2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Introducing IFRSs to Canadian Insurers Accounting Background _____________________________________________________________________ Peter Martin Canadian Accounting Standards Board Introducing IFRSs to Canadian Insurers Accounting Background _____________________________________________________________________ Peter Martin Canadian Accounting Standards Board

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background International Financial Reporting Standards (IFRSs) become Canadian GAAP for “publicly accountable enterprises” from January 1, 2011 –part of a global movement to adoption of IFRSs –affects all Canadian financial institutions, whether publicly traded or not International Financial Reporting Standards (IFRSs) become Canadian GAAP for “publicly accountable enterprises” from January 1, 2011 –part of a global movement to adoption of IFRSs –affects all Canadian financial institutions, whether publicly traded or not

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background What are IFRSs? –standards for preparing and presenting “general purpose” financial statements –widely applied and accepted adopted in >100 countries, and more to come accepted in all major capital markets US now considering adoption for US companies –principles-based standards, broadly comparable to current Canadian GAAP (but some important differences) What are IFRSs? –standards for preparing and presenting “general purpose” financial statements –widely applied and accepted adopted in >100 countries, and more to come accepted in all major capital markets US now considering adoption for US companies –principles-based standards, broadly comparable to current Canadian GAAP (but some important differences)

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background International Accounting Standards Board (IASB) develops and issues the standards –IASB has no authority to enforce its standards; authority comes from local legal and regulatory requirements –Board of 14 professional standard-setters, supported by 40+ technical staff –based in London but global representation –appointed and funded by Foundation trustees –rigorous due process; very transparent International Accounting Standards Board (IASB) develops and issues the standards –IASB has no authority to enforce its standards; authority comes from local legal and regulatory requirements –Board of 14 professional standard-setters, supported by 40+ technical staff –based in London but global representation –appointed and funded by Foundation trustees –rigorous due process; very transparent

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background Basis for the changeover in Canada –mostly by one-time changeover on 1/1/11 –a few standards adopted in advance –some companies may early adopt, but OSFI has prohibited it for regulated institutions –comparative figures for 2010 required start with 1/1/10 opening IFRS balance sheet and work forward apply the standards effective for 2011 (can also early adopt new standards just issued) Basis for the changeover in Canada –mostly by one-time changeover on 1/1/11 –a few standards adopted in advance –some companies may early adopt, but OSFI has prohibited it for regulated institutions –comparative figures for 2010 required start with 1/1/10 opening IFRS balance sheet and work forward apply the standards effective for 2011 (can also early adopt new standards just issued)

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background Transition issues –IFRSs being imported “as is” – no additions, deletions or modifications importance of IFRS 1 for initial adoption current GAAP standards all superseded (including S and AcG-3 for insurers) –advance “market grooming” disclosures – CSA Staff Notice adopted by OSFI –companies need a plan – IFRS adoption not just a technical accounting exercise Transition issues –IFRSs being imported “as is” – no additions, deletions or modifications importance of IFRS 1 for initial adoption current GAAP standards all superseded (including S and AcG-3 for insurers) –advance “market grooming” disclosures – CSA Staff Notice adopted by OSFI –companies need a plan – IFRS adoption not just a technical accounting exercise

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background Effects on an insurer’s assets –financial assets (investments, receivables) subject to IAS 39 – quite similar to Cdn GAAP different treatment for derecognition of assets (securitizations and similar arrangements) –investments in real estate – change to either a depreciated cost or fair value measurement model Effects on an insurer’s assets –financial assets (investments, receivables) subject to IAS 39 – quite similar to Cdn GAAP different treatment for derecognition of assets (securitizations and similar arrangements) –investments in real estate – change to either a depreciated cost or fair value measurement model

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background Effects on an insurer’s “actuarial liabilities” –IFRS 4 for “insurance contracts” as defined –IAS 18 for service contracts –IAS 39 and IFRS 7 for non-insurance financial liabilities (eg, deposit-type products) –identify which contracts are subject to which standards –read the relevant standard(s) –adopt applicable requirements Effects on an insurer’s “actuarial liabilities” –IFRS 4 for “insurance contracts” as defined –IAS 18 for service contracts –IAS 39 and IFRS 7 for non-insurance financial liabilities (eg, deposit-type products) –identify which contracts are subject to which standards –read the relevant standard(s) –adopt applicable requirements

