Why OSFI changed its rules for appointed actuaries

In the wake of IFRS 17 accounting changes, Canada’s solvency regulator is requiring federally regulated P&C insurance companies to be more proactive in reporting any changes related to their appointed actuaries (AAs) and their peer reviewers.

The regulator has also clarified its expectations around acceptable AA peer reviewers and the peer review process.

In all, the Office of the Superintendent of Financial Institutions (OSFI) has just introduced six new revisions to its Guideline E-15, which spells out the rules for appointed actuaries.

The changes were prompted in part by the introduction of the new financial reporting standards in Canada under IFRS 17.

Citing IFRS 17, OSFI says the insurer’s appointed actuary needs to be peer-reviewed when the actuary is taking responsibility for the work of others concerning IFRS 17 numbers and analysis.

“The CIA [Canadian Institute of Actuaries]’s December 2022 Educational Note Role of the Appointed Actuary [AA] Under IFRS 17 states ‘… the AA may be in the position of deciding whether to use and take responsibility for the work of others more often than had been the case under IFRS 4.’

“OSFI expects the scope of the peer review to include the AA’s decisions with respect to using and taking responsibility for the work of others, as this is now incorporated into accepted actuarial practice. Using and taking responsibility for the work of others could have implications for the AAR [Appointed Actuary’s Report], the FCT [Financial Condition Testing], and the AA’s work in regulatory capital tests.”

Related: OSFI releases final insurance capital guidelines for IFRS 17

Several of the changes spell out reporting requirements and processes regarding appointed actuaries and their peer reviewers.

For example, the insurer is now expected to report to OSFI any changes to its appointed actuary within 30 days. And peer review reports of work involving the AA are now required, whether or not there any material changes, each year.

OSFI also expresses a preference that the AA’s peer reviewer not come from the same outside auditing firm the insurer already retains. Specifically, OSFI states in its guidance: “OSFI expects the company to engage a peer reviewer who is not a member of its external audit firm. However, using an actuary from the external audit firm can accommodate smaller and simpler companies.”

For “small and less complex companies,” OSFI said an actuary working for the same external audit firm is sufficiently independent to peer review the AA, “if the peer reviewer is not an actuarial specialist who is a member of the audit team for the company.”

The solvency regulator said it recognizes external audit firms are independent, but “it is of the view that a separate independent actuarial peer review is desirable, as it will give additional perspective.”

OSFI said the company’s AA and peer reviewer should not come from the same external audit firm.

 

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