Transcript Canadian Institute of Actuaries L’Institut canadien des

Canadian
Institute
of
Actuaries
L’Institut
canadien
des
actuaires
2007 Annual Meeting ● Assemblée annuelle 2007
Vancouver
2007 Annual Meeting
Assemblée annuelle 2007
PD 43 - Reviewing the
Standards of Practice for
Public Personal Injury
Compensation Plans
June 28, 2007
Gylles Binet
• 2007 Annual Meeting
• Assemblée annuelle 2007
Topics
• Actuary’s Role in Pricing
• Future Administration Costs
• Future Occupational Disease
Claims
• 2007 Annual Meeting
• Assemblée annuelle 2007
Actuary’s Role in Pricing
Current situation
• …actuary’s advice on… the pricing
of benefits of …(5100.01)
• …apply to pricing to the extent that
work on pricing depends upon the
valuation of benefits (5100.02)
• 2007 Annual Meeting
• Assemblée annuelle 2007
Actuary’s Role in Pricing
Is the standard too limited?
• Apply to benefits components of
pricing only
if
• Estimation of benefit cost is linked to
valuation of liabilities
• 2007 Annual Meeting
• Assemblée annuelle 2007
Actuary’s Role in Pricing
Actuary’s role and responsibility in:
• Funding strategies and pricing
implications
• Rate setting system
• Experience rating systems
Pricing: mix of actuarial concepts
techniques and policy decisions
• 2007 Annual Meeting
• Assemblée annuelle 2007
Actuary’s Role in Pricing
Responsibility towards stakeholders
• Proper application of actuarial
techniques
Prerequisite:
Clarify: actuarial techniques vs
policy considerations
• 2007 Annual Meeting
• Assemblée annuelle 2007
Actuary’s Role in Pricing
Illustration - Quebec
• Actuarial expertise required by
legislation (S. 304)
• Statement of opinion issued on
- estimation of expected benefits cost
- unit rates
- parameters of experience rating
system
• 2007 Annual Meeting
• Assemblée annuelle 2007
Actuary’s Role in Pricing
• Stakeholders may refer to actuaries for
advice on pricing issues
• Potential divergence of position
regarding generally accepted actuarial
principles.
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Administration Costs
Current situation (5400.03):
“If the benefits liabilities make no
provision for administrative expenses …,
then the report should so disclose.”
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Administration Costs
Evolution in Boards’ practices :
• All WCB include “Future administration
expenses liability” in balance sheet
• In 1997: only 5 WCB
Future Administration Costs
BC
AB
SK
MB
ON
QC
NB
NS
PE
NL
NT
YT
0,9
Total Liabilitie s (billion dollars)
0,7
19,3
9,7
0,9
1,3
0,1
0,7
8,6
4,2
0,2
0,1
6,1%
Ratio (Administration Expe nditure Liabilitie s/Be ne fits Liabilitie s)
4,2% 5,2% 6,4% 4,6% 6,8% 6,5%* 6,1% 6,5% 7,0% n/a
n/a
n/a - the future administration liability is not disclosed separately in the financial statements
* : Ratio not available from financial statements notes
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Administration Costs
Illustration - Quebec’s approach:
• Administration costs split in 4 categories:
claims management / financing / Prevention
programs and inspection / general expenses
• Only claims management and financing expenses
are incurred beyond contribution year
• Claim administration liabilities =
– % applied to benefits liabilities (variable by type of
benefits)
– The % is balanced and adjusted every year according to
experience
• Financing expenditures: based on resources
needed for follow-up after contribution year
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Administration Costs
Diversity in Boards’ practices:
• Identification of the administration
costs to be considered
• Disclosure in notes to financial
statements:
Included in benefits liabilities or
disclosed separately
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Administration Costs
Issues to be addressed:
• In Standards of Practice:
Clarification: future administration expenses
should be included in liabilities
• In an educational note
Discussion on methodology
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Occupational Disease
Claims
Current situation (5400.03):
“If the benefits liabilities make no
provision ..….or for future claims arising
from latent occupational diseases , then
the report should so disclose.”
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Occupational Disease
Claims
Recognition of cost accrual
1. Exposure to risk has occurred but
symptoms have not yet appeared
2. Causal connection not yet
established but exposure has taken
place
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Occupational Disease
Claims
Diversity in Boards’ practices:
• Liabilities: 3 Boards
• Reserves: 2 Boards
• Nothing: 7 Boards
Is this acceptable?
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Occupational Disease
Claims
Standards of Practice issues:
• Inclusion of such reserve: an actuarial, an
accounting or a governance issue?
• What are the characteristics of a method
consistent with acceptable practice?
• Consistent with expected impact of prevention
programs?
• What money is allocated to the fund and what
costs are financed through it?
• 2007 Annual Meeting
• Assemblée annuelle 2007
Future Occupational Disease
Claims
How to address the issue?
a) Standards of practice
b) Educational note
c) a and b
• 2007 Annual Meeting
• Assemblée annuelle 2007
Conclusion
Where does the actuarial expertise
begin and where does it end?