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background IFRS 4 –applies only to contracts with true insurance risk (see definition), including reinsurance –will generally permit continued application of CALM, with some exceptions or modifications to current practice IFRS 4 –applies only to contracts with true insurance risk (see definition), including reinsurance –will generally permit continued application of CALM, with some exceptions or modifications to current practice

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background IFRS 4 –requires continued use of pre-IFRS accounting policies, subject to exceptions no provisions for possible future losses not contracted for (e.g., catastrophe or equalization provisions) no offsetting of reinsurance –gross up assets and liabilities –need to consider impairment of reinsurance assets requires liability adequacy test, covering all future cash flows IFRS 4 –requires continued use of pre-IFRS accounting policies, subject to exceptions no provisions for possible future losses not contracted for (e.g., catastrophe or equalization provisions) no offsetting of reinsurance –gross up assets and liabilities –need to consider impairment of reinsurance assets requires liability adequacy test, covering all future cash flows

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background IFRS 4 –limits change from current practices on issues not directly addressed financial statements under new practices must be: –more relevant to users’ needs and no less reliable; or –more reliable and no less relevant ie, change is not a matter of free choice; directors, auditors and regulators would need to agree that criteria are met some guidance provided (but may not be helpful to Canadian enterprises) IFRS 4 –limits change from current practices on issues not directly addressed financial statements under new practices must be: –more relevant to users’ needs and no less reliable; or –more reliable and no less relevant ie, change is not a matter of free choice; directors, auditors and regulators would need to agree that criteria are met some guidance provided (but may not be helpful to Canadian enterprises)

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background IFRS 4 –embedded derivatives and unbundling embedded non-insurance derivatives are generally separated from a host insurance contract and accounted for separately at fair value –exception for some basic policyholder surrender options –but not, for example, for policyholder put option triggered by, or dependent on, changes in an equity market index deposit components – some must be unbundled, some may be, and some must not be IFRS 4 –embedded derivatives and unbundling embedded non-insurance derivatives are generally separated from a host insurance contract and accounted for separately at fair value –exception for some basic policyholder surrender options –but not, for example, for policyholder put option triggered by, or dependent on, changes in an equity market index deposit components – some must be unbundled, some may be, and some must not be

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background IFRS 4 –discretionary participating features – some optional treatments provided, with guidance –disclosure requirements will require more or different information in f/s notes that: identifies and explains amounts in f/s arising from insurance contracts enables users of f/s to evaluate nature and extent of risks arising from insurance contracts –significant number of specific disclosure requirements potentially applicable IFRS 4 –discretionary participating features – some optional treatments provided, with guidance –disclosure requirements will require more or different information in f/s notes that: identifies and explains amounts in f/s arising from insurance contracts enables users of f/s to evaluate nature and extent of risks arising from insurance contracts –significant number of specific disclosure requirements potentially applicable

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background IAS 18 –recognize fee revenue as earned over time, when: amount is reliably measurable probable benefits will flow to the entity stage of completion of work is reliably measurable incurred and required to complete contract reliably measurable IAS 18 –recognize fee revenue as earned over time, when: amount is reliably measurable probable benefits will flow to the entity stage of completion of work is reliably measurable incurred and required to complete contract reliably measurable

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background IAS 39 (recog/meas) & IFRS 7 (discl) –financial liabilities recognized initially at fair value plus transaction costs except that transaction costs expensed if a liability is remeasured subsequently at fair value –subsequent measurement generally at amortized cost, except for: held for trading and fair value option items, including all derivatives financial guarantee contract (as defined) commitment to extend a loan at below market rate IAS 39 (recog/meas) & IFRS 7 (discl) –financial liabilities recognized initially at fair value plus transaction costs except that transaction costs expensed if a liability is remeasured subsequently at fair value –subsequent measurement generally at amortized cost, except for: held for trading and fair value option items, including all derivatives financial guarantee contract (as defined) commitment to extend a loan at below market rate

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background IAS 39 (recog/meas) & IFRS 7 (discl) –disclose information that enables users of f/s to evaluate: significance of financial instruments for entity’s financial position and performance nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period –significant number of specific requirements potentially applicable IAS 39 (recog/meas) & IFRS 7 (discl) –disclose information that enables users of f/s to evaluate: significance of financial instruments for entity’s financial position and performance nature and extent of risks arising from financial instruments to which the entity is exposed at the end of the reporting period –significant number of specific requirements potentially applicable

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné __________ IFRSs - Accounting background Questions ??????????????????????????????? Questions ???????????????????????????????