Difference between revisions of "CIA.Valn"

Revision as of 02:09, 2 January 2024

Reading: “Educational Note: 2023 Guidance to the Appointed Actuary for Property and Casualty Insurers,” September 2023.

Author: Canadian Institute of Actuaries

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From the FCT reading, identify 7 common ripple effects, and 5 common management actions for adverse scenarios.

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An older version of this wiki article has been archived under the name CIA.Valn2022.

This reading is updated every year because it highlights changes that have been made to other readings. For example, it mentions recent changes that were made to Financial Condition Testing but these were already discussed in detail in the wiki article CIA.FCT-1. This year's update is very minor.

If you check the BattleTable below, you'll see that the only available exam problem from this reading covered IFRS 17, but that was when there were no other IFRS 17 readings on the syllabus. Now there are 6 IFRS 17 readings on the syllabus and everything you need to know is available from those.

If there's going to be a question directly from this reading, I think it would most likely be from the section on macroeconomic effects.

Estimated study time: 5 minutes

BattleTable

reference	part (a)	part (b)	part (c)	part (d)
E (2018.Fall #28)	IFRS 17: ¹ - actuarial liabilities

¹ This question is outdated because the IFRS 17 material from that reading has been removed from the syllabus. The IFRS 17 material is now covered in much more detail in CIA.IFRS17. Even though the new reading covers the above question, it does so in a different way. That means the answer in the examiner's report is probably not relevant anymore. You should base your study of IFRS 17 on the new reading, CIA.IFRS17.

In Plain English!

Recent Guidance

There are some miscellaneous topics here, none of which are particularly important and I would just breeze through this section.

Discounting Considerations

AA should describe approaches and rationale used to develop the discount curve
Ultimate risk free rate at October 15 2023 would remain at 3.65%

Role of the Appointed Actuary

Mostly similar to before, except the AA now has to prepare the valuation in accordance with IFRS rather than in accordance with accepted actuarial practice in Canada.

Opening balances for 2022 and 2023

Opening balances are required for both January 1 2023 and January 1 2022.
AA would need to be fully comfortable with 2022 and 2023 opening balances to opine on the 2023 valuation.

Regulatory Guidance

No full review required of all AA work for 2023
Standardized stress test on inflation is required in 2023

mini BattleQuiz 1

Emerging Issues and Other Considerations

Section 6.1-6.4

This section is very general in nature. Most of it is pretty obvious.

Product Reforms:

Actuaries assess the impact of legal changes, such as the transition to no-fault automobile insurance, on the valuation of insurance contract liabilities.

Recent Judicial, Legislative, and Political Events:

Should consider any change to provincial or federal tax systems or rates (e.g. rate freeze in Alberta)

Catastrophic Events: Here are 4 rather obvious things an actuary should do regarding catastrophic events...

Consideration of post-event inflation's effect on non-catastrophic losses.
Analysis of changes in future claims payments due to the event.
Adjustments to Unallocated Loss Adjustment Expenses (ULAE) estimates.
Review of risk adjustments.

mini BattleQuiz 2

Section 6.5 - Macroeconomic environment

Actuaries need to consider the impact of the macroeconomic environment on the claims, capital availability and investment results

Inflation is always a consideration when selecting assumptions but if the rate of inflation is constant, then the age-to-age factors in a standard reserving development method will account sufficiently for inflation. Inflation during 2022 however has increased significantly and may need to be dealt with explicitly in reserving assumptions. That said, an increase in CPI does not necessarily translate into a point for point increase in insurance loss costs.

Question: What should an actuary do to properly incorporate inflation assumptions in a reserve analysis?

consult with: underwriters, business analysts, fraud detection experts, claim adjusters

(to understand whether inflation has transpired in claim payments, and is accounted for in case reserves)

consult the CPI (Consumer Price Index)
Consider techniques such as the Berquist-Sherman to adjust the LDFs.
perform a sensitivity analysis (with varying inflation assumptions to assess the degree of sensitivity of reserve estimates to different assumptions)

Question: Briefly describe why the development method may not be appropriate for long-tailed lines with sudden changes in inflation.

The effect of inflation on recent development periods may emerge more quickly for short-tailed lines but...
...more slowly for long-tailed lines.

Question: What are the possible impacts of a recession on policyholder behaviour?

