Section 2 - Standards of Practice Flashcards
Materiality (1240)
What is “materiality” in actuarial work?
Any mistake, omission, or estimate that could change how the user interprets the results.
Materiality (1240)
If you are unsure whether something is material, what should you do?
Consider how the user will use the information and apply the most cautious standard.
The Work (1400)
When is it okay to use approximations instead of exact calculations?
When it saves time and effort without making the result misleading.
The Work (1400)
What should you do if an approximation might not be appropriate?
Mention it in your report and explain why it was used.
Subsequent Events (1430)
What is a “subsequent event” in actuarial work?
Something that happens after your valuation date but before your report is issued.
Subsequent Events (1430)
If an event makes a company’s financial position look very different after your valuation date, should you change your work?
Not necessarily, but you should disclose the event in your report.
Data (1440)
What makes data “sufficient” for actuarial work?
It has enough detail and accuracy to support reliable conclusions.
Data (1440)
What should you do if you’re given bad or incomplete data?
Try to fix it, explain any limitations in your report, and state any assumptions you had to make.
Models (1450)
Why might an actuary choose a simple model over a complex one?
A simple model is easier to use, saves time, and reduces errors—if it still gives good results.
Control (1470)
Why do actuaries need controls in their work?
To check for errors, ensure calculations are correct, and comply with professional standards.
Reasonableness of Results (1480)
How can you tell if your results are reasonable?
Compare them to past results, industry benchmarks, and common sense.
Documentation (1490)
Why is keeping good documentation important in actuarial work?
It allows others to verify, understand, and replicate your work if needed.
Use of Another Person’s Work (1510-1530)
When can you rely on someone else’s actuarial work?
If you check its quality, understand its limitations, and disclose your reliance in your report.
Assumptions & Methods (1610-1640)
What should guide your choice of actuarial methods?
Industry standards, good data, and the purpose of the work.
(1630) What is a “provision for adverse deviations” (PfAD)?
A safety margin added to assumptions to account for uncertainty and risk.
Reporting (1700)
What are the four types of actuarial reports?
- External user report (for regulators, investors, etc.)
- Internal user report (for company management)
- Oral report (verbal explanations)
- Summary report (a high-level overview)
Ratemaking for Property & Casualty Insurance (2620)
How does an actuary determine an indicated rate for property and casualty insurance?
The actuary ensures that the best estimate present value of cash flows from premiums matches the best estimate present value of claims, expenses, and profit provision over a specific period
Materiality (1240)
Identify considerations regarding the disclosure of materiality in actuarial communications
-Sophistication of user
-Importance of concept to user
-Complexity of concept
Materiality (1240)
identify possible actions of a report-writer based on materiality [Hint: IRD]
“Include item?
- ask yourself whether the item should be considered
Refine item?
- ask yourself whether the item is sufficiently accurate
Disclose item?
- ask yourself whether the item should be reported"
Quality Assurance (1460)
identify examples of quality assurance processes
- check calculations
- validate models (this is discussed in great detail in CIA.Models)
- redo the work (gosh, that seems like a lot of trouble!)
- peer review (see OSFI.AA - peer review)
- Documentation (see 1490)
Quality Assurance (1460)
identify considerations in determining what quality assurance processes to perform
Purpose, complexity, significance of work
Vulnerability to error
User expectations
Legislative requirements (peer review)
1510 Actuary’s use of another person’s work
Identify items an actuary should consider before using using another person’s work
- Qualification of the other person ( Fellow vs intern that is the nephew of someone)
- Regular commission of & info sharing with other person (someone you speak each day vs someone that don’t talk to you at all)
- Awareness by the other person of how the work is being used (persons that asks you details on your work vs others that don’t really care about it)
What are the 8 key considerations in Actuarial work?
1 Acquire adequate knowledge of the circumstances of the assignment
2 Obtain sufficient and reliable data
3 Select appropriate assumptions and methodology
4 Understand the requirements regarding the use of other person’s work
5 Perform calculation and examine the reasonableness of their result
6 Formulate opinion and advice
7 Maintain sufficient documentation
8 Prepare reports and all other communication.
*** each of these activities involves professional judgment
What is a reasonable judgment based on Canadian standards
1 Spirit and intend of the standards
2 Precepts of ethical and professional conduct intended to guide the conduct of the actuary
3 common sense
4 constraints on time and ressources
What should the actuary consider when selecting an assumption?
Best estimate, modified for adverse deviations
Past vs. expected future experience
Relationship among assumptions
Anti-selection
The Work (1400)
When is approximation appropriate in actuarial work?
Approximation is appropriate if it reduces cost, time, or improves control without affecting the result
