Office of the Superintendent of Financial Institutions
Guideline E-15 was issued as a new guideline in 2003. It covered three topics relating to the role of Appointed Actuaries (AA) in financial statement reporting:
At the time, the requirement for external review was not universally accepted as practical or worth the extra effort. Some held the view that it was not necessary to review an Appointed Actuary’s work. At the same time, the Canadian Institute of Chartered Accountants (CICA) introduced a requirement that the auditors review certain aspects of the actuarial numbers in the financial statements. As such, there was concern about duplication of effort and extra costs. There was a commitment that the external review requirement would be reassessed after a number of years.
The concept of external review has generally been accepted over the last eight years by insurance companies, Appointed Actuaries and the actuarial profession. However, it is OSFI’s opinion that the peer review process can be enhanced to better assist OSFI with its review of insurance companies.
In addition, OSFI has recently changed its Supervisory Framework. One of the changes was a revision in OSFI’s view of how it makes use of the role of the Appointed Actuary. A key component of this change was that the effectiveness of the work of the external reviewer needs improvement. The prime areas for improvement were identified as follows:
While the general objectives of the existing guideline remain valid, the focus of
actuarial review should be on the complementary nature of its objectives to: (a) aid
OSFI in assessing the actuarial function in the insurer; (b) act as a consultation aid to
AA’s; and (c) provide significant professional education to AAs. The reporting to
OSFI needs to be enhanced to better facilitate understanding of the value added by
the external review process;
The review work should concentrate on the elements of the Appointed Actuary’s
work that affect the financial statements and the assessment of the company’s future
Review of other work by the Appointed Actuary need no longer be reviewed;
The rules defining reviewer objectivity should be revised to enable additional
knowledgeable and experienced individuals to qualify to perform the work;
While the basic 3-year cycle should be continued, there should be annual reporting
on material changes in methodology and assumptions;
Financial condition reporting (i.e., DCAT) should be reviewed on a 3-year cycle,
with the choice of scenarios tested reviewed annually;
Pre-release reviews should be encouraged;
The process should be changed and referred to as “peer review”.
The revised Guideline E-15 addresses the above issues by amending the requirements of the
review processes. At the same time, the requirement for review will no longer apply to the work
regularly done by Appointed Actuaries that does not affect the financial statements or that does
not relate to future financial condition work.
The CICA has just revised AuG-43 to be a new non-authoritative auditing guideline that is in
compliance with international auditing standards, called “Guide: Audits of Financial Statements
That Contain Amounts That Have Been Determined Using Actuarial Calculations”. The
proposed revisions to Guideline E-15 do not duplicate the work required by this CICA guideline.
The advantage of this option is that OSFI would not have to devote resources to revising the
Guideline. However, the resources and costs to produce changes to the Guideline are not
The disadvantage is that the revised requirements of the Supervisory Framework with respect to
assessing the actuarial function of the companies would be harder to meet. The current external
peer review process does not fully meet the expectations of OSFI. The proposed revisions to the
Guideline will enhance OSFI’s ability to assess the actuarial function of the companies. An enhanced peer review process should give insurance company management and boards improved
assurance about the financial statements. The enhancements should also make peer review of
more use to the Appointed Actuaries as a source of consultation advice.
While termination of peer review could be seen as a cost saving measure, it would eliminate a
third party consultation support for Appointed Actuaries. In addition, the revised Supervisory
Framework requires more intense assessment of the actuarial function in companies. Removing
the peer review approach would result in far more work for OSFI personnel directly, which
would ultimately increase costs to companies.
While the CIA has the professional expertise to develop standards and practices around peer
review, the profession does not have the regulatory authority to mandate this work at the
The advantage of this option is that peer review will support OSFI’s enhanced requirements in
the Supervisory Framework to assess the actuarial function in the companies.
By having a third-party process such as peer review, OSFI will avoid the need to substantially
increase resources if it were to take on the function itself. OSFI will also obtain the knowledge
and perspective of very experienced actuaries who will serve as peer reviewers.
An enhanced peer review process should give insurance company management and boards
improved assurance about the financial statements. The revised peer review process will also
eliminate the need to review any work that does not directly affect the financial statements and
future financial condition work.
The peer review process will also be a continued source of consultation advice for Appointed
Following the issuance of a draft revised Guideline for consultation in February 2012, OSFI
received 17 submissions from industry stakeholders. OSFI also conducted follow-up discussions
with a number of stakeholders. The final version of the Guideline incorporates a number of the
their suggestions. Please refer to the cover letter accompanying the Guideline for further details
regarding stakeholder comments and OSFI responses.
OSFI is of the view that the creation of enhanced guidance for peer review is the most
appropriate option for ensuring that Appointed Actuaries continue to have a reliable source of
consultation advice, while also meeting OSFI’s enhanced role in assessing the actuarial function
It is recommended that Guideline E-15 be revised to enhance its usefulness to both OSFI and to
The revised Guideline is effective for the financial statements covering 2013, and for the DCAT
prepared during 2013. The review of 2012 year-end financial statements and DCATs presented
during 2012 can follow the previous requirements.