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2006 General Meeting PD 30 CLIFR Update Assemblée générale 2006 Chicago, Illinois Canadian Institute of Actuaries L’Institut canadien des actuaires.

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Presentation on theme: "2006 General Meeting PD 30 CLIFR Update Assemblée générale 2006 Chicago, Illinois Canadian Institute of Actuaries L’Institut canadien des actuaires."— Presentation transcript:

1 2006 General Meeting PD 30 CLIFR Update Assemblée générale 2006 Chicago, Illinois Canadian Institute of Actuaries L’Institut canadien des actuaires

2 2006 General Meeting PD 30 CLIFR Update Assemblée générale 2006 PD 30 CLIFR Update Subsections 2320 and 2330 Standard Changes and Calibration of Interest Rate models Les Rehbeli Considerations in the Valuation of Segregated Fund Products Nazir Valani Recent Education Notes and 2006 Fall Letter Ty Faulds

3 2006 General Meeting PD 30 CLIFR Update Assemblée générale CLIFR Draft Fall Letter Background Revisions to Standards New Educational Notes CALM Implications of 3855 Best Estimate Assumption for Expenses Approximations to CALM Valuation of Universal Life Margins For Adverse Deviation Use of Actuarial Judgement New or Revised Guidance Guidance Essentially Unchanged

4 2006 General Meeting PD 30 CLIFR Update Assemblée générale Fall Letter - Background Guidance for 2006 Valuation Consensus view of CLIFR CLIFR Committee Chair – Ty Faulds Vice Chair – Les Rehbeli Members – Wally Bridel, Sylvain Côté, Edward Gibson, Greg Lawrence, Marie- Hélène Malenfant, Dale Mathews, Jean Mongrain, Claude Normand, Hélène Pouliot, Sheldon Selby, Mary Stock, Nazir Valani

5 2006 General Meeting PD 30 CLIFR Update Assemblée générale Standard Revisions Practice-Specific Standards for Insurers, Part 2000 (except section 2100) (206070) May 2006 –Technical Amendments Practice-Specific Standards for Insurers, Section 2100 (206075) June 2006 –Remainder of changes for MfADs Practice-Specific Standards for Insurers, Sections 2320 and 2330, Life and Health Insurance –Discussed earlier by Les

6 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes CALM Implications of AcSB Section 3855 Financial Instruments – Recognition and Measurement (number ) –Published June 2006 –discusses the impact of the accounting changes on valuation –Various classification options available AFS, HFT,…. –Issues and challenges Data HFT and FVO Volatility, Asset and Liability Mismatchs Future Taxes Controls

7 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes CALM Implications of AcSB Section 3855 Financial Instruments – Other Education Notes –Revisions to Expense Education Note Minor changes Status: Recommendation to PC –Revisions to Approximation Ed Note Building on Town Hall discussions Status: Recommendation to PC

8 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes Valuation of Universal Life –Unique Characteristics –Guidance on Policyholder Reasonable Expectations Policyholder Behaviour Reinvestment Assumptions –Non-debt instruments Risks Related to Equity Investments Special Considerations for –Mortality and Persistency –Transfer of Funds and Premium allocation –Policyholder Credited Rate

9 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes Valuation of Universal Life –Guidance on Tax Considerations –Investment Income Tax –Foreign Withholding Tax –Exempt Status –Unit Trusts Margins for Adverse Deviations –Status: On Hold

10 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes Margins For Adverse Deviation –Building on Changes to Standards –Released as Draft in 2005 pending changes to Standards –Minimal Changes to Draft –Status: Recommended To PC

11 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes Use of Actuarial Judgment –review current ways actuarial judgement is brought in to the GAAP financial reporting process and determine what guidance can be provided to ensure compliance with standards and narrow the range of practice

12 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes Use of Actuarial Judgment (cont’d) –Background –Principles for setting assumptions and margins –Considerations for Non Scenario Tested Assumptions –Modeling –Scenario Testing –Segregated Fund Reserves

13 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes Use of Actuarial Judgment (cont’d) –Principles Assumptions and margins are justified on a prospective basis. Maintaining an assumption/margin subject to same level of scrutiny. The change in policy liabilities does not reflect a change in past experience that the actuary has sufficient reason to believe is temporary

14 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes Use of Actuarial Judgment (cont’d) –Principles The change in expected assumption is supported with data that indicate a need for change. The change in the margin for adverse deviation is supported by a change in the level of risk. The change in assumption is not manipulative. –methods to determine assumptions are predetermined and are not subject to irregular or inconsistent application over time

15 2006 General Meeting PD 30 CLIFR Update Assemblée générale New Educational Notes Use of Actuarial Judgment (cont’d) –Replaces content of 2005 Fall Letter on Reinvestment Strategies Policy Liabilities for Cyclical Risks Selection of CTE Coverage Level –Status: Recommendation to PC

16 2006 General Meeting PD 30 CLIFR Update Assemblée générale Fall Letter – New Guidance Implications of 3855 on Tax –Tax implications recognized when new Accounting Standard Effective –As of this point no formal response from Finance In absence of such caution should be used in projecting any favorable tax timing results as a result of the accounting changes. Implications on Amounts on Deposit and Claim Provisions –Guidance on determining when the term of this liability is independent of the term of the base liability

17 2006 General Meeting PD 30 CLIFR Update Assemblée générale Fall Letter – New Guidance Considerations in the Valuation of Segregated Fund Annuities –Retains content from old ‘Balance Sheet Allowance for Acquisition Expenses’ section –New content as outlined in Nazir’s Presentation Long Term Equity Returns –Additional Guidance for Returns outside of Canada

18 2006 General Meeting PD 30 CLIFR Update Assemblée générale Fall Letter – Guidance Essentially Unchanged Insurance Mortality Annuity Mortality Lapse Study – Universal Life Currency Risks Value of Minimum Interest Guarantees and Embedded Options

19 2006 General Meeting PD 30 CLIFR Update Assemblée générale 2006 Fall Letter and Published Educational Notes Section 1220 of the Standards –.01 The actuary should be familiar with relevant educational notes and other designated educational material. –.03 A practice which the notes describe for a situation is not necessarily the only accepted practice for that situation and is not necessarily accepted actuarial practice for a different situation. Available on CLIFR Website


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