Esko Kivisaari 14.12.2004

International Actuarial Standards of Practice (IASP) for actuaries dealing with either insurance contracts or investment contracts issued by insurers in connection with IFRSs Esko Kivisaari 14.12.2004

IMF Insurers multi-dimensional regulatory landscape A growing number of European and international bodies are involved in insurance regulations Global January 2004 environment IASB OECD European Parliament EFRAG EU MARKT SANCO TAXUD COMP European Commission EMPL ENV IAIS Council of Ministers/ EU Presidency ARC Economic and Social Committee UNEP EIOPC EFC WB CEIOPS FSC WTO NFCC NAIC EFRAG = European Financial Reporting Advisory Group IASB = International Accounting Standards Board EIOPC = European Insurance and Occupational Pensions Committee CEIOPS = Committee of European Insurance and Occupational Pensions Supervisors NFCC = New Financial Conglomerates Committee FSC = Financial Services Committee EFC = Economic and Financial Committee ARC = Accounting Regulatory Committee Directorates General COMP = Competition TAXUD = Taxation and customs MARKT = Internal Market SANCO = Health & Consumer Protection EMPL = Employment & Social Affairs ENV = Environment NCOIL OECD = Organisation for Economic Co-operation and Development IMF = International Monetary Fund WB = World Bank NAIC = National Association of Insurance Commissioners (USA) NCOIL = National Conference of Insurance Legislators (USA) WTO = World Trade Organisation UNEP = United Nations Environmental Programme IAIS = International Association of Insurance Supervisors

A Standard of Practice is a statement of behaviour required of actuaries operating within a defined context, particularly in regard to the methodology to be adopted, the approach to setting assumptions, the contents of the resulting report or opinion and the way in which the report or opinion should be presented. The intention is to achieve greater uniformity of approach to practice in a given situation, so as to increase the confidence of clients and the public in the actuarial work product, but without stifling the exercise of creativity or the need for actuarial judgement (Paper prepared by the Professionalism Committee and approved by the IAA Council at its meeting on 23 May 2000 in Jerusalem)

Standardien luokat (1/2) Class 1 mandatory. The Code of Conduct is mandatory and might be included here, although outside the scope of this paper. National associations of actuaries may issue mandatory standards, for example where they are a surrogate for legislation. At the international level a mandatory standard would need to be adopted by each Member Association and imposed by them as mandatory on their individual members Class 2 voluntary. This is a standard of practice which is not mandatory as such, in the sense that all actuaries are obliged to comply with it, or in the sense that Member Associations are required to adopt it or endorse it. However, it would apply with mandatory effect whenever an actuary asserted compliance with the standard. In some circumstances an opinion or report which did not comply with the relevant voluntary standard would be of little value to the client, hence effectively making it mandatory on actuaries engaged in the relevant practice area

Standardien luokat (2/2) Class 3 recommended practice. Actuaries would be expected to follow the recommended practice unless there were sound and defensible reasons for not doing so. Actuaries who do not follow the recommended practice should be prepared to give good account as to why it was felt appropriate not to follow the standard and should disclose the material aspects where they have departed from it. A Member Association may choose to raise the recommended practice to a stronger form of standard in the local context. Class 4 practice guidelines. These are educational in nature, representing a statement of good practice (or perhaps practice as generally accepted among actuaries) and intended, for example, to help the client audience to understand better what they should expect from the work product of actuaries in the area in question. They might also serve to show non-actuaries who carry out similar work how the actuarial profession expects to approach the subject matter.

Subsidiariteetti An important principle of the IAA statutes is that of subsidiarity, whereby the IAA will restrict its activities to strategies and programmes which require international co-ordination or direction, or can be handled more efficiently across national and regional boundaries: It will not become involved with actions at the level of the Member Associations or regional groups of actuarial associations, except at the express invitation of such an association or group. (Article 8)

Standardien käyttöönotosta IAA Council, Tukholma, kesäkuu 2004 Standards of practice of the Class 1, 2 or 3 type should first be introduced as Class 4 standards in order to allow time for their orderly introduction and implementation by member associations, unless the Council should decide in any particular case to waive this requirement. If the intention is to move towards a stronger type of standard in due time, this should be proposed at the time of bringing forward a Class 4 standard, in order to give member associations time to prepare for the upgrading to a stronger type.

