Canadian Institute of Actuaries. L Institut canadien des actuaires Seminar for the Appointed Actuary Colloque pour l actuaire désigné 2006

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1 Canadian Institute of Actuaries L Institut canadien des actuaires 2006 Seminar for the Appointed Actuary

2 2006 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

3 2006 Fall Letter - Background Guidance for 2006 Valuation Consensus view of CLIFR CLIFR Committee Chair TyFaulds 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

4 2006 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 yesterday in CLIFR I

5 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

6 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: English Approved by CLIFR In French Translation Recommendation to PC Shortly

7 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

8 Valuation of Universal Life Guidance on Tax Considerations Investment Income Tax Foreign Withholding Tax Exempt Status Unit Trusts Margins for Adverse Deviations Status: Recommended to PC

9 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

10 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

11 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

12 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

13 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

14 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

15 2006 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 reasonable to assume the industry proposal will be accepted 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

16 2006 Fall Letter New Guidance Segregated Funds Guarantees Hedging As outlined in Dale s Presentation Long Term Equity Returns Additional Guidance for Returns outside of Canada

17 2006 Fall Letter Guidance Essentially Unchanged Insurance Mortality Annuity Mortality Lapse Study Universal Life Balance Sheet Allowance for Acquisition Expenses Currency Risks Value of Minimum Interest Guarantees and Embedded Options

18 Fall Letter and Published Educational Notes Section 1220 of the Standards.01The 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