APPOINTED ACTUARY QUESTIONNAIRE FOR FINANCIAL REPORTING OF LIFE AND HEALTH INSURANCE ORGANIZATIONS IN CANADA 2001 YEAR-END PART II

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1 APPOINTED ACTUARY QUESTIONNAIRE FOR FINANCIAL REPORTING OF LIFE AND HEALTH INSURANCE ORGANIZATIONS IN CANADA 2001 YEAR-END PART II This Questionnaire has been designed to cover the CIA requirements of members responsible for the valuation of actuarial liabilities of all life and health insurance companies, including provincially registered companies and fraternal benefit societies in Canada. The questions refer to the work done with respect to the valuation of actuarial liabilities for part or the whole of the fiscal year ending 31 December 2001 (see Note 3 if fiscal year is other than calendar year) and the work done during 2001 with respect to the DCAT for that life insurance organization named on the label attached to this form. Those requirements include the CIA Recommendations for Life Insurance Company Financial Reporting, together with some approved and separately documented standards of practice. For these purposes, Appointed actuary includes the actuary responsible for the valuation of those provincially registered life or health insurance organizations that do not specifically require an actuary to be appointed. Appointed Actuary s Report is the report submitted annually to the regulator covering the details of the valuation of actuarial liabilities. Appointed Actuary s Report for Insurance Company Financial Statements is the opinion statement provided in the published financial statements. For guidance on the meaning of published financial statements see Note 9. Note 1 Replies marked (*) are not considered to be in compliance with CIA recommendations and standards of practice. Failure to comply with the standards of practice cannot be justified by administration problems, difficulties in interpreting or applying standards, or by disagreeing with the substance of the standards. You are reminded that where extenuating circumstances prevent you from complying, you are required to consult with the Committee on Life Insurance Company Financial Reporting (CLIFR) or the Committee on Risk Management and Capital Requirements, as appropriate, as soon as reasonably possible. If you have not completed discussions with the appropriate committee, please append sufficient details to indicate whether your report may be considered to be in substantial compliance. 1. Is the insurance organization named on the label (herein called the organization) attached to this form: A a federally approved life or health insurance company? B a federally approved branch of a foreign life or health insurance company? C a federally approved fraternal benefit society? D a federally approved branch of a foreign fraternal benefit society? E a provincially registered Québec life or health insurance company? F a provincially registered non-québec life or health insurance company? Province: G a provincially registered fraternal benefit society? H other? (explain) Note 2 Appointed actuaries of all organizations A through H are required to complete this questionnaire. Note 3 For companies having a fiscal year ending other than 31 December, reference to the day 31 December in this questionnaire should be altered accordingly, and the fiscal year for these companies should be interpreted to be their fiscal year which ends in

2 2. Did the above organization have any life or health insurance in force at 31 December 2001, the valuation of which is governed by the Recommendations for Life Insurance Company Financial Reporting? If no, all of the remaining questions in this questionnaire may be left blank. 3. For the above organization, for the 31 December 2001 valuation, were you i. the appointed actuary? ii. taking responsibility for the valuation in any other capacity? Note 4 Some appointed actuaries have applied for and received a written exception ruling from the Committee on Life Insurance Financial Reporting or the Committee on Risk Management and Capital Requirements which, because of the circumstances of the company, allows the appointed actuary to value the business in a manner that does not comply with some of the standards of practice. If you have received such a ruling from either committee, you are still required to complete the questionnaire. Note that an exception ruling generally does not allow the appointed actuary to avoid the requirement of choosing a standard of materiality. 4. Have you chosen standards of materiality which will reasonably satisfy each normal user of the financial statements? If no, go to Question Are the standards described and justified in the Appointed Actuary s Report or, if not there, the valuation file? 4.2 Have you discussed the standards with the external auditor? iii. not applicable (explain) Note 5 For the remainder of this questionnaire, when you have not complied solely because the amounts involved are not material, you are considered to have complied and may so indicate. For items known to be immaterial, generally accepted approximations need not be tested and documented. For material items, theoretically correct valuation methods and assumptions should be identified and any approximations that are substituted should be tested to ensure that the effect on net income or policy benefit liabilities is not material. 5. Have you received an exception ruling from the Committee on Life Insurance Company Financial Reporting that is applicable to the 2001 valuation? If no, go to Question What are the date(s) of the letter(s) from the committee providing this ruling and the expiry date(s) of the ruling (if applicable). Date(s) of letter(s) Date(s) of expiry (if applicable) 2

3 Note 6 Valuations are required to be in accordance with accepted actuarial practice. Accepted actuarial practice is generally defined in respect of insurance company financial reporting, to include thecanadian Asset Liability Method (CALM) and any other relevant Institute standards of practice. With the use of an exception ruling provided by the Committee on Life Insurance Financial Reporting, generally a valuation will still conform to accepted actuarial practice (AAP), however it may not be in accordance with generally accepted accounting practice (GAAP). 5.2 Have you notified the auditor that the valuation may not be in accordance with GAAP? 5.3 Have you maintained detailed records, including your justification for not complying? Note 7 For some provincially registered companies, the requirements of the provincial legislation may not allow compliance with the standards of practice in every resp ect. Accepted actuarial practice in such cases places the law before the standards of practice. 6. Have the provincial legal requirements prevented you from complying? iii. not applicable 7. Do you have on file completed Part I form(s) covering each applicable line of business? Note 8 When an appointed actuary has and uses an exception ruling, it is generally expected that that appointed actuary would use approximations. Note that an exception ruling is only granted by the Committee on Life Insurance Financial Reporting on the condition that the resulting liability must be higher than what a detailed application of CALM and related standards would produce. 8. Have you used approximations for any of your methods or assumptions in respect of material blocks of business? If no, go to Question Could you show that the use of approximations does not materially increase either the policy benefit liabilities or net income? iii. not applicable re exception ruling 8.2 Could you show that the use of approximations does not materially decrease either the policy benefit liabilities or net income? 8.3 Where required, are the underlying theoretically correct methods and assumptions disclosed in your Appointed Actuary s Report or, if not there, the valuation file? iii. not required (explain) 3

