CIA.Valn

Reading: “Educational Note: 2021 Guidance to the Appointed Actuary for Property and Casualty Insurers,” September 2021.

Authour: Canadian Institute of Actuaries

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Pop Quiz

• From the DCAT reading, identify 7 common ripple effects, and 5 common management actions for adverse scenarios. (We'll refer to these in this article)

Study Tips

This reading is updated every year because it highlights changes that have been made to other readings.

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¹ This question is outdated because the IFRS 17 material from that reading has been removed from the syllabus.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

2019.Fall Updates

The November 2019 update for this reading (relevant for the 2020.Spring exam) has NOT had significant portions either removed or changed.

• The Loss Ratio Exhibit has been changed, but the main change seems to be the removal of the calculation of the discounted loss ratio. This calculation had issues and I'm not surprised it was eliminated. I wonder if they will reintroduce in a modified form at a later date?
• There did not appear to be any other changes relevant to studying for Exam 6.

2018.Fall Updates

The November 2018 update for this reading (relevant for the 2019.Spring exam) has had significant portions either removed or changed.

• Almost all of the material on IFRS 17 was removed. That means the exam question from 2018.Fall (discussed further down) should no longer be relevant for the 2019.Spring sitting. But, there will be a reading added for 2019.Fall exclusively on IFRS 17 and how it compares to current CIA standards.
• Other than the IFRS 17 question from 2018.Fall, there has never been a question from this reading. It seems unlikely anything will be asked on 2019.Spring. I could be wrong, but if I were studying again for this exam, I would skip this reading entirely. Remember that there's no way you can learn everything from the 2,500 pages of material on the syllabus. You can completely miss 2 questions (2-4 points) and still pass the exam comfortably, provided you know the top 24 readings very, very well, and at least know the answers to old exam questions from the lower-ranked readings.

As mentioned in the summary, this reading concerns best practices for the appointed actuary when performing a valuation of reserves. Much of it is duplicated in other syllabus readings, so my suggestion is to scan the text for material that is not covered elsewhere. My advice is to spend minimal time on this reading, but if you don't want to skip it entirely, take a look at Section 9 on emerging issues:

• recent changes to MIG (Minor Injury Guidelines) in Alberta
• recent auto reforms in Ontario

These are items the AA should consider in their pricing and reserving work.

Just to reiterate: This is an example of a reading that covers many topics but not in very much detail. Again, it isn't realistic to learn everything because it's been so lightly tested. My recommendation is that you take an educated guess as to what might be asked then learn those topics.

Section 7: IFRS 17

This material has been removed from this reading. I kept the explanation below because IFRS 17 is an important new topic but as of 2019.Fall, it has its own dedicated reading, CIA.IFRS17. Note that the examiner's report answer may not be relevant anymore. You should base your study of IFRS 17 on the new reading.

Here's the link with the official question & answer:

E (2018.Fall #28)

And here's my version of the question & answer:

Question: how will IFRS 17 affect the valuation of actuarial liabilities when it replaces IFRS 4 on January 1, 2021

The answer is in a bullet point list directly from the source reading. There are 5 points but each is quite long. What you and I have to do is condense each point down to a simple phrase. The model answer in examiner's report is much shorter than the explanation given in the reading. The first thing I did was write down 1 word that represents each bullet point:

• Aggregation
• Measurement
• Discounting
• Risk adjustment
• Reporting

Next you need a memory trick to for these 5 points. To do this, I rearranged these 5 points as shown below. The first letter of each point spells DRAM-R. (In my mind, I hear this as drammer which sounds a little like drummer. So what I commit to memory is drummer, then I can figure out the rest.) The last thing to do is write a phrase that explain each of these points concisely.

Discounting:

- use a yield curve instead of a single discount rate (and no more PfAD for interest/discount rate → risk adjustment for financial risk is implicitly included in yield curve)

Risk adjustment:

- adjust PV(future cash flows) for uncertainty in amount & timing related to non-financial risk (likely different from existing PfAD)

Aggregation:

- create portolios of similar risks that are managed together: onerous risks, non-onerous risks, remaining risks

Measurement:

- may use PAA (Premium Allocation Approach) for measuring remaining liabilities (PAA is a simplified version of BBA, Building Block Approach, and can only be used under certain conditions)

  –

Reporting:

- carrying amounts for 4 groups must be shown separately in financial statements:

• insurance contracts that are assets
• insurance contracts that are liabilities
• reinsurance contracts that are assets
• reinsurance contracts that are liabilities

You needed to know 3 of these bullet points to answer #28 on the 2018.Fall exam. The accepted answers had less detail than in the source reading but I don't know if you'll need to know more than that for future exams. It's probably a good idea to at least glance at the actual reading.

Yield Curves

Something that seems important in understanding the Discounting point above is:

Question: what is a yield curve

• a yield curve is a function relating yield of fixed-interest securities to the length of time to maturity.

In other words, the yield varies over the lifetime of the security. (Contrast this with using a single discount rate to calculate present value.)

The source reading states that insurers have a lot of work to do to be in compliance, and that they should be reading by the end of 2019 even though the official implementation date for IFRS 17 isn't until Jan 1, 2021.

Section 9: Current or Emerging Issues

The current or emerging issues change every time this reading is updated. I suppose that makes sense. But instead of me making new notes every time there's a change, I suggest you just take a quick look at that section of the reading. I do not think anything from this section will be asked, but if you have extra time to kill, it might make good bedtime reading. (And by good, I mean completely boring so that it will put you to sleep.)

BattleCodes

• Memorize:
  • nothing

• Conceptual:
  • Just make sure you understand that the actuary needs to be aware of specific events that may impact actuarial methodology.
  • If you read through this wiki article, you'll be should be reasonably well-prepared (for a reasonable question! CAS exam questions are not always reasonable!)

• Calculational:
  • none

• Final Words: There is only a low probability that a question from this reading will appear on the exam.

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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,...)