CIA Subsequent Events

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  1. Subsequent (adjusting) event
    • an event of which an actuary first becomes aware after a calculation date but before the corresponding report date
    • calculation date is defined as effective date of a calculation (e.g. balance sheet date)
  2. 2 types of subsequent events
    • A: provides info on the financial statement date (take into account and recalculate)
    • B: doesn’t provide such info, but cause subsequent changes to assets & liabilities (disclose)
  3. When the actuary should account for a subsequent event
    • provides information about the entity as it was at the calculation date
    • retroactively makes the entity different at the calculation date
    • makes the entity different after the calculation date and a purpose of the work is to report on the entity as it will be as a result of the event
  4. Materiality
    • an omission, understatement, or overstatement is material if the actuary expects it materially to affect either the user’s decision making or the user’s reasonable expectations
    • materiality is different from range of reasonable value and inherent uncertainty
  5. Disclosure of subsequent events (from auditor’s perspective)
    • non-material adjusting event does not have to be reflected
    • non-material non-adjusting event does not require disclosure
  6. Definitive and virtually definitive decisions
    • a definitive decision means a final and permanent decision that is not tentative, provisional, or unsettled. It would be evidenced by amendment, court order, bill, etc.
    • a virtually definitive decision is one that is virtually certain to become definitive, but that lacks one or more formalities like ratification, due diligence, regulatory approval, etc.
    • a decision involving discretion at executive or administrative level is not virtually definitive
  7. Event decision tree based on when the actuary first become aware
    • on or before calculation date: reflect the event in the work
    • after report date: 
    •    no action if it would not have been reflected if it was subsequent
    •    disclose if it does not invalidate report
    •    withdraw or amend report if it invalidates report
    • between calculation and report date (subsequent): reflect in the work if:
    •    it reveals data error
    •    occurred on or before calculation date (not subsequent)
    •    makes the entity different
    •    purpose is to report on entity as a result of event
    • if none of the above, report event but don’t reflect in the work
  8. Disclosure of subsequent event
    • description of the nature of the event
    • estimate of the financial effect including claims, reinsurance, reinstatement premium
  9. Examples of events:
    • cat (98 ice storm): became aware between calculation and report date; occurred after calculation date, but did not make the insurers different - report but don’t reflect
    • judicial decision (2008 Alberta reform): no material impact, but because it’s a significant industry-wide event, report regardless of materiality; invalidated some reports
    • failure of reinsurer: only include if insolvency is the culmination of gradual deterioration in reinsurer’s financial circumstances, most of which occurred before calculation date
    • change in investment markets: crash can be indicator of outlook for common share earlier on, but usually reflects circumstances happening after calculation date, so just disclose
    • knowledge of missing claim: it’s a data error so if passes materiality test, new report
    • late reported claim(s): reflect in work since event occurred before calculation date
    • change in insurance industry benchmark: unlikely to be material, don’t include
Card Set
CIA Subsequent Events
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