CIA.Subseq Flashcards
Define: calculation date
Effective date of calculation (Ex: for financial statements, the calculation date would normally be the balance sheet date)
Define: report date
Date on which the actuary completes the report on their work
Define: report
Actuary’s oral or written communication to users about their work
Define: subsequent event
An event of which an actuary first becomes aware after the calcuation date but before the corresponding report date
Define: adjusting event + provide an example
- Event (after CalcDt) that provides evidence of conditions existing (at CalcDt): results in adjustment
- Example: reinsurer insolvency after CalcDt that was due to gradual deterioration occuring before CalcDt
Define: non-adjusting event + provide an example
- Event (after CalcDt) indicative of conditions arising (after CalcDt): NO adjustments
- Example: reinsurer insolvency due to catastrophe
Describe the middle branch for the decision tree for reflecting/not reflecting subsequent events (this is essentially for subsequent events)
EWDP:
- Error? (was there an error?), if yes: reflect, if no: next question
- When? (when did the event occur?), if on or before CalcDt: reflect, if after CalcDt: next question
- Different? (did event make entity different? if not, stop), if yes, on or before CalcDt: reflect, if yes after CalcDt: next question
- Purpose? (what is the purpose of the work?), if report on entity as it will be: reflect, if report on entity as it was: inform only
(6.1 Catastrophic Event): FACTS: describe the timeline of events for 1998 ICE STORM
EVENT: Jan 5, 1998 ice storm in Eastern Canada
ACTUARY BECAME AWARE: Jan 5 1998 (same day as event)
SUBSEQUENT EVENT? Yes, actuary became aware after CalcDt (Yr End) & before report date (weeks after Jan 5 1998)
(6.1 Catastrophic Event): BRANCH: which branch of the subsequent decision tree should the ICE STORM example follow?
Middle
(6.1 Catastrophic Event): ACTION: according to the subsequent event tree, what action should the actuary take regarding the ICE STORM example
EWDP-inform:
- Error? No -> go to next question
- When? event occurred AFTER CalcDt -> go to next question
- Is Entity Different? Yes, AFTER CalcDt -> go to next question
- Purpose? Report on entity as it WAS
Final action: inform only
(6.1 Catastrophic Event): Relevant comments: provide any further relevant detail(s) related to the ICE STORM subsequent event example
- The ice storm doesn’t make the entity different retroactively
- The purpose of the actuary’s work was to report on the entity as it was
- But note that premium liabilities would have been understated
What is the prime consideration when applying the subsequent event decision tree?
PRIME CONSIDERATION: is the event material?
- If not material then usually no action is required
- But sometimes it’s still beneficial to disclose the event
(6.2 Judicial Decision): FACTS: describe the timeline of events for the ALBERTA MINOR INJURY CAP?
EVENT: Feb 8, 2008 ($4000 Alberta Minor Injury cap struck down)
ACTUARY BECAME AWARE: Same day
SUBSEQUENT EVENT? Depend on each insurer’s report date
(6.2 Judicial Decision): BRANCH: which branch of the subsequent event decision tree should the ALBERTA MINOR INJURY CAP follow
BRANCH: middle (if insurer’s RptDt was AFTER Feb 8, so it WAS subsequent event)
BRANCH: right (if insurer’s RptDt was BEFORE Feb 8, so it WASN’T a subsequent event)
(6.2 Judicial Decision): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding ALBERTA MINOR INJURY CAP
For insurers where it WAS a subsequent event (middle branch): EWD - reflect
For insurers where it WASN’T a subsequent event (right branch):
- If material, then reflect, so withdraw/amend report
- If not material, inform (“no action” may not be enough for industry-wide events)
(6.2 Judicial Decision): Relevant Comments: provide any further detail(s) related to the ALBERTA MINOR INJURY CAP
This example was complicated by the fact that some insurers would have completed their report by Feb 8, while other wouldn’t have
(6.3 Reinsurer Failure): FACTS: describe the timeline of events for the REINSURER FAILURE example
EVENT: Jan 15 (reinsurer failure)
ACTUARY BECAME AWARE: Jan 15 (same day)
SUBSEQUENT EVENT? Yes, actuary became aware after CalcDt (Yr End) & before report date (several weeks after Jan 15)
(6.3 Reinsurer Failure): BRANCH: which branch of the subsequent event decision tree should the REINSURER FAILURE example follow
Middle
(6.3 Reinsurer Failure): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding the REINSURER FAILURE example?
EWD - reflect
- Error? No, go to next question
- When? Event occured after CalcDt, go to next question?
- Is Entity Different? Yes, BEFORE CalcDt (failure provided evidence of prior deteriorating conditions)
Final Action: reflect
(6.3 Reinsurer Failure): Relevant Comments: provide any further relevant detail(s) related to the REINSURER FAILURE example
Action depends on cause of failure: here reinsurer failure had been building prior to CalcDt
- Failure AFTER CalcDt simply provided further evidence of conditions existing prior to CalcDt
If failure was due to catastrophe, path through decision tree would be: EWDP
- In other words, final action would be to inform only
(6.4 Change in Markets): FACTS: describe the timeline of events for the STOCK MARKET DROP example
EVENT: 1st week of Jan (big drop in stock market)
ACTUARY BECAME AWARE: 1st week of Jan
SUBSEQUENT EVENT? yes, actuary became aware after CalcDt (Yr End) & before report date (several weeks after 1st week of Jan)
(6.4 Change in Markets): BRANCH: which branch of the subsequent event decision tree should the STOCK MARKET DROP example follow
Middle
(6.4 Change in Markets): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding the STOCK MARKET DROP example?