4 9. Are you satisfied that all policy benefit liabilities have been valued and that the valuation complies with the Recommendations for Life Insurance Company Financial Reporting (excluding Part three and four) and the Standards of Practice for the Valuation of Policy Liabilities of Life Insurers dated October 2001 (LSOP) for valuations which are being performed in accordance with GAAP after September 30, 2001? i. yes ii. no (*) iii. no (CLIFR exception) iv. no (provincial law) 10. Are you satisfied that the valuation complies with the following standards and guidance paper for use under GAAP? (Answer yes or no ) In Compliance: Not applicabl e: 1. Not material Not in compliance: 2. CLIFR exception 3. Provincial law 4. Disagree 5. More conservative 6. Lack of time 7. Lack of resources and/or systems 8. Other (with justification) Standards of Practice LSOP 1 CLIFR Memorandum 2 DCAT 1. Standards of Practice for the Valuation of Policy Liabilities of Life Insurers (October 2001) 2. CLIFR Memorandum (December 11, 2001) 11. In respect of all of the questions under 9 and 10 above that were answered yes, do you have on file sufficient documentation to show that the valuation complies with the CIA Recommendations for Life Insurance Company Financial Reporting, Standards of Practice for the Valuation of Policy Liabilities of Life Insurers and Guidance notes? iii. not applicable (explain) If no, go to Question 12. does the documentation include evidence that 11.1 the data have been verified? 11.2 an appropriate assumption including provision for adverse deviations has been made and justified for each material future event? 11.3 the valuation methods you have used are appropriate? 4

5 12. For purposes of the valuation, are you familiar with, and did you consider, the current and projected company policy for each of those factors below that are relevant to the valuation? pricing, marketing, underwriting, investing, administering, accounting, claims processing, policyholder dividends 13. Are you satisfied that verification procedures were established to ensure that data are consistent with the terms of contracts, administration procedures and accounting practices? 13.1 Are such procedures documented? Note 9 Any audited financial statement prepared in accordance with Canadian GAAP, which is given to someone other than management or the regulator, should be considered a published financial statement for purposes of this questionnaire. Government returns, internal statements and foreign company statements would generally not be considered published financial statements for this purpose. The standards require a description of the role of the actuary if there is an actuary s report in the published statement. 14. Did the organization produce any published financial statements covering part of or the whole of the fiscal year 2001? If no, go to Question At the time of your report for insurance company published financial statements, were there any disclosure situations of the nature described in Section 7 of the Standard of Practice for the Appointed Actuary s Report for Insurance Company Published Financial Statements? If no, go to Question Did you ensure that each such situation was disclosed by a note in all published financial statements which include your professional opinion? iii. not applicable answer and Are you satisfied that each such note described the situation? iii. not applicable Are you satisfied that each such note indicated the effect on net income, policy benefit liabilities and surplus for each year reported on in the statement? iii. not applicable 5

6 16. At the time of your report for the published financial statements of the organization, did you have any reservations of the type stipulated in Sections 10 to 13 of the Appointed Actuary s Report for Insurance Company Published Financial Statements, or any other material and relevant reservations? 16.1 Did your report for the published financial statements of the organization include a statement of your reservations? iii. not applicable 17. Did any published financial statements covering part of or the whole of the fiscal year 2001 which included your report, or any documents accompanying such published financial statements, contain a description of the role of the appointed actuary? iii. report not included 18. Does the organization have any reinsurance assumed business (or shared business arising) from any other life or health insurance organization? iii. no material amounts 18.1 Have you in each case, either Requested sufficient data and done your own valuation in accordance with CIA Recommendations and Standards of Practice, or Satisfied yourself that you could rely on the valuation by the actuary of the other life or health insurance organization, and, in particular, satisfied yourself that the assumptions used are acceptable for valuation of your organization? iii. not applicable Note 10 A CLIFR exception does not eliminate the requirement to comply with the DCAT standard of practice. An additional exception must be received from the Committee on Risk Management and Capital Requirements. For DCAT, some appointed actuaries have applied for and received a written exception ruling from the Committee on Risk Management and Capital Requirements to provide a DCAT report without the detailed investigation required by the DCAT Standard of Practice. Except for provincially registered companies, an exception ruling from the Committee on Risk Management and Capital Requirements generally does not exempt the appointed actuary from conducting an investigation, however brief, and making a report. 19. Have you received an exception ruling from the Committee on Risk Management and Capital Requirements with regard to the DCAT standard of practice? 19.1 What are the date(s) of the letter(s) from the committee providing this ruling and the expiry date(s) of the ruling (if applicable). Date(s) of letter(s) Date(s) of expiry (if applicable) 6

7 20. During 2001, did you conduct an investigation into the organization s future solvency based on recent financial data in accordance with the Standard of Practice on Dynamic Capital Adequacy Testing? iii. not applicable re exception ruling 20.1 For all risks deemed material, was scenario testing performed? 20.2 Do you have on file detailed documentation of the DCAT work performed? 21. Did you make a report during 2001 to the board of directors or its designate (or, in the case of organizations E, F or G, its chief financial officer), in regard to the current financial position and the expected future financial condition of the organization, based on recent financial data? iii. not applicable 22. Has your work been peer reviewed? 22.1 By an internal colleague By an external actuary By your auditor Other Note 11 Please review your responses to ensure that if any are marked (*), they are accompanied with a detailed explanation. Date Name (Please print) Title Signature 7