CIA.Subseq

Question 1

Define: calculation date

Answer 1

Effective date of calculation (Ex: for financial statements, the calculation date would normally be the balance sheet date)

Question 2

Define: report date

Answer 2

Date on which the actuary completes the report on their work

Question 3

Define: report

Answer 3

Actuary’s oral or written communication to users about their work

Question 4

Define: subsequent event

Answer 4

An event of which an actuary first becomes aware after the calcuation date but before the corresponding report date

Question 5

Define: adjusting event + provide an example

Answer 5

• 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

Question 6

Define: non-adjusting event + provide an example

Answer 6

• Event (after CalcDt) indicative of conditions arising (after CalcDt): NO adjustments
• Example: reinsurer insolvency due to catastrophe

Question 7

Describe the middle branch for the decision tree for reflecting/not reflecting subsequent events (this is essentially for subsequent events)

Answer 7

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

Question 8

(6.1 Catastrophic Event): FACTS: describe the timeline of events for 1998 ICE STORM

Answer 8

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)

Question 9

(6.1 Catastrophic Event): BRANCH: which branch of the subsequent decision tree should the ICE STORM example follow?

Answer 9

Middle

Question 10

(6.1 Catastrophic Event): ACTION: according to the subsequent event tree, what action should the actuary take regarding the ICE STORM example

Answer 10

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

Question 11

(6.1 Catastrophic Event): Relevant comments: provide any further relevant detail(s) related to the ICE STORM subsequent event example

Answer 11

• 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

Question 12

What is the prime consideration when applying the subsequent event decision tree?

Answer 12

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

Question 13

(6.2 Judicial Decision): FACTS: describe the timeline of events for the ALBERTA MINOR INJURY CAP?

Answer 13

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

Question 14

(6.2 Judicial Decision): BRANCH: which branch of the subsequent event decision tree should the ALBERTA MINOR INJURY CAP follow

Answer 14

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)

Question 15

(6.2 Judicial Decision): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding ALBERTA MINOR INJURY CAP

Answer 15

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)

Question 16

(6.2 Judicial Decision): Relevant Comments: provide any further detail(s) related to the ALBERTA MINOR INJURY CAP

Answer 16

This example was complicated by the fact that some insurers would have completed their report by Feb 8, while other wouldn’t have

Question 17

(6.3 Reinsurer Failure): FACTS: describe the timeline of events for the REINSURER FAILURE example

Answer 17

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)

Question 18

(6.3 Reinsurer Failure): BRANCH: which branch of the subsequent event decision tree should the REINSURER FAILURE example follow

Answer 18

Middle

Question 19

(6.3 Reinsurer Failure): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding the REINSURER FAILURE example?

Answer 19

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

Question 20

(6.3 Reinsurer Failure): Relevant Comments: provide any further relevant detail(s) related to the REINSURER FAILURE example

Answer 20

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

Question 21

(6.4 Change in Markets): FACTS: describe the timeline of events for the STOCK MARKET DROP example

Answer 21

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)

Question 22

(6.4 Change in Markets): BRANCH: which branch of the subsequent event decision tree should the STOCK MARKET DROP example follow

Answer 22

Middle

Question 23

(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?

Answer 23

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

Question 24

(6.4 Change in Markets): Relevant Comments: provide any further relevant detail(s) related to the STOCK MARKET DROP example

Answer 24

• 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)

Question 25

(6.5 Missing Claims): FACTS: describe the timeline of events for the MISSING CLAIMS example

Answer 25

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)

Question 26

(6.5 Missing Claims): BRANCH: which branch of the subsequent event decision tree should the MISSING CLAIMS example follow?

Answer 26

Middle

Question 27

(6.5 Missing Claims): ACTION: according to the subsequent event decision tree, what action should the actuary take regarding the MISSING CLAIMS example?

Answer 27

E-reflect - Error? Yes Final action: reflect (i.e. correct the error)

Question 28

(6.5 Missing Claims): Relevant comments: provide any further relevant detail(s) related to the MISSING CLAIMS example

Answer 28

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

Question 29

(6.6 Late Reported Claims): FACTS: describe the timeline of events for the LATE-REPORTED CLAIMS example

Answer 29

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)

Question 30

(6.6 Late Reported Claims): BRANCH: which branch of the subsequent event decision tree should the LATE-REPORTED CLAIMS example follow?

Answer 30

Middle

Question 31

(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

Answer 31

EW-reflect: - Error? No, go to next question - When? Event occured before CalcDt Final action: reflect

Question 32

(6.6 Late Reported Claims): Relevant Comments: provide any further relevant detail(s) related to the LATE-REPORTED CLAIMS example

Answer 32

- This situation often arises for reinsurers - It is NOT the same as a data error or missing claims

Question 33

(6.7 Change in Incurred Value of Large Loss): FACTS: describe the timeline of events for the LARGE LOSS example

Answer 33

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)

Question 34

(6.7 Change in Incurred Value of Large Loss): BRANCH: which branch of the subsequent event decision tree should the LARGE LOSS example follow?

Answer 34

Middle

Question 35

(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

Answer 35

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

Question 36

(6.7 Change in Incurred Value of Large Loss): Relevant Comments: provide any further relevant detail(s) related to the LARGE LOSS example

Answer 36

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

Question 37

(6.8 Change in Industry Benchmarks): FACTS: describe the timeline of events for the INDUSTRY BENCHMARKS example

Answer 37

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)

Question 38

(6.8 Change in Industry Benchmarks): BRANCH: which branch of the subsequent event decision tree should the INDUSTRY BENCHMARKS example follow?

Answer 38

Middle

Question 39

(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

Answer 39

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

Question 40

(6.8 Change in Industry Benchmarks): Relevant Comments: provide any further relevant detail(s) related to the INDUSTRY BENCHMARKS example

Answer 40

This situation could arise for a new company without its own credible data (must rely on industry benchmarks)

Question 41

Identify circumstances under which a subsequent event must be accounted for (4)

Answer 41

- 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

Question 42

Describe the right branch decision tree (this is for events known after calculation & report date)

Answer 42

- 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