly/ciaica311

@OSFIBSIF revises its approach to the granting of approvals for #reinsurance with a related party http://bit.ly/ciaica310

CIA report features in @globeandmailanalysis: "slower growth + higher expenditures = trouble for provincial budgets" http://bit.ly/ciaica309

What’s the Role of the Public and Private Sectors for #RetirementSavings? D’Amours report and more @ http://bit.ly/1eH4wd3

CIA member Fred Vettese on occupational #pensions: "The level of basic benefits should come under scrutiny" http://bit.ly/ciaica308

@futureworzel presents "What’s Next for Humanity? The Future, and Our Place in It" #CIAPensionSeminar http://bit.ly/1eH4wd3#Toronto

FASB votes to move forward with final standard on revenue recognition. Expected in Q1 2014 - via @edmontonjournal http://bit.ly/ciaica307

@OSFIBSIF releases letter sent to IASB re. exposure draft on insurance contracts: "adjustments are required" http://bit.ly/ciaica306

#Actuaries: have questions about the pension mortality tables? Get them answered #CIAPensionSeminar http://bit.ly/1eH4wd3 #Pension

@PBIActuarial opens #Toronto office. CIA members Clare Pitcher, Cyndi Rynne to be senior consulting actuaries http://bit.ly/ciaica303

@jandehn presents the global economic landscape and investing in emerging markets #CIAInvestmentSeminar http://bit.ly/HcRKbb

#CIAInvestmentSeminar presents economic capital models by Bogie Ozdemir http://bit.ly/1gBuZgK @Sunlife

#CIA Investment Seminar features investment implications of target benefit plans with Jessica Bullock and Paul McCrossan #FCIA

CIA member Barry Gros: TB plans and other solutions could get cost of #Ontario public sector pensions under control http://bit.ly/ciaica302

@OSFIBSIF releases new-look edition of newsletter The Pillar, includes address from Supt. Julie Dickson http://bit.ly/ciaica301

Macro-economic policy and possible implications for financial markets, including long-term interest rates http://bit.ly/1ibfvLJ #Actuaries


 
Calendar of Events

CIA Webcast on Professionalism - December 9, 2013 (offered in French)

CIA Webcast on Professionalism - December 11, 2013 (offered in English)

Actuarial Standards Oversight Council Public Meeting – Toronto – December 12, 2013 and Webcast

Join us to share your thoughts on the Actuarial Standards Oversight Council, the Actuarial Standards Board, and the actuarial standards-setting process. Guest speaker Sally Gunz, professor of business law and ethics at the School of Accounting and Finance at the University of Waterloo, will give a presentation on actuarial standards and the public interest. Attendance at the meeting can be used towards CPD Professionalism credits. 

CIA 2014 Practice Education Course – Ottawa – June 1–4, 2014

CIA 2014 Annual Meeting – Vancouver – June 18–19, 2014

CIA 2014 Seminar for the Appointed Actuary – Toronto – September 22–23, 2014

CIA 2014 Pension Seminar – Montréal – November 4, 2014

CIA 2014 Investment Seminar – Montréal – November 5, 2014

CIA 2015 Annual Meeting – Ottawa – June 17–18, 2015

 
Board and Council Updates
Eligibility and Education Council

The following people have been appointed to the (sub)committees named below, effective immediately unless otherwise stated:
  • Accreditation: Peter Muirhead (Vice-chair), Claude Pichet, and John Dark (reappointment);
  • Committee on Continuing Education (CEC) subcommittees:
    • Investments: Martin Leroux, Harry Satanove, Sheldon Liu, and Ivy Lee, retroactive to February 2013; and
    • Individual Life and Health Insurance: Jean-Pierre Cormier (Chair)—he has also been appointed as a member of the CEC.
For information only

The following people have resigned from the groups named below:
  • Accreditation: John Dark (resigned as Vice-chair) and Cara Low;
  • Committee on Continuing Education (CEC) subcommittees:
    • Investments: Tony Williams and Sunny Oh; and
    • Individual Life and Health Insurance: Dominic Hains (resigned as Chair)—he has also resigned from the CEC.
Member Services Council

The following people have been appointed to the (sub)committees named below, effective immediately unless otherwise stated:
  • Research: Mario Robitaille;
  • Subcommittees of the Research Committee:
    • Individual Life Experience: Annie Girard and Nicolas Rochon;
    • P&C Research: Matthew Buchalter and Denise Cheung, effective September 19, 2013;
    • Group Annuitant Mortality Experience: Mario Robitaille (Chair), Claire Bilodeau, Steve Bocking, Van Bui (not a CIA member), Paul Burnell, Diana Pisanu, Myriam Roux, and Sylvain Veilleux; and
    • Annuitant Experience: Julie Chambers; and
  • Enterprise Risk Management Applications: Patrick Duplessis, Jill Knudsen, Elaine Lajeunesse, Pierre-Paul Renaud, and Shawn Sampson, effective September 13, 2013.
The Government Liaison Task Force on Pensions and the Task Force on Financing of Employment Insurance have been disbanded with thanks, effective immediately.

The MSC has approved the creation of the Health Committee and its proposed mandate, as well as the following appointments: Isabelle Bouchard, Robert Brown, Claude Ferguson, John Have, Pierre-Yves Julien (Chair), Stéphane Levert, Gary Mooney, Gary Walters, and Ella Young (not a CIA member). Staff support will be provided by Les Dandridge, Chris Fievoli, and Michel Simard.

1. Membership
Membership of the Health Committee (HC) is open to CIA members and non-members.

2. Purpose
  • To support the CIA’s involvement in discussions at the national and provincial levels on matters relating to health systems, with a particular focus on important actuarial contributions;
  • To raise the profile of actuaries in policy debates and research on health systems; and
  • To support actuaries working in the health systems field.
3. Role
To achieve its stated purpose, the HC will:
  • Reflect the views of the Canadian actuarial community in discussions and debates at the national and provincial levels on health systems issues;
  • Liaise with relevant councils and committees on actuarial involvement in health system research;
  • Promote the public interest through developing the role actuaries can play in health systems; and
  • Work to develop guidance and promote best practice for actuaries providing actuarial advice on health system matters, and to support the development of actuarial education in the health field.
4. Decision-Making Authority
The HC operates within the CIA’s Bylaws and policies and makes recommendations for action by councils or the Board as appropriate.

5. Reporting on HC Activities
The HC will report on its activities to the Member Services Council.

6. CIA Liaison
The HC will liaise with other CIA councils and committees as required to carry out its role and activities. This will include, where relevant, the Practice Council and the committees on continuing education and international relations.

7. External Liaison
The HC will liaise with external stakeholders as required to undertake its role and activities.
For information only

The following people have completed their terms as members of the groups named below, and leave with thanks:
  • Communications Committee: Alon Halbrich, effective June 2013;
  • Research Committee subcommittees:
    • Individual Life Experience: Marie-Josée Blanchet and Kim Girard, effective immediately;
    • P&C Research: Danielle Harrison and Elaine Lajeunesse, effective September 19, 2013; and
    • Annuitant Experience: Robert Howard, effective immediately.