Actuarial Notes

Role of the Appointed Actuary Under IFRS 17

By Canadian Institute of Actuaries · 2022 · 222174

Study guide: Exam 6C

A CIA educational note on the Appointed Actuary's duties and responsibilities under IFRS 17 and the Standards of Practice revised for it. Issued in December 2022 (document 222174) by the Committee on the Appointed/Valuation Actuary, it explains the rationale for the changes made to the Standards and addresses the questions Appointed Actuaries may ask: using and taking responsibility for the work of others, reporting with reservation, and the revised wording of the opinion. It applies to both life and health and P&C valuations.

On the syllabus

  • Exam 6C — objective C1; the December 2022 note, with no sections excluded.

Introduction

  • Under IFRS 17 the accounting profession sets the rules for the GAAP valuation, which remains in use for public and regulatory reporting, so the Appointed Actuary remains responsible for an opinion on it.
  • Section 2300 of the Standards adopts the International Standard of Actuarial Practice for IFRS 17 for both life and health and P&C valuations, and Section 2200 now covers Canadian-specific considerations.
  • Not covered, because the related Standards did not change: investment contracts (IFRS 9), service contracts (IFRS 15), external peer review, the impact of IFRS 17 on FCT, and the Life Insurance Capital Adequacy Test/Minimum Capital Test.

1 What has not changed

  • The Appointed Actuary remains a reserved role under the Insurance Companies Act, the Québec Insurers Act or other provincial Acts, whose requirements have not changed.
  • The AA continues to opine on the valuation of policy liabilities — a term that extends beyond the IFRS 17 insurance contract liabilities — and to produce a formal report for the regulator, such as that required by OSFI's Memorandum to the Appointed Actuary.

2 Using and taking responsibility for the work of others

  • Finance or other management areas may set accounting policies, methods or assumptions — for example the discount rate approach, contract boundary, coverage units, level of aggregation, the risk adjustment and PAA eligibility.
  • To "rely" on the work of others is to use it without taking responsibility, which leads to a report with reservation; to report without reservation the AA must use and take responsibility for items set by others (Paragraph 2210.05, subsection 1510).
  • 2.1 Deciding whether to take responsibility for items set by others
    • Five questions: is the item consistent with a reasonable interpretation of IFRS 17; with accepted actuarial practice in Canada; are subsection 1510's recommendations satisfied; is it similar to what the AA would have chosen; and can the AA judge it without substantial additional work.
  • 2.2 Reporting with reservation
    • Paragraphs 2230.19–.29 give examples: a new appointment, impracticality of restatement, takeover of an insurer with insufficient records, liabilities different from those calculated by the actuary, and a change in assumption or methodology affecting disclosure items.

3 The opinion

  • The revised opinion says the amount of policy liabilities "is appropriate for this purpose" — inclusion in financial statements prepared in accordance with IFRS — replacing "makes appropriate provision for all policy obligations".
  • The clause "including selection of appropriate assumptions and methods" was removed as redundant, and to avoid confusion when a method or assumption is set by another party.
  • The wording that the financial statements "fairly present the results of the valuation" is unchanged, but its scope is broader, since more line items (e.g., insurance revenue) are derived from the valuation.

4 Additional considerations for valuation work that is not subject to IFRS 17

  • Where a valuation is not in accordance with IFRS 17, Sections 2200 and 2300 do not apply (Paragraph 2110.04); the AA identifies the applicable standards and follows the valuation parameters they define.
  • With no applicable accounting standard, the AA may follow IFRS 17 or the general section of the Standards and the pre-IFRS 17 guidance, in which claims and premium liabilities are discounted with provisions for adverse deviations.

Appendix: Case studies

  • Case Study #1 – Discount rates/Illiquidity premium
  • Case Study #2 – Grouping
  • Case Study #3 – Reinsurance (risk adjustment)
  • Case Study #4 – Splitting of a reinsurance treaty
  • Case Study #5 – PAA earned revenue
  • Each case works through the questions of Section 2 to decide whether the AA could report without reservation; the appendix is not intended to mandate what the AA would do.

Related readings

  • CIA CSOP — the Standards of Practice whose revision for IFRS 17 this note supplements
  • OSFI Memorandum — OSFI's Memorandum to the Appointed Actuary, the formal report §1 says the AA continues to produce
  • CIA Discount Rates — a later version of the P&C discount-rate educational note Case Study #1 refers to
  • CIA IFRS 2 — a later version of the P&C risk-adjustment educational note Case Study #3 refers to
  • CIA IFRS 1 — a later version of the reinsurance educational note Case Study #3 refers to

Sources