Property and Casualty - Memorandum to the Appointed Actuary 2022

1. OVERVIEW

This Memorandum describes the requirements of the Office of the Superintendent of Financial Institutions (OSFI or Superintendent) with respect to the Appointed Actuary's Report (AAR) specified in subsection 667(2) of the Insurance Companies Act (ICA). It sets out the minimum standards used in determining the acceptability of the AAR and provides guidance for the Appointed Actuary preparing reports in matters relating to presentation, level of detail and nature of the discussions to be included.

Many insurers are required to file an AAR, as part of the Annual Return forms, with more than one regulator, federal or provincial, in Canada. The insurer is responsible for ensuring that the AAR submitted as part of the Annual Return complies with the requirements of each regulator.

The term AAR refers to the detailed actuarial report submitted to a regulator. This includes the opinion of the Appointed Actuary concerning the fairness and adequacy of the policy liabilities included in the insurer's financial statements, a detailed commentary, data exhibits and calculations supporting that opinion.

The AAR comprehensively documents the work done by the Appointed Actuary to calculate policy liabilities. OSFI views the AAR as a key component of its review of the company's financial position and profile.

The AAR is not solely a report from the company's Appointed Actuary to OSFI's actuaries. It is also intended for company management and is read by regulators who may not be actuaries but who are knowledgeable about insurance. Therefore, the AAR should be presented in a manner generally understandable to both company management and the regulator.

2. REGULATORY REQUIREMENTS

2.1 Application of Professional Standards to the Appointed Actuary's Valuation

Subsections 365(2) and 629(2) of the ICA require that "The actuary's valuation shall be in accordance with generally accepted actuarial practice with such changes as may be determined by the Superintendent and any additional directions that may be made by the Superintendent."

OSFI's Guideline E-15 Appointed Actuary: Legal Requirements, Qualifications and Peer Review describes the role of the Appointed Actuary and sets out some of OSFI's expectations with respect to that role. The guideline also outlines the actuary's qualification required to carry out the Appointed Actuary's role.

The Canadian Institute of Actuaries (CIA) annually issues a letter (the Fall Letter) from the Committee on Property and Casualty Insurance Financial Reporting (PCFRC) and, from time to time, may issue other educational notes. While the Fall Letter and educational notes are not standards, the Appointed Actuary should disclose when either the educational notes and/or the PCFRC Fall Letter are/is not followed as well as the supporting justification.

For purposes of the Appointed Actuary's valuation of policy liabilities (and the associated opinion), OSFI currently accepts that work performed in accordance with "accepted actuarial practice" in Canada (as defined by the CIA) is sufficient to satisfy the 'generally accepted actuarial practice' requirement referred to in the ICA sections identified above. "Accepted actuarial practice" is defined by the professional actuarial standards of practice promulgated by the Actuarial Standards Board (ASB), together with the additional requirements and directions of this Memorandum. Any deviations from CIA Standards of Practice or from the additional requirements of this Memorandum must be reported in the AAR and justified.

This Memorandum for 2022 year-end financial reporting does not contain any requirements that override or limit accepted actuarial practice.

In complying with accepted actuarial practice, the Appointed Actuary must meet a standard of care with respect to the data used in valuations. This standard of care, implicitly stated in the CIA Standards of Practice, requires the Appointed Actuary to establish suitable check procedures for the verification of data. While the CIA Standards of Practice (SOP Subsection 1520) offer the Appointed Actuary the option to consider the Auditor's work, the existence of the Joint Policy Statement does not override the ICA's requirement for filing reports with the Annual Return that meet the standard of care implicitly stated in the CIA Standards of Practice. The AAR must discuss the extent to which the Appointed Actuary considers the work of the Auditor. Where the Appointed Actuary uses the work of the Auditor, the details of the Auditor's work should not be addressed in the AAR. If there are instances where the Appointed Actuary does not use the work of the Auditor because of any special circumstances, this must be disclosed in the data section of the AAR. The Appointed Actuary should describe the data verification that was performed.

The CIA Standards of Practice (SOP Subsection 1510) describe the Appointed Actuary's use of another person's work. Such use of the work of others should be disclosed in the section of the AAR where it most logically applies (e.g., at the company level, a specific product level, etc.).

2.2 Filing Directions for the AAR, FCT Report and Peer Review Report

The filing deadlines for the above reports are:

• AAR - no later than 60 days after the end of the fiscal year,

• FCT Report - the earlier of 30 days after the presentation to the Board of Directors, Audit Committee or Chief Agent and one year after the fiscal year end,

• Peer Review Report (full 3-year review or the limited annual review) - Copies of pre-release reports (encouraged), both the full peer review report, and any summary, for financial statement work should be forwarded to OSFI based on the same deadlines that apply to filings of the P&C regulatory financial returns.

