Actuarial Notes

Appointed Actuary: Legal Requirements, Qualifications and Peer Review

By Office of the Superintendent of Financial Institutions · 2023 · E-15

Study guide: Exam 6C

OSFI Guideline E-15 describes the role of the Appointed Actuary in federally regulated insurance companies and sets out OSFI's expectations for that role. It summarizes the actuary's responsibilities under the Insurance Companies Act and related OSFI guidelines and memoranda, the qualifications required to carry out the role, and OSFI's expectations for peer review of the Appointed Actuary's work and for the peer reviewer. This version is dated August 31, 2023, and applies to life, fraternal, and property and casualty companies.

On the syllabus

  • Exam 6C — objective C5; the whole guideline.

1 Introduction

  • Other OSFI guidelines and memoranda add to the Appointed Actuary's responsibilities; the annual Memorandum to the Appointed Actuary, issued in separate life and P&C versions, is particularly important.

2 Legal requirements of the Appointed Actuary

  • 2.1 Appointment of an actuary
    • Each company must appoint an actuary, who must be a Fellow of the Canadian Institute of Actuaries (FCIA), and notify the Superintendent in writing; OSFI expects to be told of a new AA within 30 days of the appointment.
    • The CEO or COO, or the chief agent of a foreign company, may not be appointed without the Superintendent's written authorization; the CFO only with a written statement from the audit committee and the Superintendent's authorization.
    • An AA who resigns or whose appointment is revoked gives the Superintendent and the directors a written statement of the circumstances and reasons; a successor must request that statement before accepting, and may accept if no reply comes within 15 days.
  • 2.2 Role and duties of the Appointed Actuary
    • The AA values the actuarial and other policy liabilities at the financial year-end in accordance with accepted actuarial practice, and makes the report on those liabilities (AAR) that the company files with its annual return, in the form the annual Memorandum sets.
    • The AA meets with and reports to the directors or chief agent on the company's financial position each year; OSFI expects an annual report on expected future financial condition (FCT), consistent with the CIA's most current educational note, filed with OSFI within 30 days of its presentation.
    • The AA reports in writing to the CEO and CFO, or the chief agent, any matter that has material adverse effects on the company's financial condition and requires rectification, and sends it to the Superintendent if suitable action is not taken (duty to report).
    • Further duties cover participating accounts and adjustable policies (reports to the directors on fairness to those policyholders) and, for life insurers, the LICAT and LIMAT returns.

3 Qualifications required

  • The AA must be an FCIA and comply with the CIA's Rules of Professional Conduct; the Superintendent may disqualify or remove a senior officer who is not suitable to hold the position.
  • OSFI expects work in Canada for at least three of the last six years, at least one of them valuing Canadian actuarial liabilities and doing FCT for an insurer with similar lines of business; experience with the CIA's Standards of Practice and relevant legislation; up-to-date continuing professional development; and no adverse finding by a CIA Disciplinary Tribunal.

4 Peer review of the work of the Appointed Actuary

  • 4.1 Background
    • OSFI expects every federally regulated insurer to appoint a peer reviewer; the peer review follows the CIA's Standards of Practice, in particular section 1530 on review or repeat of another actuary's work.
  • 4.2 General objectives
    • To assist OSFI's assessment of the insurer's safety and soundness, to give the AA a source of independent consultation and professional education, and to maintain confidence in the AA's work.
  • 4.3 Work to be reviewed
    • For the valuation of policy liabilities and the FCT, the reviewer checks compliance with accepted actuarial practice and OSFI's requirements, material changes, the procedures and work of others the AA relies on, the assumptions, methods and FCT scenarios, and whether the AAR and FCT report describe them adequately.
    • Under IFRS 17, the scope includes the AA's decisions to use and take responsibility for the work of others; for P&C insurers it also covers the work the Memorandum requires in the AAR that is used in the MCT or MICAT.
  • 4.4 Materiality considerations
    • Materiality follows the CIA's Standards of Practice and is set from the point of view of the user; it cannot be determined solely by a numeric threshold, and should become more rigorous as the company approaches its internal capital targets or regulatory capital thresholds.
  • 4.5 Contents of peer review reports
    • The report, or a summary, goes to the audit committee (the chief agent for a branch) and in full to OSFI; it states the work done and its timing, the materiality level, the reviewer's opinion on compliance, observations on changes in methods and assumptions, and recommendations.
  • 4.6 Peer review cycle
    • Each item of the AA's work is reviewed at least once every three years; material changes are reviewed annually, and with none the reviewer still files a brief annual report.
  • 4.7 Timing of the peer review work and reports
    • OSFI encourages pre-release review of financial statement work; the AAR may be reviewed post-release, with the report due at OSFI within 30 days of the AA's report.

5 Peer reviewer

  • 5.1 Selecting a peer reviewer
    • One peer reviewer for the company, or the group, as a whole, meeting the AA's qualification standards and with experience of two or more unrelated insurance companies.
    • The reviewer must be objective: not an employee of the company or an affiliate, nor its employee or AA in the three prior years; no shareholding or direct financial investment in it; and not a member of the AA's consulting firm.
  • 5.2 Peer reviewer and external audit
    • An external audit seeks reasonable assurance that the financial statements as a whole are free of material misstatement, while peer review assesses the AA's work at a more granular level, so audit work may not satisfy the peer review requirements.
  • 5.3 Changing a peer reviewer
    • The peer reviewer should change at least once every two cycles (six years), and the company notifies OSFI within 30 days of a change, with the reasons.

Related readings

  • OSFI Memorandum — the annual Memorandum to the Appointed Actuary, which §1 calls particularly important and §2.2 says sets the form and content of the AAR
  • CIA Appointed Actuary — the CIA's December 2022 educational note Role of the Appointed Actuary Under IFRS 17, quoted in §4.3
  • CIA FCT 1 — the CIA's educational note on financial condition testing, with which §2.2 expects the FCT report to be consistent
  • CIA CSOP — the Standards of Practice, whose section 1530 §4.1 names for the conduct of peer review
  • OSFI MCT — the regulatory capital test whose actuarial components §4.2 and §4.3 bring into the peer review

Sources