2006 Seminar for the Appointed ActuaryColloque pour l’actuaire désigné 2006

2006 Seminar for the Appointed ActuaryColloque pour l’actuaire désigné 2006

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institutcanadiendesactuaires

L’Institutcanadiendesactuaires

2006

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2006

2006

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2006 2006 CLIFR Draft Fall Letter2006 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

• 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

2006

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2006

2006

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2006 2006 Fall Letter - Background2006 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

• 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

2006

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2006

2006

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2006 2006 Standard Revisions2006 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

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 New Educational Notes

• CALM Implications of AcSB Section 3855 Financial Instruments – Recognition and Measurement (number 206077)– 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

• CALM Implications of AcSB Section 3855 Financial Instruments – Recognition and Measurement (number 206077)– 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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: English Approved by CLIFR

– In French Translation– Recommendation to PC Shortly

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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: Recommended to PC

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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

• 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

2006

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2006

2006

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2006 2006 New Educational Notes2006 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

• 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

2006

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2006

2006

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2006 2006 Fall Letter – New Guidance2006 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

• 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

2006

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2006

2006

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2006 2006 Fall Letter – New Guidance2006 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

• Segregated Funds Guarantees – Hedging– As outlined in Dale’s Presentation

• Long Term Equity Returns– Additional Guidance for Returns outside of

Canada

2006

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2006

2006

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2006 2006 Fall Letter – Guidance

Essentially Unchanged2006 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

• Insurance Mortality• Annuity Mortality• Lapse Study – Universal Life• Balance Sheet Allowance for Acquisition

Expenses• Currency Risks• Value of Minimum Interest Guarantees

and Embedded Options

2006

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2006

2006

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2006 Fall Letter and Published

Educational NotesFall 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

• 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