• For post-release reviews, the reviewer's report should be submitted to OSFI no later than thirty days after release of the AA's report on the work reviewed, and for future financial condition reports, no later than December 31.

OSFI's Guideline E-15 Appointed Actuary: Legal Requirements, Qualifications and Peer Review provides more details on filing deadlines.

For the AAR, the FCT Report and the Peer Review Report, the company must submit one electronic copy uploaded via the Regulatory Reporting System (RRS). A scanned copy of the signed opinion must be included in the electronic submission. Failure to meet the deadlines of the filings will result in a penalty fee under OSFI's Late and Erroneous Filing Penalty Framework.

For security reasons, companies should not file reports through e-mail. The file should be in PDF format and preferably created with a PDF software rather than through scanning, as the former is searchable while the latter is not. The information should be easily copied by OSFI staff from the AAR, the FCT or the Peer Review Report. Therefore, the reports should not be security protected and exhibits should be in a format that can easily be transferred to a spreadsheet. Otherwise, the company should be prepared to promptly provide searchable data in an alternative media upon request.

With the exception of some companies, OSFI does not require hard copies of the AAR. Companies required to provide hard copies will be contacted individually.

Companies should follow the file naming conventions outlined in the instructions for Unstructured Financial Returns. Both the full 3-year review and the limited annual review share the same naming conventions.

The filing instructions may be obtained on the OSFI website at www.osfi-bsif.gc.ca under Regulatory Data and Returns / Filing Financial Returns / Canadian & Foreign Property and Casualty Insurance Companies.

In order to file a Peer Review Report within RRS, companies are reminded that these filings must first be requested by contacting ReturnsAdmin@osfi-bsif.gc.ca or by calling 613-991-0609.

The ICA requires companies to file their AAR with their Annual Return. OSFI will not accept a certificate containing only the opinion of the Appointed Actuary in lieu of a full AAR.

Companies are reminded that the filing of AARs and opinions with the P&C Return requires that each copy of the P&C Return filed with OSFI should contain a properly signed copy of the AAR.

Note that Section 7.5 requires a separate cover letter for Disclosure of Compensation.

2.3 Differences (if any) Between the Appointed Actuary's Valuations and Corresponding Annual Return Liabilities

Companies are expected to book the Appointed Actuary's estimated policy liabilities in the Annual Return. In circumstances where the booked gross, ceded or net policy liabilities differ from the estimated policy liabilities by more than the Appointed Actuary's selected standard of materiality, the AAR must describe the reasons for the differences.

For federally regulated companies, the provision for policy liabilities in the 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 Appointed Actuary.

2.4 Persons Signing the Appointed Actuary's Report

The AAR must be signed by the Appointed Actuary, who must be a Fellow of the CIA.

3. OSFI'S REVIEW PROCESS

OSFI recognizes the confidential nature of the AAR. Reviews of the filed Annual Returns may disclose that an Appointed Actuary's valuation warrants further assessment and questioning. The Superintendent may reject assumptions and methods where it appears that the policy liabilities produced are inappropriate.

Since the review of an AAR may take place over an extended period after filing, OSFI may request the Appointed Actuary to provide supplemental detail to sufficiently assess the assumptions and methods. The Appointed Actuary is expected to respond promptly to all supplemental requests. Working papers required to support the computation of the policy liabilities reported in the Annual Return and the AAR should be available at all times and should be made available to OSFI upon request.

Where the appropriateness of particular assumptions or methods is not sufficiently demonstrated, the Superintendent will require the Appointed Actuary to choose other acceptable assumptions or methods, and to re-compute the policy liabilities. In such a situation, the Appointed Actuary must re-file the AAR. The Superintendent may also require the company to amend the Annual Return. Alternatively, the Superintendent may ask the company to reflect the changes in the Annual Return for the following year. The Superintendent may request a report from an Independent Actuary.

4. SPECIAL LINE OF BUSINESS CONSIDERATIONS

4.1 Marine Insurance

Marine insurance business, if transacted, must be included within the scope of the AAR. The AAR should clearly identify the Appointed Actuary's provisions for marine insurance.

4.2 Title Insurance

Premiums for title insurance are earned at issue. Unearned premium reserves are therefore not usually required. The accident date for all claims is the issue date of the policy as most problems with the title that could cause a claim would be in existence at the issue date of the policy.

