CIA.Mat

Question 1

Describe the concept of materiality

Answer 1

An ommission/over-statement or under-statement is material if the actuary expects it to materially affect the user’s decision-making or reasonable expectations

Question 2

Provide two examples of what materiality is NOT

Answer 2

• Materiality is NOT a range of reasonable values around actuarial estimate
• Materiality is NOT inherent uncertainty in an actuarial estimate

Question 3

Identify the main factor underlying the selection of a materiality level in an actuary’s work

Answer 3

The impact on the user

Question 4

In applying judgment to determine how to address materiality, the actuary normally focuses on:

Answer 4

• The purpose of the work
• The work’s intended users/uses

Question 5

Identify circumstances where the materiality level should change

Answer 5

When an external benchmark is approached (Ex: regulatory action level)

• Otherwise, it should be consistent over time and between valuations

Question 6

Identify the six characteristics of an insurance company that may affect the materiality level

Answer 6

1. Financial Strength
2. Size of Insurer
3. Type of Business
4. Ease of access to capital
5. Net Retention
6. Stage of organizational life cycle

Question 7

Identify a metric to test materiality for regulatory (or solvency) purposes (2)

Answer 7

• Statutory Surplus
• Solvency benchmark ratio

Question 8

Identify a metric to test materiality for appraisals (3)

Answer 8

• Net worth
• Net income
• EPS (earnings per share)

Question 9

Identify a metric to test materiality for general purpose financial statements (2)

Answer 9

• Net income
• Net capital (or net surplus)

Question 10

Describe the difference between the materiality level for DCAT (FCT now) and the materiality level for valuation work

Answer 10

For FCT work, the materiality level is expected to be less rigorous than for valuation work, since valuation work is related to financial statements. FCT materiality level for FCT is used in scenario testing

Question 11

Identify the 3 considerations regarding the disclosure of the materiality level within the actuarial work product

Answer 11

1. Sophistication of the user
2. Importance of the concept to the user
3. Complexity of the concept

Question 12

Does the actuary need to disclose the materiality level for things other than policy liabilities valuation or FCT?

Answer 12

No

Question 13

Possible actions of report-writer based on materiality (3)

Answer 13

INCLUDE ITEM? Ask yourself whether the item should be considered?

REFINE ITEM? Ask yourself whether item is sufficiently accurate?

DISCLOSE ITEM? Ask yourself whether item should be reported

Question 14

Possible further issues for investigation & discussion

Answer 14

How does materiality relate to the range of reasonable results in an actuarial estimate?

How does materiality relate to the inherent uncertainty associated with an actuarial estimate?

Should the actuary treat materiality differently in an internal user report?