2008 Annual Meeting ● Assemblée annuelle 2008 Québec 2008 Annual Meeting ● Assemblée annuelle 2008 Québec Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

June 19, 2008 International GAAP: 2011 is closer than you think Session IP-34 Jim Christie June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008 Agenda Update on CIA’s IFRS Task Force IFRS impact on Appointed Actuary IFRS background IFRS conversion timetable Brief comments on IFRS 4 phase II

June 19, 2008 CIA Task Force on International Financial Reporting and Solvency Members: - Allan Brender -Jim Christie -Dave Pelletier -Lesley Thomson -Paul Winokur, Chair 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008 Task Force Mandate Knowledge transfer from subject matter experts to committees Communication to members Avoid duplication of effort among various committees Work closely with ASB, AcSB and OSFI to ensure conformity with IFRS 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008 June 4 TF Meeting Over 30 leaders of all key practice committees met for 5 hours to review all key aspects of IFRS OSFI and AMF actuaries were also present ASB and CIA Practice Council were key observers and participants 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008 Issues Raised Need to focus initially on IFRS4 phase 1 Immediate effects largely on life insurers –Certain contracts no longer “insurance” –Need to separately report reinsurance –Treatment of future tax assets Little Phase 1 impact on P&C or pension Uncertainty of IFRS application to Workers Compensation funds How does IAA Guidance material impact accepted actuarial practice in Canada? Impact on Appointed Actuaries role/opinion 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008 Role of appointed actuary Neither IFRS nor current Canadian GAAP address concept of appointed actuary Appointed actuary role is established under the Insurance Companies Act (ICA) OSFI have indicated there are no plans to change ICA 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, and 2010 statements filed under local standards Statements restated under IFRS but to be filed in 2011 IFRS statements are published with comparatives for 2010 Fiscal 2009 Fiscal 2010 Fiscal 2011 Q1Q2Q 3Q4Q1Q2Q 3Q4 IFRS transition date (effective) IFRS transition date (effective) Filing date of IFRS accounts Filing date of IFRS accounts Fiscal 2008 IFRS convergence plan disclosure IFRS convergence plan disclosure IFRS detailed plan disclosure IFRS detailed plan disclosure Fiscal 2007 Training and knowledge of IFRS Preparation of convergence plan New IFRS standards Planning Needs to Start Soon Project Structure and Governance (budget implications, resourcing, etc.) Assess System Change Impact and Implementation IFRS conversion date IFRS conversion date

June 19, 2008 Cross-border capital flows highlight the need for consistent, understandable financial information The International Accounting Standards Board (“IASB”) is developing a single set of global accounting standards Many countries committed to the objective of global “harmonisation” Drivers for new approach: –Historical cost accounting models lack relevance –Solvency-based approaches do not provide an accurate picture of financial performance –Convergence of banking and insurance Background Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008 Background - 2 IFRS is currently adopted by over 100 countries worldwide including European Union and Australia, representing over 45% of the world’s capital markets 2006: the Canadian Accounting Standards Board (AcSB) announced IFRS would replace Canadian GAAP as of 1/1/2011 for Publicly Accountable Enterprises October, 2007: FASB Chair confirms that US GAAP to converge with IFRS 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Background - 3 IASB/FASB partnership –Standard setters are “multi-tasking” –Will FASB slow the insurance contracts project? IASB Discussion Paper on IFRS 4 Phase II –Level of detail (education document) –Presents alternatives where decisions may have been made –Board’s views not unanimous (and membership is changing) Consensus developing? –Discussion Paper responses –The influencers (IAIS, CFO Forum, GNAIE) –IASB seeks input but they make the decisions.

June 19, 2008 Before 2004: –No IFRS on insurance contracts –Scope exclusions from other IFRSs Diversity –between insurers –from other sectors Insurance contracts – IFRS 4

June 19, 2008 IFRS Phase I vs Phase II Assets Liabilities IAS 39 for Invested Assets IFRS 4 Phase 1 Status Quo IAS 39 and some aspects in IAS 32 and IAS 18 IFRS 4 Phase 2 All Insurance Contracts and Investment Contracts with Discretionary Participation Features Other Investment Contracts and All Service Contracts 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Transition to IFRS (IFRS1) On May 29, 2007, the Canadian Accounting Standards Board tentatively concluded that no modifications are necessary to IFRS 1, First Time Adoption, for purposes of the transition of Canadian GAAP to IFRSs IFRS 1 requires disclosures that explain how the transition from previous GAAP to IFRS affected reported financial position, financial performance and cash flows.

