OSFI to separate underwriting performance from actuarial liability adjustments

The Office of the Superintendent of Financial Institutions (OSFI) has introduced a new supplemental filing to isolate underwriting performance from adjustments to actuarial liabilities.
Such liabilities might be caused by market swings and resultant changes in the fair value of the underlying financial assets.
“The adoption of the Financial Instruments Accounting Standard in 2007 coincided with increased volatility in the financial markets including substantial movement in interest rates, foreign exchanges fluctuations and uncertainty in equity markets,” OSFI notes in a letter addressed to CEOs and chief agents of federally-regulated Canadian property and casualty companies. [The letter is posted on OSFI’s Web site.] “The Financial Instruments Accounting Standard permitted insurers to select the accounting treatment for classes of financial assets (held for trading, fair value option, available for sale, amortized cost) which in turn influenced the various performance measures such as return on equity, investment yield and claims ratios.
“Interim reporting in 2007 has revealed that discounted loss data has been significantly affected by these factors and in many cases, misrepresent[ed] the accurate economic performance of underwriting practices.”
OSFI has issued two new supplemental filings to provide greater clarity into actual underwriting performance. The regulator is requiring incurred loss data i.e. before taking into account the time value of money or the addition of actuarial margins (i.e. undiscounted) to be provided by line of business on a direct, assumed, ceded and net basis, as well as by province or territory.
The deadline for filing the supplemental pages for the year ended 2007 is Mar. 31, 2008.