EWDP - inform
- Error? No, go to next question
- When? event occurred AFTER CalcDt, go to next question
- Is Entity Different? Yes, AFTER CalcDt, go to next question
- Purpose of report? Report on entity as it WAS
Final action: inform only
(6.4 Change in Markets): Relevant Comments: provide any further relevant detail(s) related to the STOCK MARKET DROP example
- Main issue is whether the market drop provided evidence of conditions in existence PRIOR to CalcDt or not
- It was decided that it did NOT (different from “reinsurer failure” example)
(6.5 Missing Claims): FACTS: describe the timeline of events for the MISSING CLAIMS example
EVENT: before Jun 30 (claims database was missing claims)
ACTUARY BECAME AWARE: Aug 5
SUBSEQUENT EVENT? Yes, actuary became aware after CalcDt (Jun 30) & before RptDt (after Aug 5)
(6.5 Missing Claims): BRANCH: which branch of the subsequent event decision tree should the MISSING CLAIMS example follow?
Middle
(6.5 Missing Claims): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding the MISSING CLAIMS example?
E-reflect
- Error? Yes
Final action: reflect (i.e. correct the error)
(6.5 Missing Claims): Relevant comments: provide any further relevant detail(s) related to the MISSING CLAIMS example
If actuary had become aware AFTER the report date, this wouldn’t be a subsequent event. We would then be on the RIGHT BRANCH of the decision tree and ask these questions instead:
- Would the event be reflected IF it had been a subsequent event? Yes, go to next question
- Does the event invalidate the report? Yes
Final action: withdraw or amend report
(6.6 Late Reported Claims): FACTS: describe the timeline of events for the LATE-REPORTED CLAIMS example
EVENT: Nov 20 (case reserve increase by ceding insurer)
ACTUARY BECAME AWARE: Jan 12
SUBSEQUENT EVENT? yes, actuary became aware after CalcDt (12/31) & before RptDt (several weeks after Jan 12, 1998)
(6.6 Late Reported Claims): BRANCH: which branch of the subsequent event decision tree should the LATE-REPORTED CLAIMS example follow?
Middle
(6.6 Late Reported Claims): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding the LATE-REPORTED CLAIMS example
EW-reflect:
- Error? No, go to next question
- When? Event occured before CalcDt
Final action: reflect
(6.6 Late Reported Claims): Relevant Comments: provide any further relevant detail(s) related to the LATE-REPORTED CLAIMS example
- This situation often arises for reinsurers
- It is NOT the same as a data error or missing claims
(6.7 Change in Incurred Value of Large Loss): FACTS: describe the timeline of events for the LARGE LOSS example
EVENT: mid-Jan (change in incurred for large loss)
ACTUARY BECAME AWARE: Feb 5th
SUBSEQUENT EVENT? Yes, actuary became aware after CalcDt (Yr End) & before RptDt (after Feb 5th)
(6.7 Change in Incurred Value of Large Loss): BRANCH: which branch of the subsequent event decision tree should the LARGE LOSS example follow?
Middle
(6.7 Change in Incurred Value of Large Loss): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding the LARGE LOSS example
EWDP - inform only
- Error? No, go to next question
- When? After the calculation date of Dec 31, go to next question
- Is the Entity Different? Entity is different after calculation date, go to next question
- Purpose of the report? Report on entity as it was
Final Decision: Inform only
(6.7 Change in Incurred Value of Large Loss): Relevant Comments: provide any further relevant detail(s) related to the LARGE LOSS example
Same conclusion would apply whether the change in incurred value of a large loss has a positive or a negative impact on the contract liabilities
(6.8 Change in Industry Benchmarks): FACTS: describe the timeline of events for the INDUSTRY BENCHMARKS example
EVENT: Jul 15 (new industry LDF benchmarks released)
ACTUARY BECAME AWARE: Jul 15
SUBSEQUENT EVENT? Yes, actuary became aware after quarterly CalcDt (6/30) & before report date (several weeks after Jul 15)
(6.8 Change in Industry Benchmarks): BRANCH: which branch of the subsequent event decision tree should the INDUSTRY BENCHMARKS example follow?
Middle
(6.8 Change in Industry Benchmarks): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding the INDUSTRY BENCHMARKS example
EWD - stop
- Error? No, go to next question
- When? Event occurred after CalcDt, go to next question
- Is Entity Different? Event did NOT make entity different - LDFs don’t change much from qtr-to-qtr
Final action: nothing
(6.8 Change in Industry Benchmarks): Relevant Comments: provide any further relevant detail(s) related to the INDUSTRY BENCHMARKS example
This situation could arise for a new company without its own credible data (must rely on industry benchmarks)
Identify circumstances under which a subsequent event must be accounted for (4)
- Event retroactively makes the entity different at calculation date
- Event provides information related to the entity as it was at calculation date
- Event happened before calculation date
- Event makes entity different after calculation date and purpose of work is to report entity as it was after event
Describe the right branch decision tree (this is for events known after calculation & report date)
- Reflected? (would event be reflected if it were a subsequent event?), if no do nothing, if yes go to next question
- Invalidates? (does the event invalidate the report?), if no consider informing users but don’t reflect event in work, if yes withdraw/amend report
