CIA CSOP

Question 1

List 3 purposes of the Joint Policy Statement

Answer 1

1 - Communications between actuaries involved in the preparation of FS, and auditors, regarding their respective responsibilities
2 - How those actuaries and auditors would interact in carrying out their respective responsibilities
3 - How their respective responsibilities may be disclosed to readers of FS

Question 2

Applicability of the Joint Policy Statement

Answer 2

1 - When an auditor is engaged to carry out an audit of FS where the FS prepared by management include amounts determined by or with the assistance of an actuary
2 - When an actuary considers the work of an auditor in connection with conducting actuarial valuation to determine amounts to be included in the FS prepared by management
3 - Does not apply to communications with an auditors actuary or external review actuary.

Question 3

Define Enquiring and Responding professional

Answer 3

Enquiring professional
Who is considering the work of the other

Responding professional
Whose work is being considered by the other

Question 4

Responsibilities of Actuary, Auditor and Management

Answer 4

Actuary

• Assessing the sufficiency and reliability of the data used in the valuation of amount calculated by the actuary included in FS
• May consider the work of an auditor with respect to data integrity and controls

Auditor

• To express an opinion on the fairness of presentation with GAAP
• May use amount determined by the actuary as audit evidence

Management
- Ensure accuracy of FS

Question 5

When would communication between the two professionals take place ?

Answer 5

When planning their respective engagements, and further communication would take place as necessary throughout the engagement

Question 6

Duties of the enquiring professional

Answer 6

1 - Inform RP of the intended consideration of his work
2 - Request confirmation that RP has been engaged to do the work the EP intends to consider
3 - Request confirmation that RP is a professional in good standing
4 - Request confirmation that RP will carry out the work required in accordance with the applicable SOP
5 - Inform the RP of the needs, including discussion of materality, treatment of subsequent events, verification of data, timing of work

Question 7

RP would provide a written response to the EP that would :

Answer 7

1 - Confirm that he is able to do the work
2 - Confirm the appointment
3 - Confirm compliance with professional standards
4 - Confirm awareness of use by the RP
5 - Discuss timing problems
6 - Prepare the report
7 - Assist the EP to conclude that a basis exists for the use of his work.

Question 8

RP written response to the EP after completion of the work would :

Answer 8

1 - Identify the purpose of the work
2 - Identify the FS or data to which it relates
3 - Identify the RP relationship to the entity to which the FS or data pertain
4 - Confirm awareness that the EP intends to consider the work in accordance with JPS
5 - When appropriate, include a copy of the report provided to the party who employed or engaged the RP that sets out the findings

Question 9

The amount of claim liabilities consists of the following components

Answer 9

1 - Amount of the case estimates
2 - Provision for development on reported claims, including claim AE
3 - Provision for IBNR claims, including claim AE

Question 10

The expected investment return rate for calculation of the PV of cash flow depends on 6 factors

Answer 10

1 - Method of valuing assets and reporting investment income
2 - Allocation of those assets and income among LOB
3 - ROA at the BS date
4 - YOA acquired after the BS date
5 - Capital gains/losses on assets sold after the BS date
6 - Investment expenses, and losses from default

Question 11

MFAD should vary by :

Answer 11

1 - Premium and claim liabilities
2 - LOB
3 - AY, PY or UY

Question 12

List 3 ranges of MfAD

Answer 12

1 - Claim development (2,5 to 20%)
2 - Recovery for RE ceded (0 to 15%)
3 - Investment return rate (25 basis point to 200)

Question 13

List 3 considerations for MfAD

Answer 13

1 - Insurer’s practices (setting and reviewing case estimates)
2 - Data (stability claim frequency and severity)
3 - Re (history of claim and coverage disputes)

Question 14

Information needed by appointed actuary

Answer 14

• Past experience data
• Past financial data
• Communications with auditors and regulators
• Pricing practice
• UW practice
• Claims settlement practice

Question 15

What are 2 situations when communication with the insurer’s auditor is favourable ?

Answer 15

1 - When actuary reports on a matter requiring rectification to senior management
2 - When actuary makes an unfavourable report on financial condition

Question 16

List the 3 purposes of DCAT

Answer 16

1 - Plausible threats to satisfactory financial condition
2 - Actions that lessen such threats
3 - Actions that would mitigate materialized threats

Question 17

List the 2 requirements for an insurer’s financial condition to be deemed satisfactory in forecasted period

Answer 17

1 - Able to meet all future obligations under the base scenario and all plausible scenarios, ie the statement value of the insurers assets is greater than the statement value of their liabilities
2 - Under the base scenario the insurer meets the supervisory TCR (150%)

Question 18

DCAT Selection of the assumptions for the insurers response would take into account of

Answer 18

1 - Effectiveness of the insurers management information systems and adjustment mechanisms
2 - Insurers historical record of promptness and willingness, when faced with adversity, to make difficult decisions
3 - External environment assumed in the scenario

Question 19

List 4 components that would be included in the DCAT report

Answer 19

1 - Key assumptions of base scenario and at least 3 adverse scenarios with greatest risk
2 - Disclosure of each risk categories considered in undertaking the DCAT testing analysis
3 - Plausible adverse scenarios that cause insurer to fail the minimum regulatory capital requirement
4 - If plausible threat identified, actuary also to identify extraordinary management action to lessen or mitigate the threat

Question 20

What does section 2600 of the CIA CSOP say about Ratemaking in Canada ?

Answer 20

• Applies to the derivation of indicated rates for an insurance contract of PC insurance
• Actuary should select appropriate methods, techniques and assumptions depending on the circumstances
• Revenue at the indicated rate should equal the corresponding claim and expense costs, plus a provision for profit, over a specified time period, considering the best estimate present vale of cash flows of such