IAA:n jäsenjärjestön optiot kun IAA on hyväksynyt standardin (Insurance Accounting Committee, Washington 2004) vahvistaa muodollisesti (endorse) ilman muutoksia käytettäväksi IFRS-työn yhteydessä, tai hyväksyä hiljaisesti käytettäväksi IFRS-työn yhteydessä, tai vahvistaa muodollisesti käytettäväksi paikallisen GAAP:n mukaisessa työssä, tai vahvistaa standardin muokattu versio käytettäväksi paikallisessa työssä (esimerkiksi kääntämällä omalle kielelle tai täydentämällä standardia tarkemmin sopimaan paikallisiin tuotteisiin tai lakeihin), tai vahvistaa muunlainen kuin edellisen kohdan mukainen standardi käytettäväksi samoissa tai muissa yhteyksissä, joissa edellytetään IASP:n noudattamista. Tällaisessa tilanteessa kannustetaan varmistamaan, että oma standardi ei ole ristiriidassa IFRS-työssä käytettävän IASP:n kanssa.

Standardoinnin alueita Social Security ISSA:n pyynnöstä Employee benefits kehitteillä IAS 19 standardin jatkokehityksessä Insurance Accounting, IFRS 4 nyt lausunnolla laaja paketti IFRS 4:n yhteyteen liittyvistä standardeista taustana on, että IASB julkisti maaliskuussa 2004 IFRS 4:n, vakuutussopimuksia koskevan tilinpäätösstandardin. Vakuutusyhtiöillä on lisäksi sopimuksia, jotka eivät kuulu IFRS 4:n vakuutussopimuksen määritelmän piiriin. Nämä voivat olla finanssi-instrumentteja tai palvelusopimuksia (service contract), joita koskevat muut IAS-standardit, erityisesti IAS 39 tai IAS 18. Mainitut standardit eivät sisällä yksityiskohtaisia ohjeita aktuaarille siitä, miten tarvittavat laskelmat tehdään tai miten suoritetaan oikealla tavalla vastuun määrittely taseen velvoitteille. IASB:n tarkoituksena on tuottaa korkealaatuiset ja globaalisti yhtenevät tilinpäätösstandardit. Siksi IAA on ryhtynyt laatimaan aktuaarien ohjeistusta tavoitteena korkealuokkaiset ja globaalisti yhtenäiset standardit aktuaarin suorittamaa IFRS-työtä varten.

IASP Insurance Accounting Paketti 1, lausuntoaika 14.1.2005 saakka Actuarial Practice When Providing Services to Reporting Entities Concerning Financial Reporting of Insurance Contracts, Financial Instruments, and Service Contracts Under International Financial Reporting Standards, Measurement of Investment Contracts and Service Contracts under IFRS Currents Estimates Glossary Paketti 2, lausuntoaika 4.3.2005 saakka Classification of Contracts Issued by Insurers under IFRS Changing in Accounting Policy under IFRS Recognition and Measurement of Contracts with Discretionary Participation Features Liability Adequacy Testing, Testing for Recoverability of Deferred Transaction Cost Assets, and Testing for Onerous Service Contracts Paketti 3 luvattu lausunnolle joulukuussa 2004, ei vielä tullut

Paketti 1 yksityiskohtaiset kysymykset General Questions 1. Do the Preliminary Exposure Drafts provide adequate and appropriate guidance for the application of IFRS 4 and related IFRSs? 2. In which areas would you recommend additional guidance? To what extent is the guidance inappropriate or unnecessary? 3. If you are an IAA member association, what are your plans regarding implementation of this Practice Guideline? Where IFRS is the required reporting basis in your jurisdiction, do you intend to introduce similar standards or use this guidance? What are your plans for members practicing in other jurisdictions? 4. Other comments.

Paketti 1 yksityiskohtaiset kysymykset Actuarial Practice 5. The Practice Guideline proposes in section 4.1.6 Material Inconsistencies that the actuary should consider whether management s selection of the measurement basis could result in materially misleading results. The IAA is continuing to sponsor research in this matter. Do you consider this section to be appropriate? If no, why not and do you have any suggested alternative? 6. The Practice Guideline takes the position in section 4.2.8 Model and assumptions that, to the extent the actuary selects or takes responsibility for assumptions, the actuary should consider their reasonableness on an aggregate basis. Do you consider this section to be appropriate? If no, on what basis should the reasonableness of the assumptions be considered? 7. Other comments.