Potential reduction of coverage
Opportunistic fraud
Default on premium payments

mini BattleQuiz 3

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POP QUIZ ANSWERS

7 common ripple effects:

higher LR (higher losses or operating costs)	loss of ReIns	post-event inflation	forced sale or liquidation	mix shift	PH actions (PH = Policyholder)	regulatory action

5 common management actions:

tighten U/W	raise rates	review reinsurance	sell assets	review mix (geography, limit,...)

@@ Line 1: / Line 1: @@
-{| class='wikitable' style='background-color: lightblue;"
+'''Reading''': “Educational Note: 2023 Guidance to the Appointed Actuary for Property and Casualty Insurers,” September 2023.
-|-
-|| <span style="font-size: 18px;">'''MODIFIED for 2024-Spring:'''
-* Updates to this wiki article are in progress but are likely not material.
-* You can begin studying and any material changes will be noted once the updates are complete.</span>
-|}
-{| class='wikitable' style='background-color: navajowhite;'
-|-
-|| <span style="color: green;>'''Updates in Fall 2023'''</span>
-* New section on ''[[CIA.Valn#Section_5_from_Source_Text_-_Inflation | inflation]]''
-* Materially modified content for ''[[CIA.Valn#Section_6_from_Source_Text_-_COVID-19 | COVID-19]]''
-* The section on ''[[CIA.Valn#Appendix_B_–_IFRS_17 | IFRS 17]]'' has been modified but IFRS 17 has been covered extensively in other readings so there isn't much new here.
-* The section on ''[[CIA.Valn#Section_10_from_Source_Text_-_Emerging_Issues_and_Other_Considerations | Emerging Issues]]'' is new every year but doesn't seem to have much that is testable.
-|}
-'''Reading''': “Educational Note: 2022 Guidance to the Appointed Actuary for Property and Casualty Insurers,” September 2022.
-'''Authour''': Canadian Institute of Actuaries
+'''Author''': Canadian Institute of Actuaries
 &nbsp;&nbsp;[https://www.battleactsmain.ca/vanillaforum/categories/cia-valn<span style="font-size: 12px; background-color: lightgrey; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 0px;">'''Forum'''</span>]
@@ Line 32: / Line 16: @@
 If you check the BattleTable below, you'll see that the only available exam problem from this reading covered IFRS 17, but that was when there were no other IFRS 17 readings on the syllabus. Now there are 6 IFRS 17 readings on the syllabus and everything you need to know is available from those.
-If there's going to be a question directly from this reading, I think it would most likely be from the section on COVID19.
+If there's going to be a question directly from this reading, I think it would most likely be from the section on macroeconomic effects.
 '''Estimated study time''': 5 minutes
@@ Line 57: / Line 41: @@
 ==In Plain English!==
-===Recent Updates===
+===Recent Guidance===
-====Section 5 from Source Text - Inflation====
-Inflation is always a consideration when selecting assumptions but if the rate of inflation is constant, then the age-to-age factors in a standard reserving development method will account sufficiently for inflation. Inflation during 2022 however has increased significantly and may need to be dealt with explicitly in reserving assumptions.
+There are some miscellaneous topics here, none of which are particularly important and I would just breeze through this section.
-:{| class='wikitable'
+<span style="background-color: moccasin;">'''Discounting Considerations'''</span>
-|-
-|| '''Question''': What should an actuary do to properly incorporate inflation assumptions in a reserve analysis?
-|}
-:* consult with: ''underwriters, business analysts, fraud detection experts, claim adjusters''
+* AA should describe approaches and rationale used to develop the discount curve
-:: (to understand whether inflation has transpired in claim payments, and is accounted for in case reserves)''
+* Ultimate risk free rate at October 15 2023 would remain at 3.65%
-:* consult the CPI (Consumer Price Index)
-:* perform a <u>sensitivity</u> analysis ''(with varying inflation assumptions to assess the degree of sensitivity of reserve estimates to different assumptions)''
-:{| class='wikitable'
+<span style="background-color: moccasin;">'''Role of the Appointed Actuary'''</span>
-|-
-|| '''Question''': Briefly describe why the development method may not be appropriate for long-tailed lines with sudden changes in inflation.
-|}
-:* The effect of inflation on recent development periods may emerge more quickly for short-tailed lines but...
+* Mostly similar to before, except the AA now has to prepare the valuation in <span style="color: green;">'''accordance with IFRS'''</span> rather than in accordance with accepted actuarial practice in Canada.