4.3 Accident and Sickness Insurance

This Memorandum does not deal specifically with accident & sickness insurance valuation.

Companies and their actuaries preparing reports on accident and sickness business should refer to OSFI's Memorandum to the Appointed Actuary on the Report on the Valuation of Life Insurance Policy Liabilities. The opinion described later in this document, included in the AAR, should cover these related provisions.

5. FORMAT OF THE APPOINTED ACTUARY'S REPORT

5.1 Report Outline

While the format of the AAR differs from Appointed Actuary to Appointed Actuary, most AARs include sections similar to the following:

• Introduction
• Expression of Opinion
• Supplementary Information Supporting the Opinion
• Executive Summary
• Description of Company
• Data
• Claim Liabilities
• Premium Liabilities
• Other Liabilities
• Other Disclosure Requirements
• Unpaid Claims and Loss Ratio Analysis Exhibit
• Exhibits and Appendices

In Section 6 "Contents of the Appointed Actuary's Report", the above outline is used to discuss the required contents. The Appointed Actuary is encouraged to use the above outline.

5.2 Table of Contents

A table of contents showing where the above information is located must be included at the beginning of the AAR. The AAR must also include a table of contents for the Exhibits and Appendices.

To facilitate the review, the AAR should include clearly identified sections and numbered pages. Reference to such pages should be part of the table of contents.

6. CONTENTS OF THE APPOINTED ACTUARY'S REPORT

6.1 Introduction

This section should identify the scope of the AAR and should indicate clearly that the AAR is an actuarial valuation report or supports an actuarial opinion. This section should also identify:

• the company involved,

• the date of valuation,

• the identity of the author,

• the author's full address and telephone number, and

• the author's authority for preparing the AAR.

6.2 Expression of Opinion

The Appointed Actuary must use the prescribed opinion format (see Appendix I). The opinion wording is as recommended in the CIA Standards of Practice – Practice-Specific Standards for Insurers. OSFI will consider any opinion that varies from this wording to be a qualified opinion.

Note that:

• The liability figures carried by the company in the Annual Return must be stated in the opinion.
• The liability figures derived by the Appointed Actuary must be stated in the opinion.

This section must contain an original signature of the Appointed Actuary, the Appointed Actuary's name in type, the date and location of signing.

The actuarial opinions presented to the shareholders and policyholders of the company should be essentially the same as the opinions filed with OSFI. Should this not be the case, the Appointed Actuary must disclose in writing to OSFI the material differences between the opinions, as well as the rationale for such differences.

Any qualification or limitation concerning any aspect of the valuation should be noted in this section of the AAR. These qualifications or limitations should be similar to the ones included in the opinion for Canadian Annual Returns presented to the shareholders and policyholders. Caveats or any form of disclaimer should be excluded from the opinion but could be included in Section 6.3 "Supplementary Information Supporting the Opinion".

For branches where the External Auditor Report is not available at the time the Appointed Actuary has to render his/her opinion, a qualified opinion, conditional upon receiving an unqualified opinion from the External Auditor (Auditor), must be issued. The expected completion date of the External Auditor's work should be stated. When the auditor's work is completed, the Appointed Actuary must either:

1. file an unqualified opinion with OSFI, or
2. file a revised opinion with a supporting AAR issued if the Auditor is unable to give an unqualified opinion or modifies the financial statements.

6.3 Supplementary Information Supporting the Opinion

Reader of the AAR should be able to understand how the Appointed Actuary's figures, as shown in the opinion, are derived. This section should contain references to the report sections, exhibits and/or appendices where these results are derived or summarized. Where results from several places must be added together, a table should be included.

This section should also include any conditions or limitations pertaining to the policy liabilities.

Consolidated reporting will be required within the P&C Returns. For capital purposes, the consolidated entity includes the parent company and all subsidiaries that carry on business that the parent could carry on directly pursuant to the Insurance Companies Act.

The above rule does not apply to life company subsidiaries, which are to be reported using the equity method. OSFI anticipates that most Actuaries will continue to prepare non-consolidated AARs. However, the Appointed Actuary must include an additional exhibit and commentary that reconciles the information within the AAR to the consolidated opinion. Actuaries will be expected to value non-federally regulated subsidiaries under Canadian generally accepted actuarial practices and include these AARs as appendices or as a separate part of the AAR.

6.4 Executive Summary

The actuary must briefly explain and comment on in this section as well as in detail in all the other sections of the report where it is relevant the impact that the COVID-19 pandemic has had for the insurer and the adjustments that were made in this year's policy liabilities valuation to take it into account. For this purpose, the actuary may refer, among others, to the document 2021 Guidance to P&C actuaries: Special considerations due to COVID-19 which is available on the website of the Canadian Institute of Actuaries.

