CIA CSOP

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Author:
ED_6C3
ID:
270351
Filename:
CIA CSOP
Updated:
2014-04-12 19:06:11
Tags:
6C
Folders:
Standards of Practice
Description:
6C
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  1. Auditor’s Use of an Actuary’s Work
    The actuary should cooperate with an auditor who wishes to use the actuary’s work in accordance with the Joint Policy Statement of the CIA and the CICA.
  2. CIA/CICA Joint Policy Statement
    • communications between actuaries preparing financial statements, and auditors
    • how actuaries and auditors would interact in carrying out their respective responsibilities
    • how their respective responsibilities may be disclosed to readers of financial statements
  3. Statement applies when
    • auditor is engaged to carry audit of financial statements that includes amounts determined by or with the assistance of the actuary
    • actuary considers the auditor’s work while conducting the actuarial valuation to determine amounts to be included in the financial statements prepared by management
    • does not apply to communications with an auditor’s actuary or external review actuary
  4. Responsibilities with respect to financial statements
    • financial statements are the responsibility of management
    • auditor has a responsibility to express an opinion on the fairness of the statements
  5. Responsibilities of the enquiring professional
    • inform the responding professional of the intended consideration of his work
    • request confirmation that the responding professional has been engaged by shareholders, policyholders, directors or management to do the work
    • request confirmation that the responding professional is a professional in good standing
    • request confirmation that the responding professional will carry out the work required in accordance with the applicable professional standards
    • make responding professional aware of materiality, subsequent events, timing of work
  6. Factors influencing selection of discount rate
    • method of valuing assets and reporting investment income
    • allocation of assets and income among lines of business
    • return on assets at balance sheet date
    • capital gains and losses on assets sold after the balance sheet date
    • investment expenses, and losses from default (C-1) risk
  7. MfAD should vary:
    • between premium liabilities and claim liabilities
    • among lines of business
    • among accident years, policy years, or underwriting years
  8. Considerations in selecting MfAD or liabilities valuation method
    • insurer practices: guidelines for setting and reviewing case estimates
    • data: stability of claim frequency and average claim cost
    • reinsurance: history of claim and coverage disputes
    • investment: matching of assets and liabilities and risk of asset default
    • external environment: regulatory change effect on claim settlements
  9. The Appointed Actuary - Qualifications
    • necessary qualifications go beyond technical understanding and include awareness that comes with maturity, communications with other actuaries, discussions at Institute meetings, and familiarity with conditions both internal and external to the insurer
    • an actuary accepting an engagement for the first time may wish to arrange professional, formal, and timely access to another actuary with experience as an AA
    • directors must understand the actuary’s role and its requirement for time, resources, and access to information
  10. Information needed for the work of the AA:
    • files of in force policies and outstanding claims, including their reinsurance
    • policy provisions and other communications with policy owners
    • past experience and financial data
    • communications with auditors and regulators
    • pricing / underwriting / claim settlement practices (including case estimate practice)
    • asset-liability and capital management practice
  11. Reporting matters requiring rectification
    • sensitivity of financial conditions to adverse conditions varies among insurers
    • frequency and intensity of monitoring depends on events and insurer circumstances, but should be done at least quarterly
    • no such report of adverse condition that doesn’t threaten the insurer’s financial condition
    • report should include recommendations for rectification
    • deadline would allow reasonable time based on circumstances
  12. DCAT investigation
    • ≥ 1 per fin. year, investigate recent and current financial position for selected scenarios
    • make a report of each investigation in writing to the BoD or its chief agent for Canada, identifying possible actions for dealing with any threats to satisfactory financial condition
    • make an interim investigation if there is a material adverse change in circumstances
    • ensure that the investigation is current, taking into consideration recent events and financial operating results
  13. Satisfactory financial condition
    • under the base scenario and all plausible adverse scenarios, the statement value of the insurer’s assets is greater than the statement value of its liabilities (MCT > 0%)
    • under base scenario, insurer meets supervisory target capital requirement (MCT > 100%)
    • both criteria must be met throughout the forecast period
  14. Ripple effects
    • reflect the interdependence of assumptions in the plausible adverse scenario
    • include policy owner actions, insurer's expected response, regulatory action
  15. Aspects affecting insurer’s response to ripple effect:
    • effectiveness of insurer’s management information system and adjustment mechanism
    • historical record of promptness and willingness to make difficult decisions
    • external environment assumed in scenario
  16. Examples of corrective management actions
    • repricing the insurance products
    • raising additional capital
    • strengthening risk management practices
    • mitigating risk causing capital shortfall
    • increased level of monitoring and reporting with respect to financial position
  17. Scope of the investigation and report
    • key assumptions of base scenario and plausible adverse scenarios posing greater risk
    • disclose each of the risk categories considered in undertaking DCAT analysis
    • disclose plausible adverse scenarios that cause the insurer to fall below supervisory target
    • identify possible corrective management action that would lessen / mitigate threat
    • present financial position of insurer at each fiscal-year end throughout forecast period
    • report is in writing, but oral report permitting questions and discussions is desirable
    • interpretative report would be more useful than statistical report
  18. Wording of opinion
    • Have completed investigation based on AAP
    • Have analyzed position under series of scenarios, descriptions of which are included
    • Analysis includes description of assumptions and potential management responses to plausible adverse scenarios
    • Indicate whether condition is (un)satisfactory and give a reason in the latter case
  19. Elements to consider when selecting provision for expense costs:
    • various categories of expense costs that are incurred 
    • expense costs may not be directly proportional to premium
    • one-time expense costs may need to be amortized
  20. Assets underlying investment return rate:
    • default-free assets of appropriate duration
    • fixed income assets of appropriate duration
    • assets which are expected to be acquired

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