Actuarial Notes

Accepted Actuarial Practice

Study guide: Exam 6C

Accepted Actuarial Practice is the body of practice a Canadian actuary is required to follow. It is defined by the Canadian Institute of Actuaries (CIA)'s Standards of Practice, supplemented by educational notes and other guidance, and by generally accepted practice where the standards are silent. The phrase matters because it is the statutory hook: the Insurance Companies Act requires Insurance Contract Liabilities to be valued "in accordance with accepted actuarial practice."

  • The statutory link is what gives the CIA's standards legal effect. Parliament did not write a valuation method into the Act; it referred to the profession's own standards, so the CIA's Standards of Practice become binding on federally regulated insurers by reference — with the addition of "as modified by any direction of the Superintendent."
  • It is not a single document. The hierarchy runs: Rules of Professional Conduct (conduct), Standards of Practice (binding practice requirements), educational notes and research (non-binding guidance on how to comply), and generally accepted practice where none of these speak.
  • Deviation is permitted with disclosure. An actuary may depart from the standards where circumstances warrant, provided the departure and the reason are disclosed. What is not permitted is departing silently.
  • It evolves. Accepted practice in 2026 is not what it was in 2020: IFRS 17 replaced margins for adverse deviations with the risk adjustment, and FCT replaced DCAT. An actuary applying yesterday's practice today is not complying, and the continuing professional development requirement exists for this reason.
  • The Appointed Actuary cannot delegate the judgement. Relying on another actuary's work, or on management's view, is permitted with disclosure — but the opinion given is the Appointed Actuary's, and accepted actuarial practice governs it.

Is This Accepted Actuarial Practice? Assess each.

  1. Selecting a development factor at the low end of a reasonable range because management prefers a lower reserve.

  2. Using a method not described in any CIA standard or educational note, because the line of business is novel.

  3. Using the PAA for a three-year contract without documenting the eligibility demonstration.

  4. Setting the risk adjustment by a cost-of-capital method rather than a confidence-level method.

Answer

  1. Not accepted practice. Selecting within a range is legitimate; selecting because management prefers the answer is not — the basis for the selection must be the evidence. It is also a Rules of Professional Conduct issue (integrity), not merely a technical one, and if the effect is material it engages the Duty to Report.
  2. Potentially accepted practice. The standards do not enumerate permitted methods. A novel line may require a novel approach, and the actuary must satisfy the general requirements: the method must be appropriate to the work's use, the assumptions supportable, and the approach and its limitations disclosed. Novelty is not the problem; undisclosed novelty is.
  3. Not accepted practice, and this one is a documentation failure rather than a judgement failure. IFRS 17 permits the PAA beyond one year only where the insurer demonstrates the results would not differ materially from the GMM. Without the demonstration on file, the eligibility conclusion is unsupported — and the auditor and the regulator will both ask for it.
  4. Accepted practice. IFRS 17 does not prescribe a technique; it requires the equivalent confidence level to be disclosed. A cost-of-capital risk adjustment translated into a disclosed percentile complies fully. Choosing a method the standard permits, and disclosing what the standard requires, is exactly what accepted actuarial practice means.