This section should contain a summary of the key results and findings and any other information the Appointed Actuary wishes to bring to the attention of the reader. In particular, it should comment on the comparison of the actual experience with the expected experience in the prior year end valuation for all lines combined.

It should also reference any significant changes in methods or assumptions from the prior AAR, significant issues and how they were resolved, data or other concerns identified by the Appointed Actuary and any other unusual circumstances identified as part of the valuation. This section must also include any deviation from CIA Standards of Practice or from the requirements of this memorandum.

6.5 Description of Company

6.5.1 Ownership and Management

The Appointed Actuary should provide a brief history of the company covering ownership and senior management. Changes over the past several years should be identified and potential impacts on the valuation as a result of these changes should be discussed.

6.5.2 Business

This section should contain a brief description of the lines/classes of business written, distribution channels and geographic distribution. It should also describe recent changes in business written, underwriting policies, claims policies and procedures as well as the impact of these changes.

6.5.3 Reinsurance

6.5.3.a Reinsurance Arrangement

The Appointed Actuary should describe the company's reinsurance arrangements (type of arrangements, significant terms and conditions, order of application of treaties, and whether the arrangements are specific to the Canadian operations only) and any changes in the arrangements (including changes in retention or limits) during the experience period used in the AAR. This description should be included for all years where the ceded unpaid claims could be material. In many cases, it is useful to include the rationale for the changes (if any). In particular, the Appointed Actuary should identify whether the terms and conditions of the reinsurance/retrocession arrangements require payments to be made from the reinsurer/retrocessionaire directly to the ceding company in Canada, including in the event of the cedant's insolvency.

6.5.3.b Reinsurance Ceded

The provision for reinsurance ceded must be reduced for expected reinsurer defaults, disputes, the time value of money due to delays in payment or other reasons that could reduce the amount recoverable. This reduction is in addition to the unexpected defaults within the reinsurance margin. The AAR should clearly indicate where none of the above reductions are made to the provision for reinsurance ceded.

When making this estimate, the Appointed Actuary will not necessarily assess the financial condition of each reinsurer. However, the existence of any of the following situations and the actions taken should be described:

• a dispute has arisen with a reinsurer;
• a reinsurance collectible is significantly overdue;
• the reinsurer has a history of not settling accounts promptly;
• the reinsurer is known to have been the subject of regulatory restrictions in its home jurisdiction; or
• the reinsurer has a poor credit rating.

It is expected that the Appointed Actuary will discuss reinsurance matters with management and the Auditor of the company to determine whether there are unusual problems and/or delays expected to be encountered in collecting the relevant amounts from the reinsurers.

Where reinsurance agreements were commuted or changed, the Appointed Actuary should clearly indicate how any changed arrangements were taken into account.

6.5.3.c Financial Reinsurance Agreements

The Appointed Actuary must disclose information of any material financial reinsurance agreements ceded where there is not significant insurance risk transfer between the ceding company and the reinsurer, or where there are other reinsurance agreements or side letters that could offset the financial effect of the first reinsurance agreement. If no such agreements exist, the Appointed Actuary must state that there are no material financial reinsurance agreements. The Appointed Actuary should also describe the process used to reach the above conclusion.

The Appointed Actuary should disclose any related party reinsurance that has or could have a material impact on the policy liabilities. The disclosure should include the parties involved, a description of the reinsurance and the impact on policy liabilities.

6.5.4 Materiality Standards

In preparing the company's Annual Return, the company management and the Auditor routinely agree on a level of materiality. The standard of materiality applied for accounting purposes and for valuation of an insurer's policy liabilities must be reported in the AAR. In addition, the Appointed Actuary must report how the materiality standard is selected for the valuation of policy liabilities.

6.6 Data

The AAR should note the extent of the Appointed Actuary's review and verification of the data and the extent of the Appointed Actuary's reliance on data prepared by others. The AAR should also describe the methods and procedures used to ensure that the valuation data are sufficient, reliable and accurate.

In particular the AAR should describe the type of data provided and the review and verification procedures applied thereto and the procedures and steps undertaken to ensure that the valuation data are sufficient, reliable and accurate.

The statutory requirement that the Appointed Actuary file an AAR with the Annual Return assumes that the Appointed Actuary has met the standard of care, as implicitly stated in the CIA Standards of Practice. In particular this requires that the Appointed Actuary establish suitable check procedures to verify that the data utilized is reliable and sufficient for the valuation of policy liabilities.

