2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Canadian
Institute
of
Actuaries
L’Institut
canadien
des
actuaires
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Update from the Committee of
the Valuation/Appointed Actuary
IFRS
Johanne Papillon
September 25, 2008
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Presentation Outline
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Background
CIA AA Committee and IFRS
Objectives of working group
Contract classification under IFRS (high
level)
Key findings and issues
Looking ahead
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Background
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Conversion to IFRS: Jan 1, 2011
Insurance contracts: IFRS 4; keep current
basis of accounting until Phase II (effective
2012 or 2013?)
Investment contracts: IAS 39 Financial
Instruments
Service contracts: IAS 18 Revenue (similar
to CGAAP)
Most significant impact: Investment
Contracts
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
IFRS: Double conversion for Insurers
Current CGAAP:
Phase I
January 1, 2011:
Phase II
January 1, 2012,
(or later):
Insurance and Investment
Contracts: Actuarial Liabilities
Insurance
Contracts: CALM
Insurance
Contracts: new
IFRS standards
(Discussion Paper)
Investment
Contracts: IAS 39
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
AA Committee and IFRS
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Want to ensure consistency in contract
classification
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Or understand going-in key differences and
implications
Industry to retain control and be ahead of
the game
Decision to form small working group to
focus on Phase I conversion implications
Discussions ongoing since Spring 2008
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Objectives of working group
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Primary focus on contract classification
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Share knowledge and expertise
Identify and discuss/debate key issues
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Including embedded derivatives, unbundling
of deposit component, discretionary
participation features
Hopefully reach consensus on treatment
Keep each other posted on progress
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Contract classification under IFRS
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IFRS definition of Insurance Contract:
‘contract under which one party (the insurer) accepts
significant insurance risk from another party (the
policyholder) by agreeing to compensate the
policyholder if a specified uncertain future event (the
insured event) adversely affects the policyholder.’
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Three key criteria:
1) Insured event must adversely affect policyholder
2) Insured benefits must be significant
3) Insurance risk must be non-financial: mortality,
longevity, morbidity, P&C risks
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Contract classification (cont’d)
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Significance of insurance risk:
Insurance risk is significant if, and only if, an
insured event could cause an insurer to pay
significant additional benefits in any scenario,
excluding scenarios that lack commercial substance
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Probability of insured event is not considered when
assessing significance of risk, as long as scenario has
“commercial substance”
Insured event with very low probability is Insurance
if benefits payable could be significant
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Key findings and issues
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Insurance contracts:
 Term plans, T100
 Par Life, Whole life
 Universal Life
 Endowment products / Pure endowments
 Critical Illness/Health/Disability contracts
 Long Term Care
 Group Life and Health insurance (excluding ASO
contracts)
 Reinsurance treaties with “significant” risk transfer
 Payout immediate/deferred annuities (life contingent)
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Key findings and issues (cont’d)
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Insurance contracts:
 Seg fund/VA products with GMDB / GMIB /
”For-life” GMWB
 GMDB, GMIB or “for life” GMWB represent significant
insurance risk
 Accumulation products/deferred annuities with
contractual guaranteed annuitization rates
 Guaranteed annuitization rates, even if rarely exercised,
constitute significant insurance risk
 Accumulation products/deferred annuities with Book
Value Death Benefit in deferral period
 If MVA surrender charge is waived on death and/or disability,
this constitutes significant insurance risk
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Key findings and issues (cont’d)
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Investment contracts:
 Term certain contingent annuities
 Fixed accummulation annuities which do not contain
guaranteed annuitization rates
 Seg funds with no guaranteed minimum returns
 Group contracts with strong “hold harmless”
provisions (terminal/deficit accounting)
 Mutual funds / banking products
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IAS 39 applies:
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Potential asset segmentation issues if commingled
with assets backing Insurance segments
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Key findings and issues (cont’d)
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Service contracts:
 Group ASO
 Financial Reinsurance with very limited risk transfers
 Potentially: mutual funds where company acts as
“conduit” / does not have ability to choose/replace
investment managers
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Widely expected that IFRS treatment will be similar to
existing CGAAP
DAC implications for investment management service
contracts
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Key findings and issues (cont’d)
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Issues currently being discussed:
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GMAB/GMWB feature: longevity risk?
Accumulation annuities with MVA waiver on death or
survival to a certain date (eg. normal retirement)
Group benefits contracts with terminal accounting: if
there is a limit on the number of years of negotiations,
could be left with significant losses
Embedded derivatives
Unbundling considerations
Assessment of ceded Reinsurance contracts
2008 Seminar for the Appointed Actuary
Colloque pour l’actuaire désigné 2008
Looking ahead
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Working group discussions and findings to be
posted on CIA website shortly, via Committee of
the Appointed/Valuation Actuary
Anyone interested: contact me
Hope to see you at this afternoon’s
session!