OSFI Memorandum

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  1. Actuary’s valuations and corresponding annual return liabilities
    • should be the same in the AAR and the annual return; if different include a discussion of the reasons for the differences
    • for federally regulated companies, the provision for policy liabilities shown in the balance sheet of the annual return should be greater than or equal to the corresponding estimated policy liabilities on a discounted basis including PfAD calculated by the Actuary
  2. Special lines of business considerations
    • marine insurance: must be included in the AAR, and clearly identified
    • title insurance: premium earned at issue, so UEP reserves aren’t required; dol = issue date
    • accident and sickness: refer to OSFI guidelines for life insurance
  3. Examples of reservation in the opinion
    • no discounting of loss reserves: "Except for the time value of money, evaluation was made in accordance with actuarial accepted practice"
    • new appointment of an actuary: "I cannot ensure the validity of assumptions and methods used by the former appointed actuary"
    • takeover of insurer with inadequate records: "Insurer ABC had poor records when the takeover occurred so I cannot ensure the fairness of policy liabilities related to insurer XYZ"
    • unavailable auditor’s report: "The opinion is a qualified opinion, conditional upon receiving an unqualified opinion from the External Auditor"
    • once auditor’s work is completed, the Actuary must either:
    •    file an unqualified opinion with OSFI
    •    file a revised opinion with a supporting AAR issued if the Auditor is unable to give an unqualified opinion or modifies the financial statements
  4. Executive summary
    • summary of key results and findings and any other pertinent information
    • comment on the comparison of the actual experience with the expected experience in the prior year-end valuation for all lines combined
    • reference any significant changes in methods or assumptions from the prior AAR, significant issues and how they were resolved, data and other concerns 
    • any deviation from CIA standards or from the requirements of this memorandum must also be included in this section
  5. Elements used when assessing the financial condition of a reinsurer
    • a dispute has arisen with a reinsurer
    • a reinsurance collectible is significantly overdue
    • the reinsurer has a history of not settling accounts promptly 
    • reinsurer is known to have been subject of regulatory restrictions in its home jurisdiction
    • the reinsurer has a poor credit rating
  6. Considerations when determining liability provision for each LOB
    • any significant trends in the severity and frequency of claims
    • any important changes in the coverage of the policies
    • changes in cost of reinsurance and/or reinsurance arrangements
    • any changes the loss reserving practices
    • effects of regulatory changes
  7. Considerations when determining UEP provisions for each LOB
    • expected losses, loss expenses and servicing costs on inforce policies
    • expected adjustments to swing rated policies
    • expected changes to premium as a result from audit, late reporting or endorsements
    • expected commission adjustments on policies with variable commission
    • anticipated broker/agent commissions
  8. DCAT disclosure requirements
    • date on which the last 3 years' DCAT reports were signed by the Actuary
    • date on which the last 3 years' DCAT reports were presented
    • to whom those DCAT reports were presented (full board, audit committee, chief agent)
    • whether the reports were presented in person or only in written form
    • dates used as the start of the projection period in the DCAT reports
  9. Reserves commentary requirements
    • claim liabilities: gross, ceded and net provisions
    • premium liabilities: gross and net in connection with UEP, premium deficiency and other net liabilities
  10. Ceded reinsurance commentary requirements
    • unusual problems and/or delays expected to be encountered in collecting the relevant amounts from reinsurers
    • how commuted or changed reinsurance agreements were considered
  11. New AA appointment disclosure
    • date of appointment 
    • date of resignation of the previous Actuary
    • date on which OSFI was notified of the appointment
    • confirmation of communication with the previous Actuary, as required by legislation
    • list of Actuary’s qualifications, keeping in mind CIA’s Rules of Professional Conduct
  12. Filing directives
    • deadline for filing the AAR is 60 days after end of fiscal year (otherwise penalty fee)
    • DCAT report must be filed the earlier of 30 days after presentation to BoD, and one year after fiscal year end
  13. Loss ratio calculation
    • undiscounted LR = (Paid + undisc. unpaid L&LAE) / EP
    • DLR = (Paid + disc. unpaid L&LAE + PfAD - II from unpaid) / (EP + II from UPR)
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OSFI Memorandum
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