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SECTION II: ANALYSIS OF PROGRAM ACTIVITIES BY STRATEGIC OUTCOME

Strategic Outcome 1

A safe and sound Canadian financial system.

1.1 Program Activity: Regulation and Supervision of Federally Regulated Financial Institutions

This program involves regulating and supervising FRFIs to determine whether they are in sound financial condition and are complying with their governing law and supervisory requirements; monitoring the financial and economic environment to identify issues that may impact these institutions negatively; and intervening in a timely manner to protect depositors and policyholders from undue loss, while recognizing that management and boards of directors are ultimately responsible, and that financial institutions can fail. 

Costs for this program are recovered through base assessments and user fees and charges paid by the FRFIs covered under the Bank Act, Trust and Loan Companies Act, Insurance Companies Act and Cooperative Credit Associations Act.  OSFI also receives revenues for cost-recovered services to provinces, for which it provides supervision of their institutions on a fee for service basis.

This program has three sub-activities:

  1. Risk Assessment and Intervention: This program involves the administration and application of an effective supervisory process to assess the safety and soundness of regulated financial institutions by evaluating an institution’s risk profile, financial condition, risk management processes, and compliance with applicable laws and regulations. This program includes activities to monitor and supervise financial institutions; monitor the financial and economic environment to identify emerging issues; and intervene by exercising supervisory powers to take, or require management or boards to take, necessary corrective measures in a timely manner to protect depositors and policy holders, while recognizing that all failures cannot be prevented.   
  2. Regulation and Guidance: This program involves advancing and administering a regulatory framework of rules and guidance that promotes the adoption by regulated financial institutions of sound risk management practices, policies and procedures designed to plan, direct and control the impact on the institution of risks arising from its operations. This program encompasses the issuance of regulations and guidance, input into federal legislation and regulations affecting financial institutions; contributions to accounting, auditing and actuarial standards; and involvement in a number of international regulatory activities.
  3. Approvals and Precedents: Federally regulated financial institutions are required to seek regulatory approval for certain types of transactions.  This program: evaluates and processes applications for regulatory consent; establishes positions on the interpretation and application of the federal financial institutions legislation, regulations and guidance; identifies precedential transactions that may raise policy or precedent-setting issues and develops recommendations that recognize the need to allow institutions to compete effectively while undertaking reasonable risks that do not unduly impact OSFI’s primary stakeholders, the policyholders and depositors of FRFIs.

 

2010-2011 Financial Resources ($ millions)
Sub-Activity Planned Spending Total Authorities Actual Spending
Risk Assessment and Intervention $37.6 $37.6 $38.5
Regulation and Guidance $11.9 $11.9 $12.0
Approvals and Precedents $5.1 $5.1 $5.0
Total $54.6 $54.6 $55.5

 

2010-2011 Human Resources (FTEs)
Sub-Activity Planned Actual Difference
Risk Assessment and Intervention 237 243 6
Regulation and Guidance 62 66 4
Approvals and Precedents 29 26 (3)
Total 328 335 7

The related expected results, performance indicators, targets, and performance status for the three interrelated activities in this program activity are identified in the summary on the next page.

Program Activity 1.1: Regulation and Supervision of Federally Regulated Financial Institutions

Expected
Results
Performance
Indicators
Targets Performance
Status
Protect depositors and policyholders while recognizing that all failures cannot be prevented. Percentage of estimated recoveries on failed institutions9 (amount recovered per dollar of claim) Source: Canada Deposit Insurance Corporation, Agents, Liquidators 90%

Exceeded

Total weighted average recoveries were 97% at 2010-2011 year end.
Sub-Activity 1.1.1: Risk Assessment and Intervention
Accurate risk assessments. Percentage of knowledgeable observers who agree that their institution's Composite Risk Rating is appropriate. Source: Report on Financial Institutions Survey 2010 70%

Exceeded

91% of FRFI senior executives believe that their company / institution’s Composite Risk Rating is appropriate.

 

Timely and effective intervention and feedback. Time to issue Supervisory Letter (within prescribed target days) Source: Internal 80%  (of letters are issued within 45 days)

Mostly Met

77% of supervisory letters were issued within the 45-day standard in 2010-2011, a slight improvement over the previous year at 76%.

 

Sub-Activity 1.1.2: Regulation and Guidance
Regulations, guidelines and other rules that balance prudential considerations and the need for institutions to compete. Percentage of knowledgeable observers who rate OSFI as good or very good at developing regulations, guidelines and other rules that strike an appropriate balance between prudential considerations and the need for institutions to compete. Source: Report on Financial Institutions Survey 2010 50%

Exceeded

67% of FRFI senior executives rate OSFI as good or very good at developing regulations and guidance that strike an appropriate balance between prudential considerations and the need for institutions to compete.

 

Regulations, guidelines and other rules which are clear and scrutinized by industry.

Percentage of knowledgeable observers who rate OSFI's guidance as somewhat or very effective in providing an indication of OSFI's expectation.

AND/OR

Percentage of knowledgeable observers who rate OSFI as good or very good at consulting with industry on the development of regulations, guidelines and other rules. Source for both: Report on Financial Institutions Survey 2010

75%

 

 

60%

Exceeded

89% of FRFI senior executives rate OSFI as somewhat effective or better on how effective its guidance is in providing an indication of OSFI’s expectations.

 

Exceeded

77% of FRFI senior executives rate OSFI as good or very good at consulting with the financial services industry when developing regulations and guidelines.

 

 

Sub-Activity 1.1.3: Approvals and Precedents
Prudentially sound decisions which are transparent. Percentage of knowledgeable observers who understand somewhat or very well the basis upon which OSFI makes its decisions as part of the approval process. Source: Report on Financial Institutions Survey 2010 85%

Met All

85% of FRFI senior executives understand somewhat or very well the basis upon which OSFI makes decisions.

 

 

Regulatory approvals which are timely.

Percentage of completed applications for regulatory approvals that are processed within established performance standards. Source: Internal

 

90%

Exceeded

98% of approvals subject to the deeming provision were processed prior to the date on which they would have been deemed approved. All other performance standards established under the User Fee Act and the Policy on Service Standards for External Fees were met or exceeded in the year under review.

 

 

 

9 This measure is a proxy for whether OSFI intervened early enough to prevent undue loss to depositors and/or policyholders. Estimated recovery is the amount on the dollar per claim each policyholder or depositor would receive upon the completion of the liquidation. Expectation > $0.90.

Performance Summary and Analysis of Program Activity
Risk Assessment and Intervention

Throughout 2010-2011, OSFI continued to exercise a heightened level of monitoring and scrutiny of financial institutions and markets, while taking into account the ongoing economic recovery, especially in Canada. We updated our Supervisory Framework, strengthened the design and application of supervisory processes, and targeted cross-sector reviews in areas identified as high risk, including corporate governance and stress testing.

OSFI continued to collaborate with international and domestic partners to develop and implement improved risk management and supervisory practices as follows:

  • enhanced collaboration with the Bank of Canada and the Department of Finance on analysis of macroeconomic and systemic risk issues.
  • worked with various domestic partners on the Financial Institutions Supervisory Committee (FISC - the Bank of Canada, the Department of Finance, the Canada Deposit Insurance Corporation, and the Financial Consumer Agency of Canada) to review lessons learned, and to discuss and coordinate issues related to the oversight of the financial sector.
  • continued its active participation in international forums: Basel Committee on Banking Supervision (BCBS), the Financial Stability Board (FSB), the International Association of Insurance Supervisors (IAIS) and the Senior Supervisors Group.

OSFI also:

  • updated its risk-based Supervisory Framework (introduced in 1999) to reflect changes in risks and risk management practices of financial institutions, developments in international regulation and supervision, as well as “lessons learned” through day-to-day experience applying the framework.
  • continued to be concerned about systemic risk in the global economy, as the risks prevalent in the global credit markets since 2007 have not subsided; rather, they have been transferred from the private to the public sector, as further evidenced by concerns over exposure to sovereign indebtedness.
  • employed an Internal Capital Adequacy Assessment Program (ICAAP), stress testing and other related risk measurement processes to further enhance capital adequacy monitoring.
  • continued to monitor and provide guidance to the Life Insurance industry on risk mitigation strategies, specifically, OSFI asked a selected number of life insurers and life reinsurers, representing over 98% of the Canadian life insurance industry, to complete stress tests based on standardized scenarios. OSFI reviewed the results of the exercise, shared the aggregate results with industry, and is using them to determine if there are any significant changes in the risk profile of each life insurer.
  • took steps to improve the breadth and depth of analysis supporting the Emerging Risk Committee (ERC). OSFI’s ERC strengthens early identification and tracking of developments or events that might have a serious impact on, or indicate a future hazard for, FRFIs.
  • held annual risk management sessions with various industry segments (DTIs, life insurance, and P&C insurance companies) to reinforce the need for strong risk management and to share lessons learned.
  • hosted a Colleges of Supervisors for two of Canada’s largest banks, in line with Financial Stability Board recommendations, which brought together executives from each bank with supervisors from several jurisdictions where they do business. OSFI also hosted the first such college for a large life insurance company.
  • worked closely with the banking industry to evaluate their preparedness for the 2011 International Financial Reporting Standards (IFRS) transition and the potential impacts.
Regulation and Guidance

During 2010-2011, OSFI continued to promote sound risk management practices through its regulation and guidance activities. Evidence of the results of robust risk management can be found in the World Economic Forum’s ranking of Canada’s banking system10 as the soundest for the third year in a row.

OSFI played a key role in encouraging the development of international rules that balance safety and soundness with the need for financial institutions to be able to compete effectively and on a level playing field. Specifically, OSFI:

  • strengthened relationships with foreign supervisors by participating in international rule-making discussions, participating in and hosting several international supervisory colleges, and developing information-sharing agreements with a number of host-country supervisory authorities that regulate significant foreign operations of Canadian banks and insurers.
  • participated in the development of International Accounting Standards Board (IASB) and Basel Committee comment letters to, and discussions with, the IASB and International Auditing and Assurance Standards Board (IAASB) on key accounting and auditing standard setting initiatives.
  • contributed to the development of IAIS standards and guidance papers.
  • continued its involvement with a number of other international groups, including the Integrated Financial Supervisors, Association of Supervisors of Banks of the Americas, and International Actuarial Association.
  • worked actively with Basel Committee on Banking Supervision (BCBS) members to develop and issue new rules for sound risk management and capital regulation, including proposing a loan provisioning model.
  • continued its active membership in the Joint Forum, including participation in the work stream to revise the 1999 Joint Forum principles for the supervision of financial conglomerates.
  • monitored the Financial Stability Board (FSB) disclosure requirements of Canadian banks, and found they continue to comply in all material respects with disclosure requirements as they become effective.

10 See “World Economic Forum Ranks Canadian Banks Soundest in the World for the Third Consecutive Year” at the following link: http://www.fin.gc.ca/n10/10-078-eng.asp

With respect to capital adequacy, OSFI:

  • released three Advisories, one Guideline and an implementation letter related to the measurement of capital and capital adequacy of banks and trust and loan companies.
  • undertook its annual update of the Minimum Continuing Capital and Surplus Requirements (MCCSR) guideline and an update of the Minimum Capital Test (MCT) guideline during 2010, with the revised version coming into effect for the 2011 fiscal year. Many of the updates were necessary due to the introduction of International Financial Reporting Standards (IFRS), for which a phase-in period of two years was provided.
  • continued discussions with the life insurance industry on how to update the existing approach to measuring life insurance regulatory capital requirements.
  • continued developing a new capital framework for its standardized MCT approach with the objective of improving the fairness, effectiveness and efficiency of the MCT/BAAT (Branch Adequacy of Assets Test).

OSFI also:

  • participated in the Government of Canada’s September 2010 launch of its legislative review through submitting a number of proposals regarding amendments to the statutes and associated regulations. OSFI also worked closely with the Department of Finance in the review and analysis of proposals submitted by various financial industry stakeholders. 
  • collaborated with the Canadian Auditing and Assurance Standards Board (AASB), and participated in a Canadian Institute of Chartered Accountants/Canadian Institute of Actuaries Joint Task Force to review auditing guidelines. OSFI is also a non-voting member of the Auditing and Assurance Standards Oversight Council, which oversees the activities of the AASB.
  • issued updated accounting guidelines to reflect the adoption of IFRS.
  • continued to work towards implementation of policies outlined in the Reforming OSFI’s Regulatory and Supervisory Regime for Reinsurance paper (released in March 2010), which will provide the insurance industry with added flexibility, particularly in the area of limits on unregistered reinsurance.
  • continued to play an active role in the Financial Action Task Force (FATF) review and identification of improvements to its AML/ATF standards.
  • focused its AML/ATF supervisory assessment program principally on smaller financial institutions, while doing regular follow up at some conglomerate institutions. We continued to identify issues related to financial institutions’ ability to identify high risk customers, and apply enhanced scrutiny to them and their activities. Where necessary, OSFI intervened to ensure that institutions improved their controls and addressed weaknesses and deficiencies. OSFI continued to share assessment findings with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) under its joint Memorandum of Understanding. OSFI also intensified its review of AML/ATF programs planned by those applying to establish new FRFIs.
Approvals and Precedents

In keeping with OSFI's and the Government of Canada's commitment to enhance accountability and transparency relating to services provided, OSFI has performance standards establishing time frames for processing applications for regulatory approval and for other services. In 2010-2011, OSFI met or exceeded all of these standards.

OSFI also:

  • continued to make every effort to ensure applicants were not impeded from following viable business strategies, and that requests for regulatory approvals were processed on a consistent and timely basis.
  • processed 209 applications involving 284 approvals (individual applications often contain multiple approval requests), of which 25% were Ministerial approvals. Of the 209 applications, 192 were approved and 17 were withdrawn at the request of the applicant. This represents a 30% decrease in applications over the previous year where 297 applications involving 523 approvals were processed.
Lessons Learned

OSFI conducts rotating consultations with key stakeholders in various industry sectors, which allow OSFI to assess its effectiveness and fulfill its commitment to continuous improvement. During 2010-2011, a confidential consultation with life insurance companies and a survey of senior executives of federally regulated financial institutions were conducted to explore industry perceptions of OSFI’s performance. Findings from these two studies can be found at http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?DetailID=649

Risk Assessment and Intervention

The global banking situation highlighted the key role that liquidity plays in the overall safety and soundness of FRFIs.  As a result, OSFI intensified its assessments of liquidity by considering the level, risk, and management processes for liquidity at FRFIs.  This is described in OSFI’s Supervisory Framework which was updated in February 2011.

FRFIs’ Boards of Directors ultimately determine the risk appetite of an organization.  Hence, Corporate Governance reviews continue to be an important component of our work, to ensure, among other things, that the Board receives appropriate information about the risks taken in the FRFI and approves the policies for the organization at the appropriate level.  

Regulation and Guidance

A key lesson from the financial crisis was that better risk assessment and supervision cannot be one-off exercises but rather have to be ongoing efforts. One challenge for OSFI is to address continuous improvements to prudential regulatory and supervisory approaches while not imposing changes at such a fast pace that the industries cannot properly internalize the changes and adjust their practices and, as a result, adjust to the new requirements with a narrow compliance objective. Through discussion and consultations with industry, OSFI has been conveying the message that financial institutions must take more ownership of the assessment of their risks and develop appropriate risk mitigation strategies.

OSFI continues to find that significant changes to accounting standards require early involvement and close consultation and communication with standard setters, other regulators and both international and domestic industry.  Thus OSFI will continue to proactively work with all stakeholders as key accounting standards are developed.

Approvals and Precedents

As a result of the financial crisis, the international community is moving to a tighter regulatory environment to enhance the safety and resilience of both the domestic and global financial systems. While new prudential requirements are being developed and implemented, OSFI continues to adopt a prudent approach when analysing requests for regulatory approvals by measuring the impact that new capital, accounting or other regulatory requirements might have on the applicant’s business. Nonetheless, in 2010-2011, OSFI continued to make every effort to ensure applicants were not impeded from following viable business strategies, and that requests for regulatory approvals were processed on a consistent and timely basis.

1.2 Program Activity: Regulation and Supervision of Federally Regulated Private Pension Plans

This program involves regulating and supervising federally regulated private pension plans to determine whether they are meeting minimum plan funding requirements and are complying with their governing law and supervisory requirements.  This program provides risk assessments of pension plans covering employees in federally regulated areas of employment; timely and effective intervention and feedback to protect the financial interests of plan members and beneficiaries from undue loss, while recognizing that plan administrators are ultimately responsible, and that plans can fail; a balanced relevant regulatory framework; and a prudentially effective and responsive approvals process.  This program incorporates risk assessment and intervention, regulation and guidance, and approvals and precedents related to federally regulated private pension plans under the Pension Benefits Standards Act, 1985.  The costs for this program are recovered from pension plan fees based on the number of members in each federally regulated pension plan. 

 

2010-2011 Financial Resources ($ millions)
Planned Spending Total Authorities Actual Spending
$5.3 $5.3 $4.5

 

2010-2011 Human Resources (FTEs)
Planned Actual Difference
27 29 2

The under spending of $0.8 million is primarily due to the later than planned start of the development phase of the new RASP project, as explained in the “Summary of Performance” section of this report.

The related expected results, performance indicators, targets, and performance status for this program activity are identified in the summary below.

Program Activity 1.2: Regulation and supervision of federally regulated private pension plans

Expected
Results
Performance
Indicators
Targets Performance
Status
Protect the financial interests of federally regulated private pension plan members and beneficiaries. Percentage of estimated recoveries on pension plans that have terminated under-funded. Source: Internal Data 85%

Exceeded

One pension plan terminated under-funded in 2010-2011.  The recovery rate for this plan was 94%.
Regulations, guidelines and other rules which are clear and balanced.

The description of this indicator was changed effective 2010-2011 to the following: Percentage of knowledgeable observers that rate OSFI's guidance as somewhat or very effective in providing an indication of OSFI's expectation.

AND/OR

Percentage of knowledgeable observers who rate OSFI as being good or very good at developing regulations, guidelines and other rules that strike an appropriate balance between interests of plan sponsors and plan members. Source for both: Pension Plans Survey 200911

75%

 

50%

 

Mostly Met

The previous indicator was last measured in 2008-2009: 60% of plan administrators rate OSFI as being good or better at developing regulations, guidelines and other rules that are clear and easy to understand.

Exceeded

Last measured in 2008-2009: 61% of plan administrators rate OSFI as good or better.

 

Regulatory approvals which are timely and transparent.

The description of this indicator was changed effective 2010-2011 to the following: Percentage of knowledgeable observers that understand somewhat or very well the basis upon which OSFI makes its decisions as part of the approval process. Source: Next Pension Plans Survey in 2011/2012

AND/OR

Percentage of completed applications for regulatory approvals that are processed within established benchmarks. Source: Internal

60%

 

90%

Exceeded

The previous indicator was last measured in 2008-2009: 61% of plan administrators rate OSFI as being good or better at its transparency, that is, the rationale for OSFI’s recommendations and decisions of the Pensions Approvals process.

 

Exceeded

97% of approval applications were processed within benchmarks in 2010-2011.

 

11 OSFI provided TNS Canadian Facts/The Antima Group, an independent research firm, with a list of administrators and professionals of the federally regulated private pension plans it regulates. The research firm invited the administrators and professionals to participate in either an online or a telephone survey-247 pension plan administrators and 30 professionals participated resulting in a response rate of 34.7%. OSFI does not know which administrators or professionals participated. The report is available at http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?DetailID=649.

Performance Summary and Analysis of Program Activity
Risk Assessment, Supervision and Intervention

The main pillars of OSFI’s risk assessment framework for pension plans are: tiered risk indicators, solvency testing, on-site examinations, the watch list, use of intervention powers and ad hoc reviews.  OSFI:

  • continued to encourage plan administrators to remain vigilant about using techniques to manage risks to their pension plans, including stress testing. In March 2011 OSFI published a Draft Stress Testing Guideline for Plans with Defined Benefit Provisions.
  • identified potential problems in defined benefit pension plans through semi-annual estimated solvency ratio exercise,
  • continued to monitor carefully the condition of private pension plans and, to the extent possible, that of their sponsors, and intervened when necessary to protect promised benefits.
  • continued to modernize the tools it uses to monitor and supervise pension plans. In particular, the initiative to upgrade the pension supervisory systems that support OSFI’s risk assessment framework is in development and will be implemented over the next two years.
  • performed a number of on-site examinations. OSFI continued to focus on governance, risk management and disclosure to members — all areas that have generally been identified as requiring more attention from plan administrators.
  • intervened when necessary, including taking measures to enforce minimum funding requirements, ensuring timely remittance of contributions, and restricting portability of benefits in order to stop the impairment of the pension fund.
Regulation and Guidance

OSFI:

  • worked closely with Government of Canada officials to support the implementation of legislative changes to the Pension Benefits Standards Act, 1985 (PBSA) and to develop the necessary amendments to regulations.
  • continued to publish policy advisories, guidance and directives and to review and update previously published documents.
  • continued to promote responsible pension plan governance and actuarial practices by working closely with the Canadian Institute of Actuaries and the Canadian Association of Pension Supervisory Authorities (CAPSA).
Approvals and Precedents

OSFI continued to improve timeliness of pension approvals while ensuring complex transactions are carefully considered. In addition, the number of transactions requiring the Superintendent’s approval has decreased compared to the previous year. OSFI processed 88 applications for approval and received 72 new requests, compared to 153 processed applications and 130 new requests in 2009-2010. As a result, OSFI has cut the number of outstanding requests for approval by 36% in 2010-2011.

OSFI also published an updated approval instruction guide to the pension industry on asset transfers related to defined benefit plans.

Lessons Learned

The lessons learned from the 2008 financial crisis remain relevant for pension plans today.  Economic growth has resumed but uncertainties remain and solvency positions have not returned to pre-crisis levels.

The past year saw a modest improvement in the financial position of private defined benefit pension plans and significant progress in implementing the federal government’s reforms aimed at enhancing the security of pension benefits and helping pension plans cope with market volatility.

While pension plan investments earned generally strong returns in 2010, investment gains were partially offset by the impact of lower long-term interest rates on pension plan liabilities.

Despite the broad economic recovery that took hold in 2010, some pension plans continue to face funding challenges.

OSFI continues to emphasize the importance of effective risk management by pension plan administrators.

1.3 Program Activity: International Assistance

This program incorporates activities related to providing assistance to selected developing and emerging market economies to improve their supervisory systems in line with international banking and insurance supervisory standards, thereby enhancing the stability of the global financial system.  In order to achieve efficiency and economy in program delivery and training of supervisors from many different jurisdictions, this program also collaborates with a number of regional banking and insurance associations and other technical assistance providers such as the Financial Stability Institute.  The costs for this program are recovered via Memoranda of Understanding between OSFI and the Canadian International Development Agency. 

2010-2011 Financial Resources ($ millions)
Planned Spending Total Authorities Actual Spending
$1.6 $1.6 $0.4

 

2010-2011 Human Resources (FTEs)
Planned Actual Difference
5 2 (3)
Performance Summary and Analysis of Program Activity

Effective March 31, 2010, OSFI ceased its International Assistance program activity, which provided technical assistance to supervisory systems in emerging market economies.  The Canadian International Development Agency (CIDA) has continued the program in partnership with the Toronto International Leadership Centre for Financial Sector Supervision. 

OSFI's Program Activity Architecture was modified, effective the 2012-2013 planning and reporting cycle, to reflect the elimination of this program activity, through an annual update process coordinated by the Treasury Board Secretariat.

Lessons Learned

Not applicable - see performance summary above.

Strategic Outcome 2

A financially sound and sustainable Canadian public retirement income system.

2.1 Program Activity: Actuarial Valuation and Advisory Services

The federal government and the provinces, through the CPP, public sector pension arrangements and other social programs have made commitments to Canadians and have taken on emanated responsibility for the financing of these commitments. Some are long-term and it is important that decision-makers, Parliamentarians and the public understand these and the inherent risks. This program plays a vital and independent role in this process. It provides checks and balances on the future costs of the different pension plans under its responsibilities.

This program provides a range of actuarial services, under legislation, to the CPP and some federal government departments.  It conducts statutory actuarial valuations of the CPP, Old Age Security (OAS) and Canada Student Loans Program (CSLP), and pension and benefits plans covering the Federal Public Service, the Canadian Forces, the Royal Canadian Mounted Police (RCMP), federally appointed judges, and Members of Parliament.

The OCA is funded by fees charged for its actuarial valuation and advisory services and by an annual parliamentary appropriation.

2010-11 Financial Resources ($ millions)
Planned Spending Total Authorities Actual Spending
$4.3 $4.3 $4.2

 

2010-11 Human Resources (FTEs)
Planned Actual Difference
31 29 (2)

Program Activity 2.1 is supported by three distinct Sub-Activities: CPP and OAS, Public Pension Plans, and Canada Student Loans.  The related expected results, performance indicators, targets, and performance status are identified in the summary table below.

Program Activity 2.1: Actuarial Valuation and Advisory Services

Expected
Results
Performance
Indicators
Targets Performance
Status
Stewards of Canada’s public retirement income system are provided with independent, accurate, high quality and timely professional actuarial services and advice.

Adequacy of professional experience of the Chief Actuary and staff.

AND/OR

Compliance with Canadian and international professional standards.

Unanimous agreement amongst peers*

 

Unanimous agreement amongst peers*

Met All

 

 

Met All

The external peer review panel’s findings received in March 2011 reports that work on the 25th Actuarial Report on the Canada Pension Plan complies with all relevant professional standards of practice and statutory requirements, and that the Chief Actuary and his staff have adequate professional experience. 

 

Sub-Activity 2.1.1: Canada Pension Plan and Old Age Security
Accurate and high quality actuarial valuations inform CPP and OAS stakeholders and Canadians of the current and projected financial status of the Plan and Program.

Reviews are comprehensive (methods, assumptions, analysis).

AND/OR

Percentage of the recommendations within the scope and influence of the OCA that are implemented before the next peer review.

Unanimous agreement amongst peers*

 

80%

Met All

Met All

The external peer review of the 25th CPP Report received in March 2011 found the reviews are comprehensive.12 The OCA has begun implementing external peer review’s recommendations and plans to complete 80% by the next independent peer review scheduled for 2013-2014.

CPP and OAS Triennial Actuarial Reports Timeliness of tabling in Parliament of Reports on CPP & OAS.  100% by the deadline

CPP: Met All
OAS:
2010-2011 – N/A
2009-2010 – N/A
2008-2009 – Met All

The last CPP triennial review was tabled on 15 November 2010, prior to the deadline of December 31, 2010. The OAS report as at December 31, 2006 was tabled in Parliament on June 17, 2008 prior to the deadline of June 30, 2008.

 

 

Sub-Activity 2.1.2: Public Pension Plans
Accurate and high quality actuarial valuations of Public Pension and Insurance Plans provided to departments to inform design, funding and administration of plans.

Reviews are comprehensive (methods, assumptions, analysis).

AND/OR

Actuarial opinion is appropriate.

Unanimous agreement amongst peers*

Unanimous agreement amongst peers*

Met All

 

Met All

The Office of the Auditor General (OAG) draft report received in September 2010 found that the reviews are comprehensive.

 

 

Public Sector Triennial Actuarial Reports

Timeliness of tabling in Parliament of Reports on Public Pension Plans.

100% by the deadline

Met All

The Actuarial Report on the Pension Plan for Federally Appointed Judges as at 31 March 2010 was tabled in Parliament on time.

 

 

 

Sub-Activity 2.1.3: Canada Student Loans
Accurate and high quality actuarial valuations of the CSLP inform the Department of Human Resources and Skills Development Canada (HRSDC) of the future costs and provision rates of the program. Actuarial valuations of the CSLP are comprehensive (accurate, high quality) and informative of future costs and provision rates of the program. Annual renewal of the MOU with HRSDC

Met All

Since 2009, the OCA is the mandatory service provider for actuarial valuations of the program as per section 19.1 of the Canada Student Financial Assistance Act.

 

 

Actuarial Report on the CSLP

Timeliness of tabling in Parliament of Reports on Canada Student Loans.

 

100% by the deadline set by HRSDC

Exceeded

The Actuarial Report on the CSLP as at 31 July 2009 was tabled by the deadline.

 

 

 

*Independently selected panel of peers.

12 The OCA is required by law to produce an actuarial report on the CPP every three years, and the CPP Peer Review is also conducted triennially.  The most recent review was completed March 2011, and the next CPP actuarial report will be published in 2013, with the independent peer review scheduled for 2013-2014.

Performance Summary and Analysis of Program Activity
Tabling of the 25th Actuarial Report on the Canada Pension Plan

The OCA is required by law to produce an actuarial report on the Canada Pension Plan every three years. The 25th Actuarial Report on the CPP as at December 31, 2009 was tabled before Parliament on November 15, 2010. Prepared by the Chief Actuary, this triennial actuarial report on the CPP involves projections of CPP revenues and expenditures over the 75-year projection period, so that the future impact of historical and projected trends in demographic and economic factors can be properly assessed.

The CPP provides protection to millions of Canadian workers and their families against the loss of income due to retirement, disability and death. In 2010, about five million Canadians received CPP benefits, with a total value of approximately $32 billion. Canadians want to feel confident that the CPP will be able to meet their needs in future years. The actuarial report provides Canadians with the most recent information on the financial status of the Plan.

The report finds that under the 9.9% legislated contribution rate, the assets are projected to grow rapidly over the next 11 years as contribution revenue is expected to exceed expenditures over that period. Assets will continue to grow thereafter until the end of the projection period, but at a slower pace, reaching a level of 5.2 years of annual Plan expenditures by 2050. Despite the projected substantial increase in benefits paid as a result of an aging population, the CPP is expected to be able to meet its obligations throughout the projection period and to remain financially sustainable over the long term, with assets projected to accumulate to $275 billion by the end of 2020. However, the report cautioned that if recent short-term improvements in life expectancies continue, especially for ages 75 to 89, it could put additional pressure on the minimum contribution rate that could cause the rate to increase above 9.9%.

External Peer Review of the 25th CPP Actuarial Report

The OCA commissioned an external peer review of the 25th CPP Actuarial Report. First introduced in 1999, the external peer review of actuarial reports by an independent panel of reviewers is intended to ensure that actuarial reports meet high professional standards and are based on reasonable assumptions in order to provide sound actuarial advice to Canadians.

The independent panel’s findings confirm that the work performed by the OCA on the 25th CPP Actuarial Report meets all professional standards of practice and statutory requirements, and that the assumptions and methods used are reasonable. The panel also stated that the report fairly communicates the results of the work performed by the Chief Actuary and his staff.

The Canadian Institute of Actuaries standard on assumptions requires that the assumptions, individually and in the aggregate, should be appropriate. The panel has concluded that the assumptions adopted for the 25th CPP Actuarial Report are within the reasonable range, both individually and in the aggregate, and are therefore appropriate.   

The external peer review of the 25th CPP Actuarial Report is public, as were previous peer reviews of the CPP Actuarial Reports, and is available on the OSFI Web site under OCA.

Canada Student Loans Program Actuarial Review

The statutory Actuarial Report on the Canada Student Loans Program as at July 31, 2009 was tabled before Parliament on June 14, 2010 in accordance with the Canada Student Financial Assistance Act.

The report presents the results of an actuarial review of the CSLP as at July 31, 2009 and includes projections of future costs of the Program through loan year 2033-2034. An actuarial review of the CSLP is prepared to provide an evaluation of the Program’s overall financial costs and increase the level of information available to Parliament and the public.

Public Sector Insurance and Pension Plans

The Actuarial Report on the Pension Plan for the Federally Appointed Judges as at March 31, 2010 was tabled by the President of the Treasury Board on December 15, 2010. The report shows the financial status of this pension plan.

Lessons Learned

Released in March 2011, the results of the external peer review not only found that most aspects of the 25th Actuarial Report on the CPP were adequate, but also listed various recommendations for improvements for the next triennial review. The recommendations covered, among others, factors such as data, methodology, communication of results, and other actuarial issues. The OCA is developing an action plan to address these recommendations by the next external peer review in order to improve the quality of the reports, thus improving the OCA’s actuarial services and advice. In particular, the peer reviewers welcomed changes to the 25th CPP Report that enhanced CPP stakeholders’ understanding of the uncertainty inherent in the Chief Actuary’s best-estimate of the future contribution rates. The OCA will continue searching for better ways to increase the understanding of the future costs and inherent risks of the programs under the OCA’s scope by decision makers, Parliamentarians, and the public.

Internal Services

OSFI’s Internal Services program activity supports its two strategic outcomes.  Internal Services are groups of related activities and resources that are administered to support the needs of programs and other corporate obligations of an organization.  These groups are: Management and Oversight Services; Communications Services; Legal Services; Human Resources Management Services; Financial Management Services; Information Management Services; Information Technology Services; Real Property Services; Materiel Services; Acquisition Services; and Travel and Other Administrative Services.  Internal Services include only those activities and resources that apply across an organization and not to those provided specifically to a program.

2010-11 Financial Resources ($ millions)
Planned Spending Total Authorities Actual Spending
$43.4 $43.4 $41.3

 

2010-11 Human Resources (FTEs)
Planned Actual Difference
152 162 10

The increase in FTE is largely attributed to filling approved vacancies to support the significant growth in OSFI’s supervisory and regulatory staff complements in the past few years, as explained in the “Summary of Performance” section of this report.

Performance Summary and Analysis of Program Activity

Strengthening Internal Communication

In 2010-2011, OSFI's internal communication strategy focussed on engaging its employees and on promoting transparency. Regular town hall meetings and memos from the Superintendent, members of the Executive Committee and senior management kept employees informed of the latest developments and major initiatives. Throughout the year, OSFI continued to share its position and key messages on current issues with employees. Orientation sessions and in-house presentations by subject-matter experts helped new and existing staff learn about OSFI processes and stay abreast of changes within OSFI and in the external environment.

Enhancing Infrastructure

In response to trends to global information sharing and enhanced financial reporting and risk assessment, the IM/IT division developed a new strategy in 2009-2010 to meet the need for increased flexibility in OSFI’s technology systems.

In 2010-2011, the IM/IT division launched an Information Technology Renewal program to guide the implementation of the strategy. Progress included completion of a series of core infrastructure improvements as well as enhancements to OSFI’s internal financial systems as a result of the 2011 implementation of International Financial Reporting Standards (IFRS). 

Key system upgrades and renewal projects were initiated, including a new pension plan supervisory system, upgrades to OSFI’s Web site and document management software, and planning commenced for a new Tri-Agency Database System (used by OSFI, the Bank of Canada and the Canada Deposit Insurance Corporation to collect, validate, manage and maintain financial returns).

Managing HR Challenges

External factors (e.g., international discussion on the future of regulation of the global financial system and the transition to International Financial Reporting Standards) continued to have a significant impact on OSFI’s business and people in 2010-2011. Significant internal factors include an aging population, the need for continuous learning and development, and the need to have the right processes and people in place to conduct our business in a period of projected government restraint.

To mitigate such risks, OSFI develops an annual Human Resource (HR) plan that outlines the major human resource opportunities and challenges facing the organization, and the strategies we will undertake to address them.