In the event that the External Auditor's work is not complete when the Appointed Actuary provides his/her opinion, please refer to Section 6.2 Expression of Opinion.

With respect to any line of business (including, more specifically, accident & sickness business, pools and facility associations), the Appointed Actuary should describe 1) any reliance on or use of the work of another actuary; 2) the scope of such reliance; 3) a justification for such reliance and 4) the extent of the review of the other actuary's work should also be described.

6.7 Claim Liabilities

6.7.1 Undiscounted Claim Liabilities

The commentary on the claim liabilities must contain details of the derivation of the gross, ceded and net provisions. Normally the Appointed Actuary will calculate two of these provisions directly and derive the third by addition or subtraction. The provisions calculated directly will depend on the circumstances of the company and the preference of the Appointed Actuary; however, the individual provisions should each be reasonable.

The data, analysis and commentary will normally be provided by actuarial lines of business. These lines will be selected by the Appointed Actuary based on the credibility and homogeneity of the resulting data. Where the actuarial lines of business have changed from the prior AAR, the current year's AAR should clearly state the reasons for the changes. In some cases, it may be appropriate to use different lines of business for the ceded and gross/net provisions.

The Appointed Actuary should disclose whether or not the company has exposure to mass tort and latent claims (including potential exposure emanating from residential schools), and if the company has had a subsequent event. If the company has such exposure, the Appointed Actuary should discuss the nature and treatment of those claims in the calculation of the provisions for unpaid liabilities.

Where the actuarial lines of business do not include all the business written by the company (e.g. pools and associations), the AAR should clearly indicate the additional amounts and include them in a reconciliation exhibit.

In determining the provision for each actuarial line of business, the Appointed Actuary should consider, at a minimum:

• any significant trends in the severity and frequency of claims,
• any important changes in the coverage of the policies,
• the changes in the cost of reinsurance and/or in reinsurance arrangements,
• any changes in the lags in the reporting of claims and in the payment of claims,
• changes to the loss reserving practices and
• the effects of regulatory changes.

The commentary should discuss the existence of any significant development (adverse or favourable) in the run-off of the reserves that had been set up in prior years, reasons for the development and changes to methods and assumptions that would eliminate the recurrence of any consistent development.

6.7.2 Claims Expenses

Claims expenses are normally split between internal (unallocated) and external (allocated).

Some actuaries combine external expenses with incurred losses and base their analysis on the total of losses and expenses. Other actuaries calculate separate provisions for indemnity and external expenses. Both approaches are acceptable; however, the Appointed Actuary should clearly indicate the approach followed.

A variety of methods are used for internal loss expense provisions. Any method in accordance with accepted actuarial practice is acceptable. The AAR should describe the method(s) as well as any changes in methods from prior AARs. The impact of such changes should be clearly indicated and, if material, included in the Executive Summary.

6.7.3 Comparison of Actual Experience with Expected Experience in Prior Year-End Valuations

In order to assess the effect of changes in the estimated claim liabilities, OSFI requires companies to provide a comparison of Actual Experience with Expected Experience on an undiscounted basis for each actuarial line of business and for all lines combined for 10 years. However, if data for 10 years is not currently available, the Appointed Actuary should comment on this fact but also move toward the 10 year standard. These comparisons must be provided gross and net of reinsurance. Normally these comparisons will include external adjustment expenses, exclude internal adjustment expenses and exclude classes of business not reviewed by the Appointed Actuary (e.g. pools).

Actual Experience refers to the ultimate gross and net undiscounted estimates selected for each accident year for each actuarial line of business valued as of the current year-end (December 31 or October 31). Expected Experience in Previous Year End Valuations refers to the ultimate undiscounted estimates selected by the Appointed Actuary at each of the prior year-ends. If the ultimate undiscounted estimates are not available for a line of business (e.g. tabular reserves), then the ultimate discounted estimates may be used. The AAR must include the total for all lines combined as well as subtotals, where useful.

Where there are changes in the actuarial lines of business, the Appointed Actuary must allocate the actual total undiscounted claim liabilities from prior AARs to the current actuarial lines of business using a reasonable approximation. For the first year following the change, the AAR should show the development using the old actuarial lines of business as well.

Where the Appointed Actuary uses underwriting/policy year rather than accident year, the Appointed Actuary may show the comparison of actual to expected experience using projected loss ratios based on underwriting/policy year data. In this case, the Appointed Actuary should estimate the dollar impact of the development. This would normally be calculated by multiplying the change in loss ratio by the underwriting/policy year earned premium at the prior year-end.

