2006 General Meeting PD 30 CLIFR Update

Assemblée générale 2006

Chicago, Illinois

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

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PD 30 CLIFR Update

• Subsections 2320 and 2330 Standard Changes and Calibration of Interest Rate models

• Les Rehbeli

• Considerations in the Valuation of Segregated Fund Products

• Nazir Valani

• Recent Education Notes and 2006 Fall Letter

• Ty Faulds

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2006 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

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2006 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

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2006 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 earlier by Les

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2006 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

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2006 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: Recommendation to PC

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2006 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

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2006 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: On Hold

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2006 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

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2006 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

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2006 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

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2006 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

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2006 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

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2006 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

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2006 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 caution should be used in projecting

any favorable tax timing results as a result of the accounting changes.

• 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

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2006 Fall Letter – New Guidance

• Considerations in the Valuation of Segregated Fund Annuities – Retains content from old ‘Balance Sheet

Allowance for Acquisition Expenses’ section

– New content as outlined in Nazir’s Presentation

• Long Term Equity Returns– Additional Guidance for Returns outside

of Canada

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2006 Fall Letter – Guidance Essentially Unchanged

• Insurance Mortality

• Annuity Mortality

• Lapse Study – Universal Life

• Currency Risks

• Value of Minimum Interest Guarantees and Embedded Options

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Fall 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