-:* ...<u>more slowly</u> for long-tailed lines.
-[https://battleactsmain.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=CIA&suffix=Valn&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=1<span style="font-size: 20px; background-color: aqua; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''mini BattleQuiz 1]'''</span>
+<span style="background-color: moccasin;">'''Opening balances for 2022 and 2023'''</span>
-====Section 6 from Source Text - COVID-19====
+* Opening balances are required for both January 1 2023 and January 1 2022.
+* AA would need to be fully comfortable with 2022 and 2023 opening balances to opine on the 2023 valuation.
-The COVID-19 is evolving to become endemic with the lifting of restrictions and availability of vaccines. Here are a few factoids that might be worth memorizing:
+<span style="background-color: moccasin;">'''Regulatory Guidance'''</span>
-:{| class='wikitable'
+* No full review required of all AA work for 2023
-|-
+* Standardized stress test on inflation is required in 2023
-|| '''Question''': What is the ongoing role of actuaries concerning COVID-19?
-|}
-:* <u>follow</u> guidance from regulatory bodies like OSFI
+[https://battleactsmain.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=CIA&suffix=Valn&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=1<span style="font-size: 20px; background-color: aqua; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''mini BattleQuiz 1]'''</span>
-:* <u>monitor</u> legal actions related to COVID-19 that might impact valuations
-:{| class='wikitable'
+===Emerging Issues and Other Considerations===
-|-
-|| '''Question''': What specific requirement does OSFI have for insurance companies related to COVID-19?
-|}
-:* <u>report</u> statistics and impacts in the Appointed Actuary's Report
+====Section 6.1-6.4 ====
-:{| class='wikitable'
-|-
-|| '''Question''': How are actuaries approaching the evaluation of trends and metrics affected by COVID-19?
-|}
-:* take a longer-term view to cover pre- and post-pandemic impacts
-:{| class='wikitable'
-|-
-|| '''Question''': What specific factors are easier to isolate concerning COVID-19's impact on policy liabilities?
-|}
-:* premium reductions
-:* refunds
-:* cost of material and labour
-[https://battleactsmain.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=CIA&suffix=Valn&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=2<span style="font-size: 20px; background-color: aqua; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''mini BattleQuiz 2]'''</span>
-====Section 10 from Source Text - Emerging Issues and Other Considerations====
 This section is very general in nature. Most of it is pretty obvious.
@@ Line 128: / Line 76: @@
 :'''Recent Judicial, Legislative, and Political Events''':
-::* The Ukraine war's global impacts include <u>inflation</u> and <u>disrupted supply chains</u>, affecting insurance lines like trade credit and marine insurance.
+::* Should consider any change to provincial or federal tax systems or rates (e.g. rate freeze in Alberta)
 :'''Catastrophic Events''': ''Here are 4 rather obvious things an actuary should do regarding catastrophic events...''
@@ Line 134: / Line 82: @@
 ::* Analysis of changes in future claims payments due to the event.
 ::* Adjustments to Unallocated Loss Adjustment Expenses (ULAE) estimates.
-::* Review of margins for adverse deviations, focusing on reinsurance recovery.
+::* Review of risk adjustments.
-:'''Climate Change''':
+[https://battleactsmain.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=CIA&suffix=Valn&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=2<span style="font-size: 20px; background-color: aqua; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''mini BattleQuiz 2]'''</span>
-::* see ''[[CIA.FCT-1#FCT_climate_change]]''
-====Appendix B – IFRS 17====
+====Section 6.5 - Macroeconomic environment====
-IFRS 17 is discussed in much greater detail in other syllabus readings. Below is a bullet point summary of what's discussed in this reading. I used a <span style="color: green;">'''green font'''</span> to indicate items I thought were at least <span style="color: green;">'''mildly interesting'''</span>, but there didn't seem to be any good exam questions from this section.
+Actuaries need to consider the impact of the macroeconomic environment on the <u>claims</u>, <u>capital availability</u> and <u>investment results</u>
-<span style="background-color: moccasin;">'''Standards of Practice'''</span>
