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Canadian Institute of Actuaries. L’Institut canadien des actuaires. 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver. Standards of Practice for Public Personal Injury Compensation Plans (PPICP) Willard A Ramsey. 2007 Annual Meeting Assemblée annuelle 2007. PD - 43.

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2007 annual meeting assembl e annuelle 2007 vancouver

Canadian

Institute

of

Actuaries

L’Institut canadien

des

actuaires

2007 Annual Meeting ●Assemblée annuelle 2007

Vancouver

pd 43
Standards of Practice for Public Personal Injury Compensation Plans (PPICP)

Willard A Ramsey

2007 Annual Meeting

Assemblée annuelle 2007

PD - 43

2

topics
The relationship of assets and liabilities for PPICP financial statements

Best estimates for assumptions

Dynamic capital adequacy

2007 Annual Meeting

Assemblée annuelle 2007

Topics

3

assets and liabilities
Current practice, is not Canadian Asset Liability method (CALM)

is CALM an alternative?

International Accounting Standards Board (IASB).

Committee on Workers’ Compensation (CWC) plans.

2007 Annual Meeting

Assemblée annuelle 2007

Assets and Liabilities

4

current practice
Current method used for valuation of liabilities is the present value of future expected cash flows.

The discount or valuation interest rate is typically a level rate and does not change from year to year.

Hence, this method is not directly dependent on investment performance or funded status.

2007 Annual Meeting

Assemblée annuelle 2007

Current Practice

5

slide6
Should we consider adopting a method such as CALM (Canadian Asset Liability Method)?

CALM would address the issue that assets and liabilities are not on a consistent basis.

2007 Annual Meeting

Assemblée annuelle 2007

CALM

6

slide7
However, CALM presents several hurdles.

2007 Annual Meeting

Assemblée annuelle 2007

CALM

7

slide8
Shortage of, or at least not an abundance of, CALM expertise in those practicing in the PPICP field.

Implementation would be costly and time consuming – would likely require extensive help from consulting firms.

2007 Annual Meeting

Assemblée annuelle 2007

CALM

8

slide9
Significant portion of invested assets are in equities.

A few WC Boards are not fully funded – still building assets to support liabilities.

2007 Annual Meeting

Assemblée annuelle 2007

CALM

9

slide10
It appears at this point in time that the evolving International Standards are moving towards a liability value that does not depend on the value of the assets.

If we did adopt CALM were adopted it could be for a relatively short period of time.

2007 Annual Meeting

Assemblée annuelle 2007

IASB

10

slide11
Conclusion of the CWC (Committee on Workers’ Compensation) is that CALM is not a viable option at this time.

Perhaps an approach similar to CALM?

2007 Annual Meeting

Assemblée annuelle 2007

CALM

11

cwc plans
The CWC would like to clarify in the standards:

A definition of the market value of liabilities.

If the current approach is still appropriate.

2007 Annual Meeting

Assemblée annuelle 2007

CWC Plans

12

cwc plans1
Outline ways to manage the current approach, e.g. allowing flexibility in the choice of discount rate derived from the fair value of assets.

Issuance of a guidance note regarding the adjustment of the valuation discount rate.

2007 Annual Meeting

Assemblée annuelle 2007

CWC Plans

13

cwc plans2
A plan to implement moving from current practice to tomorrow’s IASB (International Accounting Standards Board) methodology.

Whether other methodologies need to be considered.

2007 Annual Meeting

Assemblée annuelle 2007

CWC Plans

14

best estimates for assumptions
Current standards consider:

Plan’s policy:

pricing stability

smoothing of short term deviations

and equity among generations

In addition:

ad hoc indexing

intermittence pattern of benefits due to remission or relapse

Changes in claim practices or economic conditions

2007 Annual Meeting

Assemblée annuelle 2007

Best Estimates For Assumptions

15

best estimates for assumptions1
The CWC is considering providing guidance on:

Areas where assumptions are required.

Where it may be appropriate to combine assumptions.

How to select best estimates.

Margins for adverse deviation – if or when they may be appropriate.

2007 Annual Meeting

Assemblée annuelle 2007

Best Estimates For Assumptions

16

dynamic capital adequacy
Current environment

PPICP’s are not subject to solvency standards.

Not regulated by OSFI.

No solvency requirements from provincial governments.

Entities can operate with unfunded liabilities.

All have plans to address excess surpluses or deficits.

2007 Annual Meeting

Assemblée annuelle 2007

Dynamic Capital Adequacy

17

dynamic capital adequacy1
Actuaries are sometimes asked to provide advice on what is an appropriate level of capital for a PPICP.

Or, to provide sensitivity tests for various risks and the impact on funding ratios (assets / liabilities) and premium rates.

2007 Annual Meeting

Assemblée annuelle 2007

Dynamic Capital Adequacy

18

dynamic capital adequacy2
CWC interest is in examining or defining what is adequate / appropriate capital for a PPICP.

Could be quite challenging as different views are developing.

2007 Annual Meeting

Assemblée annuelle 2007

Dynamic Capital Adequacy

19

dynamic capital adequacy3
What type of guidance should be provided?

Change to standards or educational note?

2007 Annual Meeting

Assemblée annuelle 2007

Dynamic Capital Adequacy

20

dynamic capital adequacy4
Dependent on the funding policy of the PPICP.

The actuary must work within the funding policy.

2007 Annual Meeting

Assemblée annuelle 2007

Dynamic Capital Adequacy

21

next steps
We have several interesting and challenging topics.

Probably a lot of work ahead.

Look forward to your feedback and input.

2007 Annual Meeting

Assemblée annuelle 2007

Next Steps

22