CIA.Subseq Flashcards
define calculation date
effective date of calculation
e.g: 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 his or her work
define report
actuary’s oral or written communication to user about his or her work
define subsequent event
an event of which an actuary first becomes aware after the calculation date but before the corresponding report date
define adjusting event and example
an event after calculation date that provides evidence of conditions existing at calculation date, adjustments in calculations and reports are required
ex: reinsurer insolvency after calculation date that was due to gradual deterioration occurring before calculation date
define non-adjusting event and example
an event after calculation date indicative of conditions arising after calculation date, no adjustments required
ex: reinsurer insolvency due to CAT
describe the timeline of events for 1988 ice storm
- event: 1/5/1998 ice storm in eastern Canada
- actuary became aware 1/5/1998 on the same day
- subsequent event: yes, actuary came aware after calc date (12/31/1997) and before report date (report date is after 1/5/1998)
according to subsequent event decision tree, what action should the actuary take regarding the 1988 ice storm example?
EWDP ->inform
- error? no
- when? after calc date
- different? yes, after calc date. makes entity different after BS date
- purpose? report as it was
->inform only
provide any further relevant details related to the ice storm subsequent event example
- the ice storm doesn’t make 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?
is the event material?
- if not material, then usually no action is required
- but sometimes it’s still beneficial to disclose the event
describe the timeline of events for the late reported claims example
- 11/20 case reserve increase by ceding insurer
- reinsurer actuary becomes aware on 1/12
- subsequent event? yes, actuary becomes aware after calc and before report date
according to the subsequent event decision tree, what action should the actuary take regarding the late reported claims example?
- error? no
- when? before calculation date -> reflect
reinsurance actuary relies on data received by 12/29 from its ceding companies. increase in reserve was before 12/29, its just reinsurer received it after 12/29
provide any further relevant details related to the late reported claims example
- this situation often arises for reinsurer
- it is not the same as a data error or missing claims
describe the timeline of events for Alberta Minor Injury Cap
- 2/8/2008, $4000 AB minor injury cap struck down
- actuary became aware: 2/8/2008 same day as event
- sub? depend on insurer’s report date
what branch of the subsequent event decision tree should AB minor injury cap follow?
- middle if insurer’s report date was after 2/8, subsequent
- right if insurer’s report date was before 2/8, not subsequent
according to the subsequent event decision tree, what action should the actuary take regarding AB minor injury cap?
- M: subsequent: EWD ->reflect
- R: not subsequent:
- would this event have been reflected in the work if it was subsequent? yes
- does the event invalidate the report?
- with significant exposures in AB, invalidate, withdraw/amend
- without significant exposures in AB, inform users in FS
provide any further relevant details related to AB minor injury cap
this example was complicated by the fact that some insurers would have completed their report by 2/8, while others would not have
describe the timeline of events for the reinsurer failure example
- event: 1/15
- actuary became aware 1/15 same date as event
- subsequent? yes, actuary became aware after calc data and before report date
according to the subsequent event decision tree, what action should the actuary take regarding the reinsurer failure example?
EWD- reflect
- Error? no
- When? event occurred after calc date
- Different? yes, before calc date, failure provided evidence of prior deteriorating conditions
provide any further relevant details related to the reinsurer failure example
- action depends on cause of failure: here reinsurer failure had been building up prior to calc date
- failure after calc date simply provided furthur evidence of conditions existing prior to calc date
- if failure was due to a CAT, path through decision tree would be EWDP inform only
describe the timeline of events of the stock market drop example
- first week of January, big drop in stock market
- actuary became aware first week of january
- sub? yes, actuary became aware after calc date (12/31) and before report date (several weeks after first week of january)
according to the subsequent event decision tree, what action should the actuary take regarding the stock market drop example?
EWDP - inform
- error? no
- when? event occurred after calc date
- different? yes, after calc date
- purpose? report as it was
provide any further relevant details related to the stock market drop example
- main issue is whether market drop provided evidence of conditions in existence prior to calc date
- it was decided that it did not (different from reinsurer failure)
describe the timeline of events for the missing claims example
- receive notice on 8/5 that 6/30 claims database missing claims while actuaries are performing 2nd quarter insurance contract liabilities
- became aware 8/5
- sub? yes
according to the subsequent event decision tree, what action should the actuary take regarding the missing claim example?
E - reflect
provide any further relevant details related to the missing claims example
- if actuary had become aware after the report date, this wouldn’t be a subsequent event
decision tree: - would the event be Reflected if it had been a subsequent event? yes
- does the event Invalidate the report? yes -> withdraw or amend
describe the time line of events for the change in industry benchmark example
new company that does not yet have reliable, credible data so it must rely on industry benchmarks for LDF.
- 6/30 calculation date, 7/15 statistical agency releases new industry development data
- error? no
- when? after calc date
- Different? typically not expected that release of new industry benchmark would make the entity different because LDFs donot change dramatically. If data is used to select trend rate or expected LR, could be more significant. -> up to actuary to verify if new industry info would have material effect
describe the timeline of events for the pandemic example
- 3/31 pandemic was declared
- actuary became aware on 3/11
- sub? yes, after calc date and before report date
according to the subsequent event decision tree, what action should the actuary take regarding the pandemic example?
EWDP - inform
- error? no
- when? after calc date
- different? yes after calc
- purpose? report as it was
provide any further relevant details related to the pandemic example
- provide potential impacts of the pandemic either qualitatively or quantitively
- when situation for classification is unclear, discuss with auditor
identify circumstances under which a subsequent event must be accounted for
- if the event is material
- if the event reflects and error
- if the event makes the entity different relative to timing/purpose of the actuary’s report
setup questions
