Interest Rates Change Subsequent Event

frosty

Let's consider a scenario where: Calc date = Dec 31. Report Date = Feb 1. Let's say that one Jan 15th the Bank of Canada raised interest rates from 1% to 3%. This would clearly be material for an insurer with longer tailed liabilities. My understanding is that this subsequent event would not need to be reflected in the report because the purpose is to report on the company as of Dec 31, but that a disclosure should be added with an estimated financial impact. Is this correct?

Staff-T1

Let's trace the tree diagram:
1) When did the actuary become aware of the event? After the calculation date but before the report date
2) Does the event reveal a data defect or calculation error? No
3) When did the event occur? After the calculation date
4) Does the event make the entity different on or before the calculation date? In this case, I believe the answer will be yes, so we should redo the calculation.

As a side note, the BoC raising interest overnight rates by 2% with no prior warning would not be possible without collapsing the markets, so I don't think this is a very realistic scenario. Also, discount rates are not determined by the short end of the yield curve