Whenever significant differences in ultimate estimates occur for any accident year, the Appointed Actuary should provide commentary explaining such changes in ultimate estimates for each accident year. In addition, the Appointed Actuary should discuss any actions taken to reduce the likelihood of similar differences in the future. The Appointed Actuary should update commentary from prior AARs based on the most recent experience. For this section, the Appointed Actuary may use a standard greater than the selected materiality standard to eliminate comments on normal fluctuations in data. A lower standard should be used for individual lines and a moderately higher standard may be used for older accident years to avoid repeating some of the less important comments from prior AARs.

Significant differences may exist between the loss development on page 60.40 of the Annual Report and that shown in the Comparison of Actual Experience. OSFI acknowledges that the company is not required to use the AAR as a basis for completing page 60.40 and that the differences can arise from such items as the allocation of internal loss adjustment expenses, Facility Association and Other Reserves. The Appointed Actuary should inform the Company of any significant differences and include a discussion of the differences in the AAR or indicate that there are no differences.

On a net basis, ultimate loss development is expected to be the same as that calculated by summing over columns (3) and (6) using data from the UCLR Analysis Exhibit in the current AAR compared to data in prior year AARs. The Appointed Actuary should quantify and explain any difference that is expected due to changes to the presentation of data in the UCLR Analysis Exhibit.

6.7.4 Discounted Claim Liabilities

The claim liabilities must be discounted and include appropriate margins as required by CIA Standards of Practice.

The AAR should indicate the discount rate(s) used for the valuation and describe in detail the method used to select the discount rate(s). In particular, the selected discount rate(s) should be reduced by an explicit margin for expected credit-related events, including expected asset default. This deduction is in addition to the unexpected credit risks within the investment return rate margin. The Appointed Actuary should clearly document the rationale for the selections, including where the explicit margin is zero. The AAR should include all supporting exhibits.

The Appointed Actuary should quantify, disclose and justify the impact of changes in selected margins. The Appointed Actuary should also disclose in the Executive Summary cases where the impact of the changes in selected margins is material.

6.8 Premium Liabilities

The premium liabilities are normally calculated by line of business; however, the lines need not be identical to the actuarial lines of business used to estimate the claim liabilities.

OSFI expects the Appointed Actuary to comment on all aspects of components of premium liabilities, and particularly on the following (Please indicate if not applicable):

• expected losses, loss expenses and servicing costs on the policies in force,
• anticipated broker/agent commission,
• expected adjustments (plus or minus) to swing rated policies,
• expected changes to premiums as a result of audits, late reporting or endorsements and
• expected commission adjustments on policies with variable commissions.

The commentary should disclose whether or not the company has had a subsequent event. If there was a subsequent event, the Appointed Actuary should discuss the nature and treatment of the event in the calculation of the provisions for premium liabilities.

The Appointed Actuary should discount the premium liabilities with appropriate margins as required by CIA Standards of Practice. Where the selected interest rate or margins differ from those used in the Claim Liabilities Section, the AAR should describe the reasons for the selections.

The treatment of the above items may differ by company. The Appointed Actuary must demonstrate that the total of the carried premium liabilities is at least as large as his/her provision.

6.9 Other Liabilities/Other Assets

The Appointed Actuary must comment on the adequacy of reserves, including IBNR, maintained for Self-Insurance Retention (SIR) plans. SIRs represent the portion of a loss that is payable by the policyholder. The Appointed Actuary should include these in his/her opinion as "other net liabilities". They should be reported net of reinsurance, not net of the supporting assets. These supporting assets are to be included in the opinion as "other amounts to recover". The AAR should describe these provisions and provide details of their calculation.

Whenever amounts for salvage and subrogation are material, and therefore presented separately in the Annual Return, the Appointed Actuary must include such amounts in the opinion as "other amounts to recover". The AAR should describe the method used to calculate these amounts.

The AAR opinion should include, with commentary, any other amounts reported as Other Liabilities or Other Assets.

7. OTHER DISCLOSURE REQUIREMENTS

7.1 Dynamic Capital Adequacy Testing (DCAT) / Financial Condition Testing (FCT)

The AAR must disclose the following information with respect to the DCAT/FCT reporting in the last three years:

• the date on which the DCAT/FCT reports were signed by the Appointed Actuary,
• the date on which the DCAT/FCT reports were presented,
• to whom the DCAT/FCT reports were presented (e.g. full board, audit committee, chief agent),
• whether the reports were presented in person or only in written form and
• the date used as the start of the projection period in the DCAT/FCT reports.