Actuarial Practice When Providing Services to Reporting Entities Concerning Financial Reporting of Insurance Contracts, Financial Instruments, andservice Contracts Under International Financial Reporting Standards ohjeistavaa, ei-sitovaa opastusta, jonka aktuaarit may wish to ottaa huomioon antaessaan ammatillista palvelua IFRS-yhteydessä. Opastus ei ole korvike IFRS-määräysten täyttämiselle ei anna teknistä opastusta vaan opastusta hyväksyttävästä aktuaarillisesta toimintatavasta poikkeaa muista sikäli, että on tiivis ja sisältää erikseen Basis of Conclusions -osan, jolla rakenteella myös muut saataisiin selkeämmiksi. sisältää yleisohjeita, IFRS-työn erityisvaatimuksia, aktuaarille asetettavia vaatimuksia sekä ohjeita aktuaarin antamasta raportista kysymykset 5 ja 6 liittyvät siihen, mikä on aktuaarin suora vastuu ikään kuin ohi hallituksen: suomalainen periaate lienee, että hallitus vastuussa ja aktuaarin vastuu/raportointi sen ohi johtaisi aktuaarin yhtiössä paitsioon

Paketti 1 yksityiskohtaiset kysymykset Measurement 8. The Practice Guideline takes the position, when calculating the carrying value for a financial instrument on an amortised cost or fair value measurement basis and with accruals for service contracts that the calculations should first be performed applying the methodology and subsequently applying the additional accounting requirements. Do you consider this approach to be appropriate? If not, what process would you consider appropriate? 9. The Practice Guideline takes the position in section 4.4.7.2 Level of margins for risk and uncertainty that the actuary should select the level of confidence in selection margins for risk and uncertainty. Do you consider this approach to be appropriate? If not, what would you consider appropriate? 10. The Practice Guideline takes the position in section 4.4.8.2 Calibration that the approach to calibration should be left to the actuary s judgement. The actuary should consider the limited market for investment contracts where the insurance company is the issuer and consider what observable data is available. Do you consider this approach to be appropriate? If not, what process would you consider appropriate and should a different priority be place on calibration to the total price or, where additional observable data is available to the individual elements? 11. Other comments.

Measurement of Investment Contracts and Service Contracts under International Financial Reporting Standards Sopimusten luokittelussa viitataan myöhemmin esitettävään päätöspuuhun siteeraa paljon IFRS 4 standardia, jotenkin tuntuu, ettei aina tuo paljoakaan lisää Uskoo, että on olemassa commonly accepted option-pricing models (kohta 4.1.4), pitäisi varmaan täsmentää (binomimalli?) ainakin minulle amortised cost jää epäselväksi (kohta 4.2.9), samoin fair value (4.4.2) issues need to be resolved over time as recognised actuarial practice emerges (4.4.3) yrittää lähestyä aihetta Margins for risk and uncertainty (4.4.7) tuomatta kuitenkaan paljoa lisää IFRS 4:ään oletusten valinta säilyy ongelmallisena (4.5.1 ensimmäinen ja viimeinen kappale) yksittäisiin kysymyksiin lienee vaikea vastata kuin että valittu menettely oikea

Paketti 1 yksityiskohtaiset kysymykset Current Estimates 12.The Practice Guideline takes the position in section 4.1.1 Approach that the practitioner should consider whether the assumptions are reasonable in aggregate. Do you consider this section to be appropriate? If not, on what basis should the reasonableness of the assumptions be considered? 13.The Practice Guideline takes the position in section 4.2.2 Market assumptions that the practitioner usually selects market assumptions that are consistent with current market prices and other market data, unless there is reliable and well-documented evidence that current market experience and trends are not likely to continue. In taking this position it is recognised that there may be observable market data that the practitioner, based on his/her judgment considering other objective evidence, has chosen not to follow. Do you consider this approach to be appropriate? If not, what would you consider appropriate? 14. Other comments.

