Actuary s Guide to Filing the Capital Guideline Certification Report Insurance of Persons

Transcription

1 Actuary s Guide to Filing the Capital Guideline Certification Report Insurance of Persons Senior Direction, Supervision of Insurers and Control of Right to Practise September 2017

2 Legal deposit Bibliothèque et Archives nationales du Québec, 2017 Legal deposit Library and Archives Canada, 2017 ISSN (on-line version)

3 Table of Contents Section Preface Section 1 Introduction Section 2 Technical calculations Section 3 Judgment or interpretation Section 4 Actuary s certificates D1 D2 D3 D4 D5 Appendix 1 Additional information D6 Appendix 2 Information on calculations and coefficients used D7

4 Preface This Guide is intended for actuaries of Québec chartered insurers of persons. It sets out the requirements of the (the AMF or the Authority ) for the content of the capital guideline certification report required under subsection 2470 of the Standards of Practice Practice-Specific Standards for Insurers of the Canadian Institute of Actuaries (the CIA ). It does not in any way limit the information that may be provided in the report. The actuary should include all information in addition to that indicated in this Guide that is necessary for a proper understanding of his work. As required in section of An Act respecting insurance, CQLR, c. A-32 (the Act ), the actuary shall apply generally accepted actuarial practice in carrying out his work. He shall, however, take into account any changes made thereto by the AMF. The capital guideline certification report must, in particular, be consistent with subsection 2470 of the CIA s Standards of Practice Practice-Specific Standards for Insurers and comply with the spirit of the CIA s Educational Note entitled Regulatory Capital Filing Certification (document ) of May For actuaries of Québec chartered insurers of persons, this standard of practice covers the calculations required by the Capital Adequacy Requirements Guideline ( CAR Guideline ). The actuary may be asked, if necessary, to produce additional explanations regarding his work. He must therefore collect and keep: the tests, studies and other analysis he carried out; the documents that could provide a clear and complete justification for the methods and assumptions used; the control procedures for data, assumptions and calculations; all relevant documents related to the performance of his work. The actuary must ensure to produce a clear and complete report that includes all the sections presented in this Guide. The inclusion of all such sections is required for administrative purposes. Thus, a section that does not apply to an insurer must still be included in the report. The report must also include a detailed table of contents, with the sections appearing in the same order as in this Guide. If the actuary deems it appropriate to add sections to the report, they must be attached with the appendix. The report must be submitted to the AMF after the fiscal year-end, along with the QFP disclosure form. September 2017 D1.1

5 Section 1 Introduction In this section of the report, the actuary must describe the following: the objective of the report; the procedures used to verify the integrity and validity of the data as well as the accuracy of the calculations; the standard of materiality applied in determining the components of the capital adequacy requirements ( CAR ) calculation; the internal target ratio defined by the insurer, as well as a list of the internal corrective actions and measures that would be taken as a result of an actual or anticipated failure to comply with the target. The actuary may also include in this section any other information that he deems necessary for a proper understanding of his work, such as the existence of particular circumstances in establishing the CAR ratio. September 2017 D2.1

6 Section 2 Technical calculations In this section of the report, the actuary must validate not only the technical accuracy of the calculations, but also the judgment exercised in the calculations, in cases where they required judgment. For AMF-approved models, this means that the calculations were performed in accordance with the parameters and other aspects of the model outlined in the approval application documentation. The CIA s Educational Note provides a non-exhaustive list of the areas in which the technical calculations would be examined and validated. The actuary must, in particular: explain how he ensured that the qualifying participating policies meet the criteria defined in section of the CAR Guideline. Particularly, he must show that the present value of the dividends projected with the valuation assumptions is higher than the decrease in the required capital obtained by applying reduced risk factors; mention which products are considered qualifying adjustable. He must explain how he ensured that these products meet the criteria defined in section of the CAR Guideline. Also, the risks for which the capital is reduced must be mentioned; describe the use of certain deposits to reduce the required capital amount for certain risk components, and explain how he ensured that such deposits meet the criteria defined in section 1.4 of the CAR Guideline; provide complete information on the calculation of required capital in respect to segregated fund guarantee risk, in particular: - indicate whether the calculation was performed using the factors set out in the CAR Guideline or the internal models; - indicate the method selected, i.e., the Global method or the Expected payment date method. If the calculation was performed using the factors and with the Expected payment date method, he must provide information on the net capital amounts according to the time-to-maturity and annuitant age groups, as defined in section of the CAR Guideline under Additional information ; - clearly explain the treatment of the deferred acquisition costs. September 2017 D3.1

7 Section 3 Judgment or interpretation In this section of the report, the actuary must briefly describe the areas in which he exercised material judgment concerning the level of required and available capital. He must outline the specific elements involved, as well as provide the interpretation applied and justify it. This would include the areas related to technical calculations where such judgment is applied. The CIA s Educational Note provides a non-exhaustive list of the areas in which material judgment may be exercised in interpreting the CAR. It should be noted, however, that the AMF expects insurers to inform it in advance, if deemed appropriate, of any situation for which treatment is not covered by the CAR or for which the proposed treatment seems inadequate. This also applies to any difficulty arising from an interpretation of the requirements set out in the CAR. September 2017 D4.1

8 Section 4 Actuary s certificates In this section of the report, the actuary must reproduce the wording of the actuary s certificate which is presented on the title page of the QFP disclosure form. The certificate wording corresponds to the recommendations of the CIA s Standards of Practice # Moreover, when an internal model is used to evaluate the required capital for segregated funds guarantees, the actuary must reproduce the certificate recommended in the CIA's Standards of Practice # The actuary must sign his certificate. This signing must be original in his report, as well as on the QFP disclosure form. September 2017 D5.1

9 Appendix 1 Additional information The CAR Guideline requires the disclosure of some of the insurer s consolidated data. Such data stem from calculations performed in accordance with this Guideline. In order to provide for a better assessment of the results, the actuary must briefly describe events (e.g. increase in business, new reinsurance agreement, portfolio acquisition), changes (e.g. changes to valuation assumptions, changes to the grouping of policies in the mortality component, change in investment policy, change in economic situation) or errors that materially affect the annual absolute variation of capital and/or solvency ratio in comparison with the previous year. The actuary s judgment is essential in determining whether the events, changes or errors have a material impact on capital. The actuary must briefly describe such events, changes or errors for each of the following capital components used in determining the insurer s CAR solvency ratio: available capital: - negative actuarial liabilities; - excess cash value over actuarial liabilities. all required capital components (asset yield deficiency, mortality, lapse, indexed products, etc.): - e.g. for mortality, describe the source(s) of the annual variation in the standard deviation of the upcoming year s projected net death. September 2017 D6.1

10 Appendix 2 Information on calculations and coefficients used According to the CAR Guideline, the actuary must provide detailed information about certain calculations and coefficients used, as well as a breakdown of certain adjustments. The actuary must attach to this report all the information requested in the CAR Guideline disclosure form. The actuary must note that the information requested is indicated in the footnotes in the CAR Guideline disclosure form. September 2017 D7.1