OSFI.AA

This heavily tested guideline describes OSFI's requirements regarding the role of the AA in federally regulated insurance companies. It summarizes certain sections of the Insurance Companies Act (see ICA.Ch47) but OSFI.AA is much easier to read.   Forum

Pop Quiz

• Every important corporate function needs a well-organized system of controls and internal procedures. A valuation of reserves done by the appointed actuary certainly qualifies as an important corporate function. One of the controls surrounding this function involves a second actuary.
• Question: What do we call this second actuary?

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

• facts pertaining to the peer review including:

- objectives of peer review

- work that the peer reviewer reviews

- material changes the peer reviewer should consider

• qualifications the AA must possess (OSFI's expectations)
• whether the CFO can also be the AA
• AA legal requirements including:

- roles & responsibilities

- disclosure requirements

• difference between an audit and a peer review

Top Questions ← Questions you absolutely need to know!

Questions held out from Fall 2019 exam: #29. (Skip these now to have a fresh exam to practice on later. For links to these questions, see Exam Summaries.)

reference	part (a)	part (b)	part (c)	part (d)
E (2019.Spring #25)	peer review: - qualifications 1	peer review: - peer review cycle	peer review: - vs external auditor	peer review: - SCENARIOS (eligibility)
E (2018.Fall #30)	AA qualifications: - OSFI's expectations	ICA.Ch47	ICA.Ch47
E (2018.Spring #27)	peer review: - qualifications	peer review: - duties	peer review: - versus audit	peer review: - disclosures
E (2017.Fall #27)	identify AA error 1: - see CIA.MfAD	identify AA error 2: - see CIA.MfAD	identify AA error 3: - see CIA.Discnt	identify AA error 4: - date specification
E (2017.Spring #24)	see OSFI.MCT	see OSFI.MCT	see OSFI.ORSA	audit & reports: - audit v peer review
E (2016.Fall #27)	AA qualifications: - yes/no to qualifying	AA legal requirements: - disclosures on new appt	(c) AA legal requirements: - roles/responsibilities (d) reserves: - F/S v actuary	(e) prem liabs components: - see CIA.PrLiabs (f) peer review: - objectives
E (2016.Spring #2)	AA qualifications: - OSFI's expectations	peer review: - work to review
E (2015.Spring #32)	can CFO be AA: - see ICA.Ch47	can CFO be AA: - acceptance by regulator	see OSFI.MemoAA	ceasing AA appt: - see ICA.Ch47
E (2015.Spring #34)	peer review: - objectives	peer review: - material changes
E (2014.Fall #33)	miscellaneous: - accepting AA appt	miscellaneous: - id & rpt MAE
E (2014.Fall #34)	peer review: - objectives	peer reviewer: - selection of
E (2014.Spring #31)	peer review: - objectives	peer reviewer: - selection of
E (2013.Fall #34)	AA qualifications: - OSFI's expectations	AA legal requirements: - identify requirements	can CFO be AA: - see ICA.Ch47
E (2012.Fall #37)	peer review: - work to review

¹ This question is ambiguous in how it's stated. It isn't clear whether they want you to list the duties, objectives, or eligibility criteria for peer reviewers. The examiner's report accepted any interpretation. In future exams, however, you should read the question very carefully to make sure you answer specifically what's asked.

In Plain English!

Intro

The exam questions on this reading are easy to get because the questions are repetitive. There's nothing deep here, but there is unfortunately a fair bit of memorization. (Not as much as in the agriculture paper, but it's still kind of sucky...) Anyway, below is a list of the questions you need to be able to answer. Most of them have been asked in some form on past exams. And since the term Appointed Actuary is used so often, I will use the abbreviation AA.

From Section 1:

• What are the legal requirements regarding the appointment of an AA?
• What are the roles & responsibilities of an AA?

From Section 2:

• What is the main qualification an AA must possess? What rules must the AA follow in carrying out their work?
• What are OSFI's expectations regarding the background of an AA?

