OSFI Memorandum Flashcards
What are the major parts of the AAR ?
1 - Opinion of the AA concerning the fairness and adequacy of the policy liabs included in the insurer’s FS
2 - Detailed commentary
3 - Data exhibits and calculations supporting that opinion
What are the regulatory requirements of the AAR ?
1 - Valuations to be done in accordance with GAAP and other requirements of OSFI
2 - Discuss the differences between boked and estimated policy liabs
3 - Booked policy liabs shown in the BS of the annual return must be NO LESS than the Actuary’s estimated policy liabs (discounted with PfADs)
4 - Must file the AAR with the AR. Without AAR, AR will be considered incomplete. Must be filed within 60 days of year end, failure will result in a penalty
List information with respect to DCAT reporting in the last 3 years that must be disclosed in the AAR
- Date reports were signed by the actuary
- Date reports were presented
- To whom reports were presented
- Reports presented in person or only in written form
- Date used as the start of the projection period
In the Expression of Opinion, what happens when the Auditor’s Report is not complete ?
AA must issue a qualified opinion, conditional upon receiving an unqualified opinion from the External Auditor, along with the expected completion of the Auditors work
When completed, the Actuary must either:
a) File an unqualified opinion
b) File a revised opinion with supporting AAR if the Auditor is unable to give an unqualified opinion or modifies FS
In the “Description of Company” part of the AAR the AA must disclose Re details. Describe
1 - Re Arrangements
2 - Re Ceded - AAR should address:
• Dispute with Re
• Re collectible that is significantly overdue
• Re with history of not settling accounts promptly
• Re subject to regulatory restrictions in home jurisdiction
• Re has poor credit history
3 - Financial Re Agreements
• Material financial Re agreements without risk transfer
• Material financial agreement that could offset the financial effects of Re
4 - Materiality standards
AAR formulas
- Undiscounted LR = (Paid Losses + Undiscounted UCAE) / EP
- Discounted LR = (Cum Paid Losses + Discounted Reserves incl. PfAD - Cum. II from Reserves) / (EP + II from UEPR)
- II from reserves = Discounted reserves incl.PfAD * yield/2
List aspects of components of premium liability AA is expected to comment on in AAR
1 - Expected losses, loss expenses, and servicing costs on the policies in force
2 - Expected adj. to swing-rated policies
3 - Expected changes to premiums from audits, late reporting, or endorsements
4 - Expected commission adj. on policies with variable commissions
5 - Anticipated broker/agent commissions
Net unpaid claims and adj. expense
Net = Direct + Assumed - Ceded - Other Amounts to Recover + Other Net Liabilities
In the AAR what specific reserves require comment in the opinion
- Gross, ceded, and net provisions for claim liabs
* Gross and net policy liabs in connection with UEPR, any premium deficiency, and other net liabs
List reporting relationships disclosure the AA should make in the AAR
Name and position of:
• Person who has hired the AA
• Company employees with whom the AA discusses findings and reports
List factors should be take into account in determining the provision for each actuarial LOB in the AAR
- Trends in the sev and freq of claims
- Changes in the coverage of the policies
- Changes in the cost of Re
- Changes in reporting lag and in payment pattern
- Changes to the loss reserving practices
- Effects of regulatory changes
Explain the purpose of AAR and to who it is intended
An important purpose is to give OSFI a comprehensive report documenting the work done by the Actuary to calculate the policy liabs. AAR is a key component in OSFI’s review process of the company’s actuarial financial position and profile. AAR is not only to OSFI’s actuaries, it is also for company management and is read by regulators
Which comparison, changes and discussion must be included in the AAR section Executive Summary
- Comment on the comparison of the actual xp with the expected xp in the prior year end valuation
- Reference any significant changes in methods or assumptions from the prior AAR
- Any deviation from CIA standards must be justified
State a requirement for the AA concerning the data used for AAR
Required to establish suitable check procedures to verify that the data utilized is reliable and sufficient for the valuation of policy liabs
On which basis should the commentary on the claims liab contain details of the derivation in the AAR
Gross, ceded and net
