June 29, 2006  Le 29 juin 2006 Ottawa, Ontario International Actuarial Accounting and Regulatory Developments for Insurance W. Paul McCrossan, FCIA Val-4 CIA Annual Meeting Assemblée annuelle de l’ICA

International Accounting Background (IASC 1997 – 2001) 1995 IOSCO mandate to IASC to develop comprehensive international accounting standards 1997 IASC starts insurance accounting project 1999 IASC issues insurance Basic Issues Paper 2000 IASC Field visits (including 3 insurers in Canada) 2000 EU designates IAS as preferred standard setter for Europe 2001 IASC in the midst of DSoP (Draft Statement of Principles) when IASB formed VAL-4

International Accounting Background (IASB 2001 – 2004) 2001 IASB formed (14 member Board) 2002 IASB splits insurance into 2 phases 2003 Consistency of asset / liability measurement dominates 2004 Phase I IFRS 4 adopted (LAT, Shadow accounting, Current interest) 2005 Study of phase 2 IFRS 4 commences 2006 Discussion paper for IFRS 4 phase 2 expected to be released in December, 2006 VAL-4

International Accounting Background (Convergence) 2000 IOSCO approves IAS 2000 EU indicates IAS preferred option if standards OK 2002 FASB signs Norwalk agreement to converge 2005 EU adopts IFRS (except IAS 39 – macro hedging / FV option) 2005 Australia adopts IFRS 4 (except must use FV option) 2005 Canada indicates convergence to IFRS in time 2005 Japan indicates convergence to IFRS in time 2006 MoU with FASB convergence over 3 years? VAL-4

International Accounting Background (Phase 2 Key Insurance Issues ) Renewal premium recognition (when, why and how) Discretionary Par Features (liability or equity?) Discount rate (risk free or adjusted to reflect “liquidity premium”?) Assumptions (including policyholder / insurer behaviour?) Single core set of accounts with regulators or just reconciled to regulatory? VAL-4

International Accounting Background (Phase 2 Key Insurance Issues) - Cont’d Risk margins on top of current estimates? Calibration? Entry or exit value (profit at issue?) Calibration? Acquisition expense? Own credit standing? VAL-4

International Accounting Background (Timetable) 2006 Discussion Draft targeted for December? 2007/8 Exposure Draft? 2009 Final IFRS? 2011 Implementation? VAL-4 [Helmut speaks about IAIS here]

IAA Role with IAIS / IASB Close liaison IAIS (liabilities, accounting, solvency, risk margins) Active cooperation / consultation between IAIS / IAA Less close liaison IASB IWP meets a few times a year IAA one of many providing input – heavy company involvement especially from Europeans VAL-4

CIA Role with CICA / OSFI / IAA 1980s / 1990s partnership with CICA / OSFI / industry appears broken CICA moving without consensus in Canada (3855) producing extra expense, less relevant and less reliable statements? OSFI very active internationally inside IAIS (? the most active regulator?) Action in the short term is on solvency (EU Solvency 2) Solvency 2 may lead IFRS phase 2 creating “facts on the ground” that OSFI / CIA need consider VAL-4

CIA Role with CICA / OSFI / IAA (Cont’d) IAA increasingly demanding of time and effort to influence Europeans increasingly involved due to EU mandate for IFRS Canadians not deeply involved in practical implementation issues – waiting for decisions? VAL-4

Strategic Options for CIA Move closer to OSFI? Mutually beneficial? Promote regulatory “vision”? Increase active involvement with IAA (David Congram, Steve Humpheys, Kim Yeoh, Stuart Wason, Allan Brender, Harold Hugel already involved) Unless ratchet effort up, Canada / CIA might become “actuarial backwater” How can CIA remain relevant given time demands required? VAL-4