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Exam 6 > OSFI.AA > Flashcards

OSFI.AA Flashcards

1
Q

what are the legal requirements for the appointment of an AA?

A
  • insurer must appoint an AA
  • insurer must notify OSFI of the appointment
  • AA must be FCIA
  • AA can’t be CEO, COO or similar without authorization from OSFI
  • AA can’t be CFO without audit committee permission
  • audit committee must certify AA, CFO duties can be performed competently & independently
  • insurer must notify OSFI if BoD revokes AA’s appointment
  • outgoing AA must write report to BoD, OSFI on circumstances and reasons for leaving
  • incoming AA must review outgoing AA’s report within 15 days
  • if incoming AA doesnot receive report within 15 days, they may accept appointment regardless
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2
Q

summarize the roles & responsibilities of an AA

A

1) valuation of reserves
2) 5 reports ( FFAPM)
- Financial position report
- Financial condition report
- AAR
- PH fairness report
- Material adverse event report
3) final opinion & memo

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3
Q

what is the main responsibility of AA?

A

AA must perform a valuation of the policy liabilities at year end using AAP (Accepted Actuarial Practice)

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4
Q

describe AAR

A
  • must be completed at least 21 days before AGM annually (Annual General Meeting)
  • must state whether annual report fairly represents results of valuation
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5
Q

where is the AAR on financial position sent?

A

Financial Position Report
- completed annually
- send to BoD

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6
Q

when & how is the AAR on financial condition done & where is it sent?

A

Financial Condition Report:
- must complete when directed by OSFI
- involves a 3-5 year projection possibly using FCT methodology
- send to BoD, OSFI

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7
Q

when is the AA’s MAE (Material Adverse Event) report done & where is it sent?

A
  • report on MAE requiring rectification 整顿
  • send to BoD, CEO, CFO
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8
Q

what is the report AA must complete that relates to the PH?

A

Policy Holder Report
- completed annually
- assesses fairness with which policy holders are treated regarding dividends/bonus/other benefits

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9
Q

what does AA’s final opinion contain?

A

concerns parts of financial statements requiring discretion审慎 or significant (calculations, judgements)

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10
Q

main AA qualification + 3 rules

A

FCIA in good standing
1) PPS with ICSC (Perform Professional Services with Integrity/Competence/Skill/Care)
2) PPS only when qualified to do so
3) meet all applicable SOPs

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11
Q

OSFI’s expectations regarding an AA

A

AA must be a Canadian professional with Canadian experience:
Exp:
- 3 years of Canadian experience from past 6 years including 1 year in valuation
- experience with CIA’s SOPs also insurance legislation and regulation
Professionalism:
- must maintain professional designation requirements
- no adverse findings with CIA disciplinary tribunal

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12
Q

setup questions

A
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13
Q

what are the objectives of a peer review?

A

AAR
- Assist OSFI in assessing insurance safety & soundness
- Assist AA by providing independent advice and additional source of professional education
- Raise confidence in AA with management, public & regulators

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14
Q

abbreviated list of peer review work

A

i AM AA DIE MAF
- Assumptions & Methods
- use AAP? (Accepted Actuarial Practice)
- Document?
- examine Internal & External changes if material
- examine MCT/BAAT assumptions and methods
- examine Adequacy of procedures, systems, works of others
- examine FCT scenarios, A&M

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15
Q

Describe peer review work - A&M

A
  • is each assumption independently reasonable
  • are methods appropriate for each valuation model?
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16
Q

Describe peer review work - Document

A

did AA report accurately document AM used in the valuation?

17
Q

Describe peer review work - examine internal/external changes

A

review all material internal/external changes regarding the valuation

18
Q

Describe peer review work - F

A

FCT scenarios, A &M
review A&M, scenarios used in evaluation of the future financial condition of insurer

19
Q

responsibilities of AA and management

A

full cooperation - respond to reviewer in a timely manner with all relevant documents and information

20
Q

who sets the global materiality level for a company and what is the basis?

A
  • external auditor sets the materiality level for the company as a whole
  • basis = size of company (bigger company have higher materiality thresholds)
21
Q

material changes to consider

A
  • systems (valuation software)
  • material external event (inflation)
  • valuation assumptions (LDFs, trends)
  • valuation methods (for claim liabilities)
  • operations (investment policies)
22
Q

is auditor’s level sufficient for AA and peer review?

A
  • no, a numerical threshold for company as a whole is not sufficient
    -peer reviewer & AA must use professional judgement for different areas within company
23
Q

what causes increased rigor?

A
  • getting near internal capital targets or solvency control levels
  • small changes could trigger significant actions
24
Q

difference between external audit and peer review

A

Audit:
- checks that FS is free from material misstatement as a whole
- uses CICA standard
Peer review:
- reviews AA’s financial statement work at more granular level
- uses CIA standard

25
Q

things peer reviewer doesnot do

A

Peer Reviewer Doesnot Care to do:
- Perform detailed Recalculations provided AA has controls to detect errors in valuation
- verify Data
- verify Controls

26
Q

do audit requirements satisfy peer review requirements?

A

no
peer review is more detailed

27
Q

contents of peer review report

A
  • description of work/timing/materiality level
  • compliance with AAP and changes in AM
  • recommendations for further work
  • relationship with AA
28
Q

how often is a F/S peer review performed when there have been no material changes to the valuation?

A

at least once every 3 years, all at once or in phases with brief annual report stating that there were no material changes

29
Q

how often is a FS peer review performed when there have been material changes to the valuation?

A

annually

30
Q

identify the qualification standards for a peer review

A

same as AA
- FCIA
- 3 rules:
1) PPS with ICSC
2) PPS only when qualified to do so
3) meet all applicable SOPs

31
Q

required prior experience of peer reviewer

A
  • exposure to 2 or more unrelated insurers
  • familiarity with range of practices and assumptions used in Canada
32
Q

what does OSFI when hiring or changing the peer reviewer?

A

written notification with reasons for change in peer reviewer if applicable

33
Q

OSFI’s peer reviewer criteria or objectivity conditions

A

Not allowed:
- an employee of AA for the company or subsidiary in the past 3 years
- shareholder or direct financial investment in company
- from same consulting firm as AA
- outside non-work discussions with AA
Permitted:
- peer reviews can have an indirect financial investment in the company
- peer reviewer can be from consulting firm doing financial statements for the company
- peer reviewer can be from company’s audit firm

34
Q

identify a reason that a peer reviewer may be from insurer’s audit firm

A
  • using a peer reviewer from audit firm accommodates smaller and simpler insurers
  • this is discouraged for large insurers because they need a broader perspective
35
Q

how often should a peer reviewer be changed?

A

at least once every 2 cycles ( every 6 years)

36
Q

identify reasons for periodic changes of peer reviewer

A
  • enhance objectivity
  • increase educational value to AA
37
Q

how does AA identify and report material adverse transaction or conditions?

A
  • identify: use FCT/stress testing
  • reporting: report to CEO/CFO with deadline for corrective actions and cc BoD
    if deadline is not me, cc OSFI and outline events leading up to notifying OSFI

Exam 6 (58 decks)

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