2004 Caribbean Actuarial Association Meeting December 13, 2004

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2004 Caribbean Actuarial Association
MeetingDecember 1-3, 2004

• International Actuarial Standards
• Wednesday 900 am December 1, 2004
• David Congram

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Agenda

• History and Role of the IAA
• Due Process for Adoption
• Caribbean situation

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International Actuarial Association

• http//www.actuaries.org/
• 1895 ICA Permanent Committee in Brussels
• 1968 renamed IAA
• 1992 24th ICA, Montréal - McCrossan Group
• 1997 IAA Secretariat to Ottawa
• 1998 IAA restructured as an association of
  actuarial associations
• 2004 President Luis Huerta, Mexico
• 2005 President Alf Guldberg, Sweden
• Secretary-General Yves Guérard, Canada

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International Actuarial Association (cont)

• An organization of actuarial associations
• 50 full members IA, AAA, CIA are all full
  members
• 24 associate members CAA is an associate member
  
• Criteria for full membership includes
• code of professional conduct,
• discipline,
• education and,
• due process

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IAA StructureCouncil
Committees

• Accreditation
• Advice and Assistance China
• Education
• Employee Benefits Pensions
• Standards (Sub-committee)
• Financial Risks
• Health Section

• Insurance Accounting Standards
• Actuarial standards (Sub-committee)
• Insurance Regulation
• Reinsurance (Sub-committee)
• Solvency (Sub-committee)
• Professionalism
• Social Security
• Supranational Relations

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IAA Statues

• IAA Principle of Subsidiarity
• IAA Member Associations local authority is not
  pre-empted by the IAA
• IAA is restricted to areas which require
  international co-ordination or direction, or are
  handled more efficiently across national
  boundaries
• Actuaries bound by IAA Standards (IASP) where
  applicable

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Structure of IAA Standards

• Classes of IAA Actuarial Standards
• Class 1 - Mandatory similar to the Code of
  Conduct
• Class 2 - Voluntary IAA Members not required to
  adopt or endorse. Mandatory when asserting
  compliance with standard.
• Class 3 - Recommended Practice - Actuaries
  expected to follow unless there are sound and
  defensible reasons for not doing so, and disclose
  material aspects where departing from it. A
  Member Association may adopt a stronger form of
  standard.
• Class 4 - Practice Guidelines - Educational in
  nature, representing a statement of good practice
  (or perhaps practice as generally accepted among
  actuaries)

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IAA Standards of Practice

• Local association may
• Adopt and impose an IAA standard on its members
• Adapt an IAA standard to reflect, say, local
  laws, conflicts, ways of doing things etc.
• Do nothing (may well be the common option)
• Local association need
• To identify conflicts to which its members may be
  exposed
• Inform its members and other local interested
  parties
• A third party may require the use of an IAA
  standard
• Ex. Client who wants to compare itself with same
  measuring rod as its international competitor
• Ex. Stock exchanges or Regulators

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Due Process for Adoption for IAA Standards

• IAA Due Process
• Status on IAA Standards
• Comparison of approaches

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Due Process of Adoption for IAA Standards

• (Reference paper in Agenda of IAA Council June
  2004 meeting, amendment and approval in Minutes)
• Council is convinced of the need to create a
  standard and mandates a committee to write the
  standard.
• Preliminary exposure draft, approved by President
• Preliminary exposure period for comments
  usually 4 months
• If required changes are substantial, another
  preliminary exposure draft.

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Due Process of Adoption for IAA Standards (cont)

• If required changes are minor, a final exposure
  draft is approved by IAA Council
• Final exposure period determined by Council,
  normally 4 months.
• After final exposure period vote by Council
• 80 positive vote is required
• Voting rights
• Largest associations (1500 actuaries) 4 votes
• Smallest associations (up to 75) 1 vote

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IAA Standards Past, Present Future

• Class 4 Guideline for Social Security Programs
• Went into effect 01.01.2003
• International Actuarial Practice Guideline for
  Financial Reporting under IFRS
• 10 /- actuarial guidelines
• Preliminary exposure draft of first batch
  September 15, 2004. Preliminary exposure draft of
  second batch November 4, 2004.
• Goal adoption of final guideline in Q1 2005

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IAA Standards Past, Present Future (cont)

• International Actuarial Standards for Financial
  Reporting under IAS 19 Employee Benefits
• Work in progress at the IAA
• Delivery date? Too early to tell.

