CIA.MAT Flashcards
Definition of Materiality
An omission/ under-statement /over-statement is material，
if the actuary expects it to materially affect the user’s decision-making or reasonable expectations
Main Consideration when determining the materiality level
Use of work & intended users
Indentify characteristics of an insurance company that may affect materiality
Hint: F-Stars
- Financial strength
- Size of the company
- Type of business
- Access to capital
- net Retention
- Stage of organization’s life cycle
Metric to test materiality
For regulator’s regualtion & solvency monitoring
- statutory surplus
- solvency benchmark ratio
For inverstor’s appraisal
- net worth
- net income
- EPS
For competitors/rating agencies/management:
- statutory surplus
- net income
Difference between the materiality level for DCAT & Valuation
- DCAT is less rigorous (ie. marteriality standard is higher) than valuation work
- materiality for valuation is to see the material impact on net income, earning
- materiality for DCAT is for surplus used in the scenario testing, but no need to be as rigourous
Consideration for extent of disclosure of materiality
- sophistication of user
- important of concept to user
- complexity of concept
possible actions of report-writer based on materiality
Include item? - whether should the item be considered
refine item? - whether item sufficiently accurate
disclose item? whether item should be reported