From Section 3 (b,c,d):

• What are the objectives of a peer review? (2016.Fall #27f), (2015.Spring #34a), (2014.Fall #34a), (2014.Spring #31a)
• What part of the AA's work does the peer reviewer review?
• What material changes related to the AA's valuation of reserves should the peer reviewer consider?
• There are just a few more minor facts from these sections that are in the mini BattleQuiz.

From Section 3 (e,f,g,h):

• A few facts regarding the audit process, and how it differs from a peer review.
• What are the contents of a peer review report? (This is not the same as the work that a peer reviewer reviews.)
• How frequently are peer reviews done?
• What are the different release dates related to a peer review report? (This is a lower probability item and is not included in the mini BattleQuiz. You can cover this in Level 3: Custom Battles if you really want to torture yourself. I doubt it will be asked.)

From Section 3 (i,j):

• What are the main qualifications a peer reviewer must possess?
• What experience should a peer reviewer possess?
• What are the objectivity requirements regarding a peer reviewer? (2016.Fall #27a), (2014.Fall #34b), (2014.Spring #31b)
• There are just a few more minor facts from these sections that are in the mini BattleQuiz.

Miscellaneous:

• There are a handful of other AA questions that in the final mini BattleQuiz from ICA.Ch47 and/or OSFI.MemoAA, which are closely related papers.

---

Section 1: Legal Requirements of AA

What are the legal requirements regarding the appointment of an AA?

Now, I don't want to reproduce the answer from the BattleCards, but I do want to point out that many of the old exam questions don't correspond neatly to the BattleCards. This is because the question often describes a situation (Example: The CEO is considering an ACIA for the role of AA.) and you're asked to comment on the validity of the proposed action. In this case, it's easy. It isn't valid because an AA must be a FCIA. But that fact is just 1 part of a BattleCard with several bullet points. Anyway, you'll see what I mean as you go through the material and become familiar with the way the CAS poses the questions.

What are the roles & responsibilities of an AA?

The answer to this contains 7 points and it's too long to fit into a single BattleCard. The way I've done it is to put a summary of the 7 points in the first BattleCard, then create 7 additional BattleCards with each of the 7 points explained in more detail. (2016.Fall #27c). The BattleCard summary answer is:

valuation of reserves

5 reports (AFFMP): ( AA - FinPos - FinCond - MAE - PH fairness) )

final (opinion, memo)

More details on these 7 points are:

1	The AA must perform a valuation of the policy liabilities @ year-end using AAP (Accepted Actuarial Practice)
2	AA Report: must be completed at least 21 days before AGM (Annual General Meeting) & states whether Annual Report fairly represents results of valuation
3	Financial Position Report (FinPos): completed annually (send to Board of Directors)
4	Financial Condition Report (FinCond): must complete when directed by OSFI, involves a 3-year projection possibly using DCAT methodology (send to Board of Directors, OSFI)
5	MAE Report (Material Adverse Events): report on MAE requiring rectification (send to Board of Directors, CEO, CFO)
6	Policy Holder Report (PH): completed annually, assesses fairness with which Policy Holders are treated regarding of proposed (dividends, bonus, other benefits)
7	Final Opinion/Memo: concerns parts of financial statement requiring discretion or significant (calcs, judgments)

Note that it is often the case that the exam question asks for fewer items than are given in the reading. In other words, you can save study time by memorizing only some items rather than all of them.

For example, the exam question referenced above only asked for 4 of these items. The problems is, however, that you don't know how many they will ask for - sometimes they do ask for every item in a list. It's basically a crap shoot. I think it's safer to spend a little extra time and learn the whole list. On the other hand, if you're running out of time, it might be better to learn just 2 or 3 then move on to something else.

mini BattleQuiz 1 You must be logged in or this will not work.

Section 2: Qualifications

To reiterate, the questions from this section are:

What is the main qualification an AA must possess? What rules must the AA follow in carrying out their work?

and

What are OSFI's expectations regarding the background of an AA?