Current Estimates nimi vaikuttaa muihin nähden epätäydelliseltä kohdan 1 toinen kappale rajaa soveltamisen muihin kuin IFRS 4:n mukaisiin vakuutussopimuksiin onko rajaus järkevä kun mainittu standardi sinänsä tukee yleistä siirtymistä käypään arvoon? todetaan, että IASB:n best estimate ei ole se, mitä aktuaarit yleensä termillä tarkoittavat (sivun 3 viimeinen kappale) IASB tarkoittaa että otetaan current estimate, johon liitetään riski- ja epävarmuusmarginaali tärkeää current estimate -laskennan periaatteet 4.1.1-2 ja 4.1.4 sekä oletukset sitä laskettaessa (4.2.1) antaa kansallisille järjestöille roolin oletusten määrittämisessä (esim. riskitön yield curve ja markkinoilla käytettävä inflaatio), kohta 4.3.8 esitettyihin kysymyksiin: vaikuttavat perustelluilta ratkaisuilta

Paketti 2 yksityiskohtaiset kysymykset General Questions 1. Do these Preliminary EDs provide adequate and appropriate guidance for the application of IFRS 4 and related IFRSs? 2. In which areas do you recommend additional guidance provided? To what extent is the guidance included inappropriate or unnecessary? Please be as specific as possible. 3. If you are an IAA member association, what are your plans regarding implementation of the proposed IASPs? Where IFRS is the required reporting basis in your jurisdiction, do you intend to introduce similar standards or use the resulting IASPs? What are your plans for members practicing in other jurisdictions? 4. Any comments on the Glossary (sent with the first set of preliminary EDs) relative to this second set of preliminary EDs? Specifically, are any definitions missing that should be included or changes made to the definitions given? 5. Other comments.

Paketti 2 yksityiskohtaiset kysymykset Classification of Contracts 1. In section 4.4.3, guidance is provided regarding the interpretation of the term additional benefits as it was believed that paragraph B24c of IFRS 4 does not provide sufficient clarity. Do you believe that this additional guidance is helpful or do you believe that the guidance provided in IFRS 4, B24c is sufficient? 2. The fifth and sixth paragraphs of section 4.4.7 argue that the pricing of annuities does not drive the assessment as to the extent of insurance risk. Do you agree with this? Is the guarantee of issuance of a life-contingent annuity at market-based rates sufficient to classify the original issue as an insurance contract? Is more guidance needed regarding the extent of the guarantee needed? 3. In section 4.9.6, guidance is included that indicates that contracts that include optional features, such as the possibility of a contract being issued as unit-linked contract that can be subsequently switched by the policyholder to one that includes a DPF. Is the guidance provided regarding the criteria necessary to classify this type of contract sufficient or appropriate? If not, indicate what guidance should be provided? 4. Other comments.

Classification of Contracts Issued by Insurers under IFRS Tarkennetaan IFRS 4:n mukaista päätöspuuta: esitetyn päätöspuun avulla lienee helpompi määritellä, miten erilaisia sopimuksia arvotetaan eri IFRS- tai IAS-standardien mukaisesti epävalmiutta täälläkin, esimerkiksi sivun 9 kaksi ensimmäistä kappaletta vaikuttavat kummallisilta kohta 4.4.4 antaa käyttökelpoista ohjeistusta joihinkin suomalaisiin tuotteisiin (lähinnä rakennusvirhevakuutus) muutenkin kohtien 4.4.4 4.4.6 pohdinnat siitä, milloin sopimukseen liittyy vakuutusriskiä vaikuttavat relevanteilta. universal life ei käy käsitteen discretionary participation featuren alle (4.6 kaksi viimeistä kappaletta) palvelusopimuksen piiriin kuuluvat tarkennetaan kohdan 4.7 alussa kohta 4.9 tarkentaa, mitä tarkoitetaan sopimuksen komponentilla tärkeää tutkittaessa tarvetta unbundlingille kysymyksiin vastaus, että ollaan oikeilla linjoilla

Paketti 2 yksityiskohtaiset kysymykset Changes in Accounting Policies 1. Would further guidance regarding the permitted introduction of current market interest rates (IFRS 4 24) in the measurement of designated liabilities be useful? If so, please indicate the issue(s) that would be helpful to address here. 2. Are there any types of situations in which a liability can be changed on a contract-by-contract basis other than in IFRS 4, 24 and 25(c)? If so, is further guidance needed to describe these situations? 3. Would further guidance regarding shadow accounting (IFRS 30) be useful? If so, please indicate the issue(s) that would be helpful to address here. 4. Other comments.