7.2 New Appointment

OSFI expects Appointed Actuaries to comply with the qualification requirements contained in OSFI Guideline E-15, Appointed Actuary: Legal Requirements, Qualifications and Peer Review. The AAR must explicitly disclose any deviations from these qualifications, including future steps being/to be taken to meet the qualification requirements.

If the Appointed Actuary was appointed to the role during the last year, the AAR must include the following disclosures:

• the date of appointment,
• the date of resignation of the previous Appointed Actuary,
• the date on which OSFI was notified of the appointment,
• confirmation of communication with the previous Appointed Actuary, as required by the ICA section 364(1), and
• a list of the Appointed Actuary's qualifications, keeping in mind, but not limited to, the CIA's Rules of Professional Conduct.

7.3 Annual Required Reporting to the Board or Audit Committee

For a Canadian company, the AAR must disclose the date on which the Appointed Actuary met with the board or the audit committee of the board, as required by paragraph 203(3)(f) of the ICA.

For a foreign company, the AAR must disclose the date on which the Appointed Actuary met with the chief agent, as required by section 630 of the ICA.

7.4 Continuing Professional Development Requirements

The Appointed Actuary must disclose in the AAR that he/she is in compliance with the Continuing Professional Development requirements of the CIA.

7.5 Disclosure of Compensation

The Appointed Actuary must disclose their compensation. This disclosure is consistent with the Financial Stability Board's Principles for Sound Compensation Practices, which have been adopted by OSFI. The form of the disclosure statement should be as follows:

If the Appointed Actuary is an employee of the insurance company, the methodology should include a list of the major components of the Appointed Actuary's compensation. This could include: base salary, cash and/or stock-based bonuses, retirement and other significant benefits, other compensation (e.g. signing bonuses, severance packages), and perquisites (e.g. car allowances).

For each component of the Appointed Actuary's compensation listed above that varies with the performance of the company, the value of that component as a target percentage of the base salary must be disclosed. This might include, but is not limited to, participation in a bonus plan and/or a stock option plan that is based on company performance. The company must disclose the basis used to determine the amounts of these variable compensation components.

If the Appointed Actuary serves as an external consultant to the company, then the information provided to OSFI must include:

• The consulting fees payable for the preparation of the AAR, FCT, and any other work performed as the Appointed Actuary in respect of the company's current fiscal year;
• The basis used to determine the consulting fees payable for the Appointed Actuary's work (for example, fixed fee basis, time and expense basis, as well as any caps etc.), and whether the fees include any element of incentive or results-based compensation;
• The proportion that the consulting fees payable for the Appointed Actuary's work for the company represents, as a percentage of the total revenue billed by the consulting firm's Canadian legal entity to the company in the consulting firm's prior fiscal year (
• The proportion that the consulting fees payable for the Appointed Actuary's work for the company represents, as a percentage of the total revenue billed by the consulting firm's Canadian legal entity to all clients in the consulting firm's prior fiscal year (

Due to its sensitive nature, the "Disclosure of compensation" must be included in a separate cover letter to AA Compensation Letter P&C (aacompletterpc@osfi-bsif.gc.ca), Actuarial Division at OSFI and, on request, to other Canadian regulators with reference to the cover letter made in the relevant section of the AAR.

7.6 Reporting Relationships of the Appointed Actuary

The AAR should disclose the reporting relationships and dependencies of the Appointed Actuary.

For Appointed Actuaries who are employees of the company, the AAR should disclose the name and position of the person (or persons) to whom the Appointed Actuary reports as well as any changes in this regard over the past year. Both solid line and dotted line reporting relationships should be disclosed, as well any anticipated change.

When the Appointed Actuary is not an employee of the company, the AAR should disclose the names and positions of the main contacts within the company with respect to the different functions of the Appointed Actuary, such as the valuation, FCT, and MCT support (if any).

For example, the AAR should disclose the name and position of:

• The person who hired the Appointed Actuary; and
• The company employees with whom the Appointed Actuary discusses findings and reports.

7.7 Peer Review of the Work of the Appointed Actuary

OSFI requires the work of the Appointed Actuary to be externally peer reviewed, as set out in OSFI's Guideline E-15, Appointed Actuary: Legal Requirements, Qualifications and Peer Review.

For each Peer Review Report filed in the last three years, the Appointed Actuary must complete the following table:

In addition, the AAR should indicate when the peer reviewer last reviewed the information, if any, prepared by the Appointed Actuary to assist the insurer in the completion of the MCT (BAAT) schedules in the P&C returns.

For each peer review report, the Appointed Actuary should summarize each key finding or recommendation, and the status of each finding / recommendation by year.

