CIA.Subseq

Question 1

define calculation date

Answer 1

effective date of calculation
e.g: 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 his or her work

Question 3

define report

Answer 3

actuary’s oral or written communication to user about his or her work

Question 4

define subsequent event

Answer 4

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

Question 5

define adjusting event and example

Answer 5

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

Question 6

define non-adjusting event and example

Answer 6

an event after calculation date indicative of conditions arising after calculation date, no adjustments required
ex: reinsurer insolvency due to CAT

Question 7

describe the timeline of events for 1988 ice storm

Answer 7

• 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)

Question 8

according to subsequent event decision tree, what action should the actuary take regarding the 1988 ice storm example?

Answer 8

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

Question 9

provide any further relevant details related to the ice storm subsequent event example

Answer 9

• 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

Question 10

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

Answer 10

is the event material?
- if not material, then usually no action is required
- but sometimes it’s still beneficial to disclose the event

Question 11

describe the timeline of events for the late reported claims example

Answer 11

• 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

Question 12

according to the subsequent event decision tree, what action should the actuary take regarding the late reported claims example?

Answer 12

• 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

Question 13

provide any further relevant details related to the late reported claims example

Answer 13

• this situation often arises for reinsurer
• it is not the same as a data error or missing claims

Question 14

describe the timeline of events for Alberta Minor Injury Cap

Answer 14

• 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

Question 15

what branch of the subsequent event decision tree should AB minor injury cap follow?

Answer 15

• middle if insurer’s report date was after 2/8, subsequent
• right if insurer’s report date was before 2/8, not subsequent

Question 16

according to the subsequent event decision tree, what action should the actuary take regarding AB minor injury cap?

Answer 16

• 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

Question 17

provide any further relevant details related to AB minor injury cap

Answer 17

this example was complicated by the fact that some insurers would have completed their report by 2/8, while others would not have

Question 18

describe the timeline of events for the reinsurer failure example

Answer 18

• event: 1/15
• actuary became aware 1/15 same date as event
• subsequent? yes, actuary became aware after calc data and before report date

Question 19

according to the subsequent event decision tree, what action should the actuary take regarding the reinsurer failure example?

Answer 19

EWD- reflect
- Error? no
- When? event occurred after calc date
- Different? yes, before calc date, failure provided evidence of prior deteriorating conditions

Question 20

provide any further relevant details related to the reinsurer failure example

Answer 20

• 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

Question 21

describe the timeline of events of the stock market drop example

Answer 21

• 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)

Question 22

according to the subsequent event decision tree, what action should the actuary take regarding the stock market drop example?

Answer 22

EWDP - inform
- error? no
- when? event occurred after calc date
- different? yes, after calc date
- purpose? report as it was

Question 23

provide any further relevant details related to the stock market drop example

Answer 23

• 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)

Question 24

describe the timeline of events for the missing claims example

Answer 24

• 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

Question 25

according to the subsequent event decision tree, what action should the actuary take regarding the missing claim example?

Answer 25

E - reflect

Question 26

provide any further relevant details related to the missing claims example

Answer 26

- 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

Question 27

describe the time line of events for the change in industry benchmark example

Answer 27

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

Question 28

describe the timeline of events for the pandemic example

Answer 28

- 3/31 pandemic was declared - actuary became aware on 3/11 - sub? yes, after calc date and before report date

Question 29

according to the subsequent event decision tree, what action should the actuary take regarding the pandemic example?

Answer 29

EWDP - inform - error? no - when? after calc date - different? yes after calc - purpose? report as it was

Question 30

provide any further relevant details related to the pandemic example

Answer 30

- provide potential impacts of the pandemic either qualitatively or quantitively - when situation for classification is unclear, discuss with auditor

Question 31

identify circumstances under which a subsequent event must be accounted for

Answer 31

- 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

Question 32

setup questions