Changes in Accounting Policy while under International Financial Reporting Standards lähinnä tuo ilmi, että sangen pienetkin aktuaarin tekemät muutokset voidaan luokitella tarkoitetuiksi muutoksiksi, joten varovaisuuteen syytä (ks. erityisesti kohdat 1-4 sivulla 5) myös varovaisuus käytetyissä oletuksissa on tärkeä, tähän puuttuu sivujen 6-7 taitteessa oleva kappale, asiaa käsittelee tarkemmin kohta 4.5 itse kysymyksiin voisi sanoa, että jää epäselväksi, shadow accounting tosin ei liene suomalaisittain relevantti kysymys

Paketti 2 yksityiskohtaiset kysymykset Discretionary Participation Features 1. The Subcommittee has had long deliberations on this preliminary, as globally there is a very wide range of discretionary participating features. Do you believe that this preliminary ED provides sufficient guidance for those DPFs that are provided by contracts issue in your country? If not, do you believe that this preliminary ED should be expanded or modified to cover those DPFs as well? If so, we would appreciate receipt of a description of the DPFs for which you are looking further guidance and the guidance that you believe appropriate. 2. In certain countries, a contract that includes a DPF has discretion with regards to the timing, but not the amount, to be paid. In those countries, for example, this amount may be due to the current level of unrealized capital gains. Is it appropriate to include as a liability or equity the effect of the DPF corresponding to these gains based on the percentage guaranteed by contract or law, or the percentage currently declared by the company s Board? Is there additional guidance that should be provided relating to this situation? 3. Is further guidance needed to identify separated or combined recognition approaches? Are the consequences of a combined recognition approach clear? It you believe that an example would be helpful, could you describe the issue to which this example would add clarity? 4. Is further guidance regarding the effect of shadow accounting on participating business needed? If so, in what area? For example, in regards to deferred unrealised capital gains that can arise in some countries? 5. Other comments.

Recognition and Measurement of Contracts with Discretionary Participation Features tarkennusta DPF-määrittelyyn ja jälleen universal life luetaan ulos tästä (kohdat 4.1 ja 4.1.2) tarkennusta sille, milloin taattu (guaranteed) osa ja DPF esitetään erillään ja milloin DPF on vastuuta ja milloin taas equitya (kohdat 4.4-6) Kysymykset 1 ja 3, lisäselvitystä kaivataan, kysymykset 2 ja 4 EVVK

Paketti 2 yksityiskohtaiset kysymykset Liability Adequacy Testing 1. The test for liability adequacy is a comparison of the net carrying value to future cash flows. Possible considerations for future cash flows are listed in section 4.2 when applying an existing accounting policy, with additional considerations given in section 4.4.1 when applying an IAS 37 approach. Do you agree with these lists of considerations? What factors would you add to or delete from these lists? 2. In section 4.1 of this preliminary ED, insurance assets are discussed. It is mentioned that it may be appropriate to include some of these insurance assets in the liability adequacy test. Do you agree with this, and if not, why not? If you agree, do you believe the guidance provided is sufficient or should the guidance be expanded? If you believe that such additional guidance is needed, what should be its nature? 3. When applying the IAS 18 approach to the measurement of the servicing element of investment contracts, the deferred costs must be tested for recoverability and the servicing contract must be tested for the possibility of a provision for an onerous contract. Is the guidance given in section 4.8 sufficient for this purpose? What clarification, if any, would you prefer to make the guidance more useful? 4. Other comments.

LiabilityAdequacy Testing, Testing for Recoverability of Deferred Transaction Cost Assets and Testing for Onerous Service Contracts Arviota siitä, milloin IAS 37 vaatii yritystä tekemään kirjanpitoonsa varauksen syystä, että vastuut on alimitoitettu Kohdassa 4.2 muistilista siitä, mitä seikkoja pitää ottaa huomioon määriteltäessä tarve suorittaa testi jää kuitenkin aika tekniseksi ja laihaksi, tavallaan itsestäänselvyyksiä kysymysten osalta puutteeksi tuntuu jäävän erityisesti se, että tämän osalta ollaan varsin yksityiskohtaisten sääntöjen maailmassa (miten täytetään kirjain, muttei ehkä henkeä) periaatepohjaisuus olisi ollut parempi lähestymistapa