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International Actuarial Standards for Insurers

• IAA committee on Insurance Accounting
• 30 Member Associations represented
• Loads of interested observers you may join if
  interested
• Actuarial Standards SubCommittee
• Drafting team of 9 people

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IAA Insurance Standards Development Process

• IAA Insurance Standards
• IAA Subcommittee developing actuarial standards
  for use in applying for International
  Accounting/Financial Reporting Standards
• Exposure drafts of Class 4 standards released for
  comment
• Responses sought from Member Associations,
  individual actuaries, other invited organizations
• Subcommittee will issue report, including
  responses to formal comments, and recommend
  changes
• Final exposure draft depending on comments may be
  necessary before a final vote for adoption

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How does IAA Standards process compare with
other Processes

• IAA Actuarial Standards
• USA, ASB standards equivalent to IAA Class 3
• Due process differences
• Actuarial Standards Board (US) Process
• Exposure draft for comment
• Board review and action to adopt or reject
• Provisions for a Public Hearing

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IAA Standards Process

• IAA Actuarial Standards Process
• IAA Professionalism Committee governs due process
• Standards developed in committee or subcommittee
• Exposure drafts can be released by IAA President
• Committee report on the comments received and the
  committees response
• Approval and Effect
• IAA Council vote needed to approve any class of
  standard
• IAA Adoption requires 80 majority of the Council
  votes
• IAA Members can adopt or endorse for local
  practice

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Caribbean situation

• Position of Professional bodies
• Illustration of approaches
• Questions for the Caribbean situation

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FIA working in the Caribbean

• Purpose and Application
• Govern profession and discipline process
  Worldwide
• Govern behaviour Worldwide
• Requirements of practice Worldwide except -
• Jurisdiction IAA Assoc relevant guidance
• If conflicting legislative requirements apply
  principles

• Charter and Bylaws
• Professional Conduct Standards
• Guidance Notes

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FCIA working in the Caribbean

• Purpose and Application
• Govern profession and discipline process -
  Worldwide
• Govern behaviour Worldwide
• Requirements of practice Scope limited to work
  in Canada

• Charter and Bylaws
• Rules of Professional Conduct
• Standards of Practice

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FSA working in the Caribbean

• Purpose and Application
• Govern profession and discipline process -
  Worldwide
• Govern behaviour Worldwide
• Requirements of practice delegated to Actuarial
  Standards Board Scope limited to work in USA

• Charter and Bylaws
• Code of Professional Conduct
• Standards of Practice

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Integration of International and Local Standards
Issues

• IAAs subsidiarity principle implies that those
  professions with a discipline system would
  enforce standards on members
• Situation needs to be considered. Country
  requirements, Securities positions, Entitys
  accounting policy, Entitys operation
  (consolidated, operating as a branch or
  subsidiary)
• Status of the Local Actuarial Professional
  Standards and recognition of the Actuary

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Integration of International and Local Standards
Issues (cont)

• Conflicts
• Must avoid putting actuaries in position of
  needing to comply with more than one set of
  standards
• Some belong to more than one actuarial
  organization
• Clarity/communication
• Actuaries need to know what is expected of them
• Will be more situations where jurisdiction and
  requirements are uncertain (international work)
• Practical concerns
• Changes to rules and standards take time
• Need to be consistent in all practice areas

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Perspective from Canada

• SOP is better
• Dont want to weaken our standards
• But also dont want to conflict with IAA
  (consistency is the whole point of globalization)
• Jurisdiction concerns
• SOP only applies to work in Canada
• if guidance (outside Canada) is inadequate, SOP
  may provide useful guidance, taking account of
  laws/customs
• Should we impose standards on FCIAs outside
  Canada?
• Countries with standards vs. without
• IAA full members vs. associate or non-member
  countries
• FCIA is an individual member of the IAA

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Examples

• Need for Standards?
• Differences in Professional Rules?

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Example 1CAA dont need IAA standards we can
use existing Actuarial Standards

• FOR
• Include practice notes is all thats needed
• Existing Rules and Standards are better and
  stronger
• Relying on external actuarial bodies has served
  us well

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Example 1CAA dont need IAA standards we can
use existing Actuarial Standards

• AGAINST
• Consistency is the whole point
• We cant rely on other countries actuarial bodies
  to respond on time as they are in a different
  situation
• Danger of conflicting standards
• How do we ensure consistency in the Caribbean?

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Example 2Actuarys opinion should be qualified
when inconsistent measurement bases chosen

• FOR
• Its the right thing to do
• The only way to get change is to report the
  real-life implications
• Users have a right to know that alternative
  choices might give materially different results
• Code of Professional Conduct
• Not new to actuaries

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Example 2Actuarys opinion should be
qualified when inconsistent measurement bases
chosen

• AGAINST
• Who do we think we are?
• Battle should be fought by professions, not
  individuals
• Would require clear and complete guidance
• Disclosure accomplishes the same effect