OSFI seems to make a distinction between qualifications of an AA (Appointed Actuary), and their expectations of an AA. Aside from FCIA membership (Fellow of the Canadian Institute of Actuaries), these expectations are frequently tested. A very good applied question is (2016.Fall #27a). The first question on the qualifications does not feel like a likely exam question and hasn't been directly asked. I've included it because there wasn't really much else from Section 2.

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Section 3: Peer Review

This is a long section and has lots of memorization, but let's start with the most commonly asked exam question from this reading. Memorize this! NOW! There's a 50-50 chance this will appear on any given exam!

Questions: what are the objectives of a peer review of the AA's report. [Hint: AAR]

ASSIST OSFI (in assessing insurer safety & soundness)

A AA (by providing independent advice, a source of professional development)

Raise confidence in AA (with management, public, regulators)

→ You can think of this AAR hint as Appointed Actuary Review, but the answer also has the same acronym: Assist, Assist, Review. See forum post here.

You should also refer to the actual exam questions to see how the questions were worded. The wording changes slightly from year to year. (To view the exam questions use the BattleTable at the top of the page or the mini BattleQuiz below. And don't forget about Top Questions button near the top of this wiki article. This shows you all the commonly asked questions.)

Here's a question that sounds sorta similar to the above question but it has a different answer:

Question: what work does the peer reviewer review. [Hint: Am AA, Die MAD] I am the AA so I'll die mad

• Unfortunately, this memory trick doesn't quite work anymore because the DCAT reading (Dynamic Capital Adequacy Testing) has been replaced by FCT (Financial Condition Testing). Didn't the CAS realize that this memory trick relied on having a "D" not an "F" as the last letter! Oh well, that's life I guess.

• See this forum post by j5nguyen for how memory trick works. Details are given in the BattleCards. (Thx again j5nguyen for this funny memory trick!)
• Then scroll down in the above forum post to see another memory trick by ME!

• There are 7 items in this list, but I don't think you'd ever be asked for all seven. It's probably enough to learn 4 of them. The 1st item for the peer reviewer to check is whether the AA used AAP (Accepted Actuarial Practice) in the valuation. (That's pretty darn obvious!)

mini BattleQuiz 3 You must be logged in or this will not work.

There are a few more miscellaneous questions related to the peer reviewer. I split it into 2 quizzes to make it easier.

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• The rest of this section is just memorization. BUT there is 1 good potential exam question that you should study well:

What criteria should be applied in determining the objectivity of a reviewer?

• The first item in this list of 7 items is:
  • not (employee, AA) for (company or subsidiary) in (prior 3 yrs)
• The idea is that the peer reviewer should have distance from the workings of the company.
  • Another requirement is that the peer reviewer should not be a shareholder, although having an indirect investment is ok.

mini BattleQuiz 6 You must be logged in or this will not work.

BattleCodes

• Memorize:
  • This is one of those readings where there's so much to memorize that I can't list everything here. But the top items, based on past exams are:
    • 3 objectives of a peer reviewer (AAC)
    • 4 expectations of a peer reviewer (according to OSFI, in addition to being an FCIA)
    • 7 items of work that a peer reviewer should review
  • Other important memory items include:
    • 7 roles & duties of an AA (If you're ambitious, you should probably also make sure you know who the various reports need to be sent to: BoD (Board of Directors), OSFI, CEO, CFO)
    • OSFI's 4 expectations for an AA
  • Note the difference between discussion of the AA and discussion of the peer reviewer. This distinction should be clear in your mind!!!

• Conceptual:
  • Instead of simply requiring memorization, some exam questions require interpretation.
  • Examples include: (2016.Fall #27a), (2014.Fall #34b), (2014.Spring #31b)

• Calculational:
  • None

• Final Comments:
  • I mentioned in the summary that this reading was closely related to ICA.Ch47. (Everything from OSFI.AA is basically taken from ICA.Ch47.)
  • There are a few things in ICA.47 that are not in OSFI.AA but unless you're prepared to spend a lot of extra time memorizing ICA.Ch47, just study OSFI.AA thoroughly, and focus on the most heavily tested sections of ICA.Ch47 when you get there.

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  Forum

POP QUIZ ANSWERS

• This second actuary is called a peer reviewer.