Leonard PresseyJune 29,2007Vancouver

© 2006 Towers Perrin

PD-30 Lessons LearnedImplementation of CICA 3855

CIA Annual Meeting

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Implementation CICA 3855 from Small Company Perspective

AFS classification

Restating opening liabilities

Valuation issues

MSSCR/TAAM returns

DCAT analysis

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AFS classification

Relevant considerations

Consistency with US parent company reporting

Guidance of external auditors

Capabilities of investment accounting systems

Simplicity of assets Often invested in Government of Canada or

public bonds

Rigour of risk management processes

Investment strategy typically “buy and hold” investment strategy

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Restating opening liabilities

Not re-determined using new CALM testing

Instead, year-end liabilities adjusted for Release of deferred net realized gains and losses Value of supporting assets at market not book value Redetermination of future tax liability

Future tax liabilities For several companies and product lines, market value of

assets not materially different than amortized cost basis Issue years

— No impact on post-1995 life business

— Impact on pre-1996 business, but if not material, may assume unchanged timing differences

Small adjustments for A&S business (example: LTD or active life DI reserves)

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Valuation Issues

Quarterly reporting Quarterly CALM testing not normally performed for small

companies Usually based on continuation of year-end valuation

assumptions Additional adjustments may be required to account for material

movements in market values

Year-end valuation Where reporting cycles are longer, CALM testing can be

performed as of December 31 For shorter reporting cycles, more practical to use CALM roll-

forward methods and adjust for changes in market values and yield curves

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MCCSR/TAAM Returns

Overall impact on MCCSR/TAAM ratios not material

Available Capital Required Capital

HFT Accumulated net after tax Balance sheet (market) values used tounrealized gains/losses included in determine capital requiredTier one capital available

AFS Accumulated net after tax Balance sheet (market) values used tounrealized losses deducted from determine capital requiredTier 1 capital

Accumulated net after taxunrealized gains included in Tier2A capital

HTM Accumulated net after tax Balance sheet values (amortized cost)unrealized gains/losses not used to determine capital requiredincluded in capital available

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DCAT Analysis

Key changes

Develop projected market value of assets in addition to book value of assets

Review projected policy liabilities for consistency with projected market value of assets

More extensive use of future scenarios in AXIS software

Testing of adverse economic scenarios similar to CALM