1. Canadian Institute of Actuaries L’Institut canadien des actuaires
2006 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2006
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

2. PD-10 – AuG-43: Impact on Actuaries and Auditors
David Oakden
Office of the Superintendent of Financial Institutions
Sept. 22, 2006
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

3. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
Outline
E – 15
Appointment
Role and Duties
Qualifications
External Review
AuG-43 vs ER
Experience with ER
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

4. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
Appointment
Not CEO, COO or CFO
Notify OSFI in writing
Directors may revoke appointment
AA must submit letter explaining reasons
New AA must review letter
Minimal delay in appointing new AA
OSFI meets with new AAs
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

5. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
Role and Duties
Annual Valuation (AAR)
Financial Condition (DCAT)
Three years
Include actual experience
Report to Directors or Audit Committee
Adverse Condition Report
If necessary
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

6. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
Qualifications
Canadian Experience
3 years in last 6
CPD up to date
No Public Discipline
AA Certificate (when applicable)
OSFI expects AAs to meet the requirements of the current draft
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

7. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
External Review
Introduced by OSFI in 2003
Enhance the reliance process
Provide an independent check of the work of the appointed actuary
Narrow the range of results
Provide education for the AA
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

8. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
External Review
Work to be Reviewed (P & C)
AAR
DCAT
Scope of Review
No detailed calculations
Controls
Procedures
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

9. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
External Review
Qualifications of External Reviewer
Same as AA
Sufficient experience
Related to business of company
Independent
Company AA
May be External Auditor
Must be pre-release
OSFI prefers pre-release ERs
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

10. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
External Review
Change Reviewers
Every 6 years
Can use same firm
Report
Written
Description of agreed changes
Current report
Future report
Unresolved Issues
Available to Board/Audit Committee
Available to OSFI
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

11. AuG-43 vs External Review
Detailed calculations
Results
Controls
No written report
External Review
No detailed calculations
Procedures
Assumptions
Documentation
DCAT
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

12. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
Experience With ERs
OSFI has reviewed over 100 reports
We found the process effective
Almost all ERs contained suggestions which would improve the reports
Some ERs identified significant noncompliance with standards/OSFI Memorandum
ERs are written reports available to management, the Board and OSFI
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

13. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
ER Recommendations
Improved descriptions of
Company operations
Case reserving practices
Reinsurance program
Improvements to exhibits
Include prior year selected factors
Better references to source data
Unpaid Claims and Loss Ratio Analysis exhibit not completed correctly
Include a summary exhibit for development
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

14. ER Recommendations (ct’d)
Recommendations for additional exhibits
Data reconciliation
Gross and net development
Reinsurance summary
Rationale for PfAD selection
Discounting
Interest rate
Too subjective
Should be net of expenses
Impact of change in methods should be disclosed
In some cases provisions were not discounted
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

15. ER Recommendations (ct’d)
PfADs
Not within the range
At low/high end of range with no justification
Change from prior year is not explained
Payment pattern
Payment pattern not consistent with selected provisions
Selected payment pattern not shown in report
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

16. ER Recommendations (ct’d)
Claim liabilities
Calculation errors were identified
Selected method not shown in AAR
Additional methods should be considered
Some lines are not credible, should be combined or industry benchmark used
Very conservative assumptions
Paid and incurred tail factors are not consistent
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective

17. PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective
External Review
Strengthens and validates our reliance process
Revised E–15
OSFI will revisit its E-15 requirements in the next couple of years to eliminate any areas of duplication with AuG-43
PD-10 - AuG-43: Impact on Actuaries and Auditors OSFI Perspective