CIA.Valn

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.

Updates in Fall 2023 New section on inflation Materially modified content for COVID-19 The section on 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 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

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Pop Quiz

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

Study Tips

An older version of this wiki article has been archived under the name CIA.Valn2022.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 COVID19.

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¹ This question is outdated because the IFRS 17 material from that reading has been removed from the syllabus.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 Updates

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.

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)
• 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.

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Section 6 from Source Text - COVID-19

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:

Question: What is the ongoing role of actuaries concerning COVID-19?

• follow guidance from regulatory bodies like OSFI
• monitor legal actions related to COVID-19 that might impact valuations

Question: What specific requirement does OSFI have for insurance companies related to COVID-19?

• report statistics and impacts in the Appointed Actuary's Report

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

Question: What specific factors are easier to isolate concerning COVID-19's impact on policy liabilities?

• premium reductions
• refunds
• cost of material and labour

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Section 10 from Source Text - Emerging Issues and Other Considerations

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:

• The Ukraine war's global impacts include inflation and disrupted supply chains, affecting insurance lines like trade credit and marine insurance.

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 margins for adverse deviations, focusing on reinsurance recovery.

Climate Change:

• see CIA.FCT-1#FCT_climate_change

Appendix B – IFRS 17

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 green font to indicate items I thought were at least mildly interesting, but there didn't seem to be any good exam questions from this section.

Standards of Practice

• IFRS 17 published by IASB in June 2020; effective from January 1, 2023.
• Canadian GAAP incorporated IFRS 17 without modification.
• IAA released ISAP 4 on IFRS 17; aligns SOP with IFRS 17 requirements.
• Actuarial Standards Board published a Second Revised Exposure Draft in Canada.
• CIA actively involved in reviewing IFRS 17 standard and guidance.

Guidance

• IAA finalized IAN 100; CIA released it as an educational note in October 2021.
• Multiple educational notes and reports published by CIA related to IFRS 17.
• CIA provided Canadian-specific perspectives, application guidance, and practical implementation considerations.
• Education of members through webcasts, meetings, and the CIA website's IFRS 17 blog.

Parallel Run Calculations in 2022

• Both IFRS 4 and IFRS 17 financial statements prepared in 2022.
• 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.
• Actuaries instrumental in determining opening figures; 2022 financial statements needed for 2023 exhibits.
• Opining on fair presentation of liabilities for 2023 but not prior period figures unless impacting valuation at Dec 31, 2023.

IFRS 9 Financial Instruments

• 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.

Considerations for FCT

• FCT forecasts beyond the effective date produced under IFRS 17.
• Challenges include non-final policies and methodologies, incomplete models, practical limitations, and potential impacts on projections.
• Clear disclosure required for basis of projections, regulatory capital requirements, key assumptions regarding IFRS 17, and sensitivity analysis.

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,...)