June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Transition to IFRS (IFRS1) IFRS 1 requires retrospective application in most areas (with stated exceptions, e.g. business combinations). IFRS 1 states that accounting policies that an entity uses in its opening IFRS balance sheet may differ from those that it used for the same date using its previous GAAP.

June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Key IFRS differences include… Insurance Accounting Business Combinations Disclosures –(CICA §3862 effective 31/12/08) Consolidation Revenue Financial Instruments –(CICA §3855 effective 31/12/07) Property, Plant and Equipment Leases Intangible Assets Impairment of Assets Income Tax Accounting Share-Based payments Pension Accounting Provisions, Contingent Liabilities, and Contingent Assets

June 19, 2008 Definition of Insurance  A contract under which the insurer accepts significant insurance risk by agreeing to compensate the beneficiary if the insured event adversely affects the policyholder (Insurance Contracts (Phase I) paraphrased with emphasis added)  Significant means at least one scenario with payment of commercial substance with an amount that is not trivial 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008  Financial risk is risk of possible future change in specified interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index or similar variable  Insurance risk is risk from contingent events other than financial risk If both financial risk and significant insurance risk are present, contract classified as insurance Insurance vs Financial Risk 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008 Insurance Contract Accounting During Phase I, existing accounting policies apply with certain modifications –Prohibited – certain accounting policies are prohibited as they do not meet the IFRS framework –Mandated – certain accounting policies must be implemented if they are not already in the existing accounting policies –Allowed to continue, but not start – certain accounting policies that do not meet the IFRS framework can continue, but cannot be implemented. –Can be started – certain accounting policies can be introduced. Existing accounting policies are those in the primary financial statements

June 19, 2008 Prohibited/Mandated Policies The following accounting policies are prohibited –Catastrophe provisions –Claims equalisation provisions –Offsetting of reinsurance assets and direct liabilities The following accounting policies are mandated if they are not already present –Liability adequacy testing –Impairment of reinsurance assets 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008

June 19, 2008 Liability Adequacy Test Current liability adequacy test applies if –Test at each reporting date using current estimates of future cash flows –If these are greater than current liability, liability is increased and deficiency flows through profit and loss

June 19, 2008 The following existing practices may continue but companies may not switch to these where they are not already applied –Undiscounted liability basis –Deliberate overstatement of liabilities –Deferred acquisition costs approach 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Policies That May Continue

June 19, 2008 The following accounting policies can be started subject to certain restrictions –Use of current market discount rates –Use of shadow accounting –Use of asset based discount rates 2008 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Policies That May Be Started

June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Related IASB Projects Conceptual Framework Revenue Recognition Fair Value Measurements (FAS 157) Revisions to “Provisions, Contingent Liabilities and Contingent Assets” (IAS 37) Financial Statement Presentation Financial Instruments

June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 IASB’s gift to actuaries: 232 Pages of Essential Reading

June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Phase 2 Discussion Paper Principles-based approach with additional guidance Insurance to be subject to the same general principles as other financial services firms Consistency of treatment between insurance, investment management and banking products

June 19, Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2008 Issues Not Addressed in Discussion Paper Issues already settled –Definition of insurance contract –Catastrophe/equalization reserves Issues being considered in other projects –Separate accounts –Securitizations and other ART transactions –Deferred taxes –Interim reporting Issues to be resolved in the future –Presentation and disclosure –Measurement by policyholders –Transition/effective date

June 19, and 2010 statements filed under local standards Statements restated under IFRS but to be filed in 2011 IFRS statements are published with comparatives for 2010 Fiscal 2009 Fiscal 2010 Fiscal 2011 Q1Q2Q 3Q4Q1Q2Q 3Q4 IFRS transition date (effective) IFRS transition date (effective) Filing date of IFRS accounts Filing date of IFRS accounts Fiscal 2008 IFRS convergence plan disclosure IFRS convergence plan disclosure IFRS detailed plan disclosure IFRS detailed plan disclosure Fiscal 2007 Training and knowledge of IFRS Preparation of convergence plan New IFRS standards A reminder – you need to start now Project Structure and Governance (budget implications, resourcing, etc.) Assess System Change Impact and Implementation IFRS conversion date IFRS conversion date