The Appointed Actuary should disclose if no peer reviews were completed in the last three years and the reasons why. Note that such circumstances would be rare and require OSFI pre-approval.

7.8 Re-submitting the report

The AAR must disclose the reason(s) for resubmission.

8. UNPAID CLAIMS AND LOSS RATIO ANALYSIS EXHIBIT

8.1 Introduction

The Unpaid Claims and Loss Ratio Analysis Exhibit (UCLR Analysis Exhibit), as shown in Appendix II, is constructed to allow the presentation and collection of industry loss information in a standard format. The compiled information allows for the analysis of the impact of discounting on claims reserves and the analysis of the evolution of loss trends. In order to achieve these objectives, the exhibits are constructed by class of insurance and by accident year and contain information on a current year and on a cumulative year basis.

8.2 Data

A page must be completed for each actuarial line of business and should reconcile to supporting exhibits in the AAR. Each actuarial line of business must be uniquely linked to one, and only one, Annual Return line of business as listed in Appendix III. For reinsurers, proportional and non-proportional business should be reported separately.

The company must specify on each page the basis, on which the Exhibit is completed, either "accident year" or "underwriting year". The selected basis should be the same for all pages. Insurers completing the exhibits on a "report year" basis should select "accident year".

If an actuarial line of business is a combination of two or more Annual Return lines, the Appointed Actuary must determine in which Annual Return line to place it to best represent the operations of the company. For actuarial lines of business where the earned premium is not available in the same detail as the claims (e.g. automobile-liability bodily injury and property damage), the Appointed Actuary should either estimate a split of the earned premium or combine the data showing it in the Annual Return line that best represents the line of business underwritten by the company.

A "Total" page must also be completed; this exhibit should balance to the AAR. An individual page does not have to be completed for a category that is not reviewed by the Appointed Actuary but the total discounted reserves including PfAD for the category must be included in Line 15 ("Other Provisions") of the "Total" page. The Appointed Actuary should also provide a breakdown with commentary in the AAR when "Other Provisions" is greater than the selected materiality.

In the UCLR Analysis Exhibit, the present value of unpaid claims and adjustment expenses (excluding PfADs) (Column [7]) is expected to be less than the total undiscounted unpaid claims and adjustment expenses (Column [6]). If amount in the column [7] is greater than the amount in column [6], the AAR must comment on the reason for the exception.

Claim counts reported in the UCLR Analysis Exhibit should be consistent with the way the Appointed Actuary defines and records claim counts in the AAR. The Appointed Actuary should provide the definition of claim count in the AAR, and describe any changes in the definition from the prior AAR. If it is difficult to obtain claim count information (e.g. reinsurers, assumed business, etc.), the Appointed Actuary should provide a rationale in the AAR for why claim count cannot be reported.

The definition of claim count could include, if applicable, but not be limited to:

• whether an occurrence with payments for multiple coverages/parties is counted as one claim or multiple claims,
• whether claims with no case outstanding and no payments are included in the definition of reported claim counts, and
• how reopened claims are treated.

The UCLR Analysis Exhibit should be completed on a net basis, with the Appointed Actuary defining "net" in the AAR. For instance, if the Appointed Actuary has completed his or her net analysis gross of intra-group reinsurance, the UCLR Analysis Exhibit should also be completed on this basis. Any adjustments to the net basis as reported in the AAR (e.g. industry pools or inter-company reinsurance) should be made in Lines 14 and 15 of the "Total" page.

The Appointed Actuary is responsible for ensuring the accuracy of the UCLR Analysis Exhibit and accompanying electronic filing.

Note that figures must be expressed in thousands of Canadian dollars.

Appendix IV contains detailed instruction for completing the UCLR Analysis Exhibit.

Effective Q4 2019, the data submission for the UCLRE return is changing from an ASCII format to XML format. Detailed instructions for completing the electronic filing can be found on OSFI's website: Unpaid Claims and Loss Ratio Analysis Exhibit (UCLRE).

9. Appendix I - Expression of Opinion

I have valued the policy liabilities [and reinsurance recoverables] of [the Company] for its [consolidated] [statement of financial position] at [31 December XXXX] and their changes in the [consolidated] [statement of income] for the year then ended in accordance with accepted actuarial practice in Canada including selection of appropriate assumptions and methods.

(Qualifications should be included here)

In my opinion, the amount of policy liabilities [net of reinsurance recoverables] makes appropriate provision for all policy obligations and the [consolidated] financial statements fairly present the results of the valuation.

The results of my valuation together with amounts carried in the Annual Return are the following: