CIA - Subsequent Events Flashcards
Definition of materiality.
An omission, or under/overstatement is material if the actuary expects it to materially affect the user’s decision-making or reasonable expectations. (something that would most likely change the user’s decision)
Define calculation date.
The effective date of the calculation (eg: for financial statements, the calculation date would normally be the balance sheet date).
Define report date.
The date on which the actuary completes the report on his/her work.
Define report.
The actuary’s oral or written communication to users about his/her work.
Define subsequent event.
It is an event (of which an actuary first becomes aware) AFTER the calculation date but BEFORE the corresponding report date.
Define adjusting event, and give an example.
- an event after the calculation date that provides evidence of conditions existing at the calculation date: this results in an adjustment
Eg: reinsurer insolvency after the calculation date that was due to gradual deterioration occurring before the calculation date.
Define non-adjusting event, and give an example.
- an event after the calculation date indicative of conditions arising after the calculation date: this results in NO adjustment
Eg: reinsurer insolvency due to catastrophe
What is the prime consideration when applying the subsequent event decision tree?
IS THE EVENT MATERIAL? (if not, no action is required)
Facts for ICE STORM: Occurrence: Jan 5, 1998 Calculation date: Dec 31, 1997 Actuary became aware: Jan 5, 1998 Report Date: assume later in Jan
1) Is this a subsequent event?
2) What branch does it fall into on the decision tree?
3) What is the resulting action? (provide answers regarding path)
1) YES, the actuary became aware after the calculation date of Dec 31, 1997 and before the report date, which was to be several weeks after the date of the event.
2) Middle Branch
3) EWDP - Inform:
- Error? No, next;
- (When) Occur after calc date? Yes, next;
- Entity Different than what it was? Yes, AFTER Calc Date, next;
- Purpose of the report? Report on the entity as it WAS.
- FINAL ACTION: Inform only
Additional Comments:
- premium liabs would have been understated
Facts for LATE REPORTED CLAIMS: Occurrence: Nov 20 Calculation date: Dec 31 Actuary became aware: Jan 12 Report Date: assume later in Jan
1) Is this a subsequent event?
2) What branch does it fall into on the decision tree?
3) What is the resulting action? (provide answers regarding path)
1) YES, the actuary became aware after the calculation date of Dec 31 and before the report date which was several weeks after Jan 12
2) Middle Branch
3) EW - Reflect:
- Error? No, next;
- (When) Occur after calc date? No, Reflect;
- FINAL ACTION: Reflect
Additional Comments:
- common situation for reinsurers, note that this is not the same as data error or missing claims
Facts for ALBERTA MINOR INJURY cap: Occurrence: Feb 8, 2008 Calculation date: Dec 31, 2007 Actuary became aware: Feb 8, 2008 Report Date: assume BEFORE Feb 8
1) Is this a subsequent event?
2) What branch does it fall into on the decision tree?
3) What is the resulting action? (provide answers regarding path)
1) NO, the actuary became aware after the calculation date of Dec 31 but also after the corresponding report date
2) Right Branch
3) Consider Materiality:
- if YES, then Withdraw and Amend
- if NO, then No Action
Facts for ALBERTA MINOR INJURY cap: Occurrence: Feb 8, 2008 Calculation date: Dec 31, 2007 Actuary became aware: Feb 8, 2008 Report Date: assume AFTER Feb 8
1) Is this a subsequent event?
2) What branch does it fall into on the decision tree?
3) What is the resulting action? (provide answers regarding path)
1) YES, the actuary became aware after the calculation date of Dec 31 and before the report date which was several weeks after Feb 8
2) Middle Branch
3) EWD - Reflect:
- Error? No, next;
- (When) Occur after calc date? Yes, next;
- Entity Different than what it was? Yes, ON or BEFORE Calc Date, Reflect;
- FINAL ACTION: Reflect
Facts for REINSURER FAILURE (evidence of prior deterioration): Occurrence: Jan 15 Calculation date: Dec 31 Actuary became aware: Jan 15 Report Date: assume later in Jan
1) Is this a subsequent event?
2) What branch does it fall into on the decision tree?
3) What is the resulting action? (provide answers regarding path)
1) YES, actuary became aware after the calculation date of Dec 31 and before the report date which would be a few weeks after Jan 15
2) Middle Branch
3) EWD - Reflect:
- Error? No, next;
- (When) Occur after calc date? Yes, next;
- Entity Different than what it was? Yes, ON or BEFORE Calc Date (there was evidence of prior deterioration), Reflect;
- FINAL ACTION: Reflect
Additional Comments:
- action depends on cause of failure: had failure been due to a catastrophe, then the resulting action would have been EDWP - Inform
Facts for STOCK MARKET DROP (sudden drop after New Year): Occurrence: 1st week of Jan Calculation date: Dec 31 Actuary became aware: 1st week of Jan Report Date: assume later in Jan
1) Is this a subsequent event?
2) What branch does it fall into on the decision tree?
3) What is the resulting action? (provide answers regarding path)
1) YES, the actuary became aware after the calculation date of Dec 31, and before the report date which would have been several weeks later
2) Middle Branch
3) EWDP - Inform:
- Error? No, next;
- (When) Occur after calc date? Yes, next;
- Entity Different than what it was? Yes, AFTER Calc Date, next;
- Purpose of the report? Report on the entity as it WAS.
- FINAL ACTION: Inform
Additional Comments:
- in this case, it was decided that the event did not exist prior to the calculation date, but had there been evidence of such, then action would be EWD - Reflect
Facts for MISSING CLAIMS: Occurrence: Before June 30 Calculation date: June 30 Actuary became aware: Aug 5 Report Date: assume later in Aug
1) Is this a subsequent event?
2) What branch does it fall into on the decision tree?
3) What is the resulting action? (provide answers regarding path)
1) YES, as the actuary became aware after the calculation date of June 30 and before the report date which was after Aug 5
2) Middle Branch
3) E - Reflect:
- Error? Yes, Reflect.
- FINAL ACTION: Reflect
Additional Comments:
- this would be in the right branch had the actuary became aware after the report was complete (not a subsequent event). The action instead would then be to Withdraw and Amend (would be reflected if Sub Event, and error does Invalidate the report)