+Inflation is always a consideration when selecting assumptions but if the rate of inflation is constant, then the age-to-age factors in a standard reserving development method will account sufficiently for inflation. Inflation during 2022 however has increased significantly and may need to be dealt with explicitly in reserving assumptions. That said, an increase in CPI does not necessarily translate into a point for point increase in insurance loss costs.
-* IFRS 17 published by IASB in June 2020; effective from January 1, 2023.
+:{| class='wikitable'
-* Canadian GAAP incorporated IFRS 17 without modification.
+|-
-* IAA released ISAP 4 on IFRS 17; aligns SOP with IFRS 17 requirements.
+|| '''Question''': What should an actuary do to properly incorporate inflation assumptions in a reserve analysis?
-* Actuarial Standards Board published a Second Revised Exposure Draft in Canada.
+|}
-* CIA actively involved in reviewing IFRS 17 standard and guidance.
-<span style="background-color: moccasin;">'''Guidance'''</span>
+:* consult with: ''underwriters, business analysts, fraud detection experts, claim adjusters''
+:: (to understand whether inflation has transpired in claim payments, and is accounted for in case reserves)''
+:* consult the CPI (Consumer Price Index)
+:* Consider techniques such as the Berquist-Sherman to adjust the LDFs.
+:* perform a <u>sensitivity</u> analysis ''(with varying inflation assumptions to assess the degree of sensitivity of reserve estimates to different assumptions)''
-* IAA finalized IAN 100; CIA released it as an educational note in October 2021.
+:{| class='wikitable'
-* Multiple educational notes and reports published by CIA related to IFRS 17.
+|-
-* CIA provided Canadian-specific perspectives, application guidance, and practical implementation considerations.
+|| '''Question''': Briefly describe why the development method may not be appropriate for long-tailed lines with sudden changes in inflation.
-* Education of members through webcasts, meetings, and the CIA website's IFRS 17 blog.
+|}
-<span style="background-color: moccasin;">'''Parallel Run Calculations in 2022'''</span>
+:* The effect of inflation on recent development periods may emerge more quickly for short-tailed lines but...
+:* ...<u>more slowly</u> for long-tailed lines.
-* <span style="color: green;">'''Both IFRS 4 and IFRS 17 financial statements prepared in 2022.'''</span>
+:{| class='wikitable'
-* OSFI conducting a Transition Readiness Test in September 2022.
+|-
-* Q1-2022 statements required using IFRS 17 and IFRS 9 policies by end of September 2022.
+|| '''Question''': What are the possible impacts of a recession on policyholder behaviour?
-* <span style="color: green;">'''Actuaries instrumental in determining opening figures; 2022 financial statements needed for 2023 exhibits.'''</span>
+|}
-* Opining on fair presentation of liabilities for 2023 but not prior period figures unless impacting valuation at Dec 31, 2023.
-<span style="background-color: moccasin;">'''IFRS 9 Financial Instruments'''</span>
-* Most insurers will adopt IFRS 9 with IFRS 17 in 2023.
-* Early adoption by some entities, leading to changes in asset valuation.
-* Actuaries must avoid double-counting with credit provisions.
-<span style="background-color: moccasin;">'''Considerations for FCT'''</span>
-* FCT forecasts beyond the effective date produced under IFRS 17.
+:* Potential reduction of coverage
-* Challenges include non-final policies and methodologies, incomplete models, practical limitations, and potential impacts on projections.
+:* Opportunistic fraud
-* Clear disclosure required for basis of projections, regulatory capital requirements, key assumptions regarding IFRS 17, and sensitivity analysis.
+:* Default on premium payments
 [https://battleactsmain.ca/FC.php?selectString=**&filter=both&sortOrder=natural&colorFlag=allFlag&colorStatus=allStatus&priority=importance-high&subsetFlag=miniQuiz&prefix=CIA&suffix=Valn&section=all&subSection=all&examRep=all&examYear=all&examTerm=all&quizNum=3<span style="font-size: 20px; background-color: aqua; border: solid; border-width: 1px; border-radius: 10px; padding: 2px 10px 2px 10px; margin: 10px;">'''mini BattleQuiz 3]'''</span>

Difference between revisions of "CIA.Valn"

Revision as of 02:09, 2 January 2024

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In Plain English!

Recent Guidance

Emerging Issues and Other Considerations

Section 6.1-6.4

Section 6.5 - Macroeconomic environment

POP QUIZ ANSWERS

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