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QBS 13 (PART 1): Standards, approximations, Subsequent events (A:…
QBS 13 (PART 1): Standards, approximations, Subsequent events
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D: Using other work
- Actuary can use other person's work: If justified and should report it
- Joint Policy Statement: Actuary should cooperate with auditor who uses actuary's work
ENQUIRING PROFESSIONAL WOULD:
1) Inform of intended consideration of work
2) Request confirmation been engaged by shareholders, policyholders, directors or management to do work
3) Request confirmation of good standing
4) Request confirmation that wokr carried out in accordance with applicable profession standards
5) Make respondent aware of enquiring professional's needs
RESPONDING PROFESSIONAL SHOULD CONFIRM:
1) Expectation that available to perform work intended by professional
2) Engaged by shareholder, policyholder or management to do work that equiring professional intends to consider
3) Professional in good standing
4) Qaulified to do work
5) This work will be carried out in accordance with applicable professional standards
6) Awareness of enquiring professional's intended consideration of their work
7) Discuss any problems expected in meeting needs of enquiring professional on timly basis
1530 REGARDING REVIEW/REPEAT OF OTHER ACTUARY'S WORK
1) Actuary should cooperate with reviewer
2) Discuss review as soon as practical with first actuary
3) Report whether disagree with work but in acceptable range (if not in acceptable range then report it, rule 13)
4) Report whether first actuary's work contrained by limitations
5) Reviewer to report whether discussion improved first actuary's work
6) Reviwer to report if first actuary's work no within range of acceptable actuarial practice
7) Repeat engagement is appropriate if purpose is to identify/reduce uncertainty in matter on which first actuary reported
DOCUMENTATION OF WORK
1) Compile and secure appropriate documentation
2) Successor actuary to make documentation and provide to predecessor
3) Predecessor should provide documentation to successor
B : Approximation
TREATMENT OF APPROXIMATIONS
1) Appropriate if reduces cost, time or improves control over work wihtout affecting results
2) When reporting, should take care to avoid unintended reservation
3) If its appropriateness is doubtful then report it with reservation
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C: Subsequent Events
MOST COMMON SUBSEQUENT EVENTS
1) Plan improvement amendments
2) Plan ebenfit reductions
3) Significatn plan membership changes
SUBSEQUENT EVENTS should either
1) Be taken into account in calculations
2) Disclosed in report but not taken into account in calculations
SUBSEQUENT EVENTS CHARACTERISTICS
1) Should correct data defect/ calc error revealed by event
2) Should take subsequent event in account if:
, a) Provides info as it was at cal date
, b) Retroactively makes entity different at calc date
, c) Makes entity diff entity after calc date and want to report its impact
3) Do not take into accoutn if not shown impact at calc date
THREE WAYS TO TAKE INTO ACCOUNT IN CALCULATIONS
1) One Actuarial Opinion
2) Two Seperate Actuarial Opinions
, a) Reflect funding/ funded status at two dates
, b) One reflecting status at first calc date AND one reflecting financial impact on subsequent event date
ONE ACTUARIAL OPINION
1) One opinion of financial impact of event at date of calc
2) Preferred if event is shortly after calc date (even if known before)
3) Normal cost and amortization pmt could:
, a) Commence at calc date , even if event after calc date
, b) Commence at event date, applying assumptions at calc date
, c) Subject to regulatory considerations
TWO SEPERATE ACTUARIAL OPINIONS - REFLECTING FUNDING/FUND STATUS
1) Opinions and financial assessments at two dates
2) Preferred if:
, a) Longer period between event and calc date
, b) Material changes in membership between dates
, c) Necessary to restate funded position of entire plan
3) Membership methods and assumptions need to be appropriate both dates
4) First opinion omits event, second opinion includes event
TWO SEPERATE ACTUARIAL OPINIONS - ONE REFLECTING STATUS AT FIRST CALC DATE AND ONE REFLECTING FINANCIAL IMPACT ON SUBSEQUENT EVENT DATE
1) First opinion at cal date omitting event
2) Acceptable if:
, a) Terms of engagement do not require full recalculation
, b) Certain threshold not changes (eg puts plan into deficit)
3) Second opinion reflect financial impact of event at event date
4) Membership data, methods, assumptions at event date would be appropriate
CHOICE OF METHOD DEPENDS ON:
1) Type of event
2) Relative significance of financial impact of event
3) Funded status of plan (GC/WUP/solvency)
4) Legislative requirements
5) Sponsors funding policy
6) Length of time between calculation /event date
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F: WIND-UP VALUATIONS
CIA PURPOSE OF WIND-UP
1) Plan's financial position
2) Total value of ebenefit entitlements
3) Required additional funding
4) Amounts/methods of settlement of benefits
5) Amount/method of distribution of Wind-up surplus
CIA HYPOTHETICAL WIND-UP VALUATION
1) Determines funded status of PP assuming wound-up
2) Determine value of benefits assuming no surplus/deficit
3) For benefit entitlements, should postulate scenario based on hypothetical WInd Up Valuation
4) Take account of contingent benefits payable under scenario
5) Assume Wind-up date, calc date and settlement date are coincident
6) Assume annuity purchase settlements regardless of limitation of annuity market capacity
7) Based on MV of assets
8) Select explicit plan wind-up expenses assumption payable from plan assets
CIA SOLVENCY VALUATION
- Form of Hypothetical WInd-up Valuation required by law and actuary should apply SOP of hyp.Wind-up Val unless otherwise required by law or permitted by law and stipulated by terms and agreement
CIA WIND-UP VAL - COMMON SUBSEQUENT EVENTS
1) Contributions
2) Expenses paid from plan asset
3) Actual investment return on assets
4) Change in annuity purchase rates
5) Change in capitalized value assumption
6) Data corrections/deaths of members
7) Crystalization of post wind-up contingencies
CIA WIND-UP VAL - ASSUMPTIONS AND METHODS
1) Assumptions should be : best estimate, at cut-off date, reflect expected methodof settlement.
2) Should reflect wind-up expense assumption if paid from trust
3) Should not distort value of benefits relative to others
4) Use recommended capitalized values if annuity quote unavailable
5) Should reflect future contingencies if future ebenfit depend on continued employment
6) Wind-up expenses include: Actuarial fees, pension superisory authority fees, legal fees, admin expenses and custodial/inv mngmt fees.
7) Net expenses against plan assets
INCLUDED IN WIND-UP REPORT
1) Wind-up Date, calc date, cut-off date and report date
2) Events before wind-up date
3) Sources of membership data, plan provisions and PP assets at compilation date
4) Describe membership data and assumptions about missing data
5) Describe sufficiency/reliability tests aplied to membership and asset data
6) Subject to privacy legislation (include detailed individual membership data if requested)
7) LIquidiation value of assets and summary of assets by major category
8) Describe PP provisions
- Benefits insured
- Any amendments made since previosu report affecting benefits
- Subsequent events or post Wind-up contingencies affecting benefits
9) Report explicit WInd-up expenses assumptions or expectation expenses will not be paid from fund
10) Report funded status at calc date (might differ from settlement date)
11) Disclose subsequent events
12) State if updated report needed in future or if recalculation of value of benefits is required
13) Describe any issue
14) Assumption of LS vs Purchased annuity if EE has choice
15) Method of allocating surplus if any
16) Describe actuary's role in calculating CV +opinion that calc in accordance with accepted actuarial practice in Canada
17) Sensitivity of valuation results to plan's inv policy
18) Statement of Opinion as outlined in Section 3200