Examples of What might be more material
Similar to the question of whether FCT vs. Valuations are more material (the answer being Valuations have a more rigorous materiality level because it is more important for them to be accurate on financial statements vs. FCT which is concerned with scenario testing), I am wondering which one is more material in the following 2 examples:
(1.) Property vs. Liability
(2.) A company with $1M premium vs company with $100k premium.
For (1.) I believe liability has a more rigorous materiality level because a small deviation will be compounded as liability is a long tailed line.
For (2.) I believe the company with $100k premium has a more rigorous materiality level because small changes will affect it more whereas for a bigger company small deviations are less of a concern.
Is my reasoning correct? Thank you
Comments
I agree with you here. The Liability is the more material example. Your reasoning is good and some other potential ones could be - Liability work (e.g., reserves) affects the insurer’s financial statements more (the losses can become very large), regulatory solvency position, and policyholder obligations, all of which are directly scrutinized by regulators (since Auto is regulated). However, Property results (e.g., premium volume or pricing) are generally less sensitive from a solvency perspective, so a slightly higher tolerance for "error" (less material) can apply.
Correct! Based on this statement from the source “A given dollar standard of materiality is more rigorous for a large than for a small entity.” In other words, for a smaller company, the same dollar misstatement has a larger proportional impact on results and decision-making!