Actuarial Notes

Financial Condition Testing

By Committee on Risk Management and Capital Requirements, Canadian Institute of Actuaries · Canadian Institute of Actuaries · 2023 · 223010

Study guide: Exam ILA-201I

A CIA educational note that provides guidance and support to actuaries of life and property and casualty insurers in performing financial condition testing (FCT) analyses in accordance with Section 2500 of the Standards of Practice for insurance. Prepared by the Committee on Risk Management and Capital Requirements and dated January 2023 (document 223010), it updates the April 2020 note to reflect IFRS 17 concepts and terminology, with an effective date of January 1, 2023.

On the syllabus

  • Exam ILA-201I — Management and Evaluation of Life Insurance Risks, outcomes 3a and 3b; CIA Educational Note: Financial Condition Testing, Jan 2023 (Appendix A only).

1 Introduction

2 Method

  • Process
  • Approach
  • Recent and current financial position
  • Forecast period
  • Materiality standard
  • Base scenario
  • Adverse scenario selection and assessment of percentile ranking
  • Integrated scenarios
  • Ripple effects and corrective management actions
  • Ripple effects
  • Corrective management actions
  • Classification of management actions
  • IFRS 17 considerations

3 Modelling

  • Basic requirements of the model
  • IFRS 17 modelling considerations
  • Model validation
  • Modelling of ripple effects
  • Organizational considerations

4 Reporting

  • FCT and ORSA integrated report
  • Investigation and report

Appendices Discussion and analysis of risk categories

Appendix A Life insurers

    1. Mortality risk
    1. Morbidity risk
    1. Persistency and lapse risk
    1. Market and credit risk
    1. Inflation risk
    1. Reinsurance held risk
    1. Business volume and mix risk
    1. Expense risk
    1. Government and political issues risk
    1. Off-balance-sheet items risk
    1. Related companies risk
    1. Climate-related risks
    1. Technology and cyber risk

Appendix B Property and casualty insurers

    1. Claim frequency and severity risk
    1. Liability for incurred claims risk
    1. Inflation risk
    1. Volume and mix of business risk
    1. Reinsurance held risk
    1. Market and credit risk
    1. Expense risk
    1. Government and political risk
    1. Off-balance-sheet items risk
    1. Related companies risk
    1. Climate-related risks
    1. Technology and cyber risk

Related readings

  • CIA FCT 1 — document 225095, which replaced this note

Sources