Material, Error

genevieve

Hi,

I would like to validate with you the concept of material. If there is an error, the error got to be material before amending and invalidating the report. Is that exact? The key element is materiality for every cases.

Also, how could we know the policy is on occurence basis or claim-made basis? 500K claim that occurred before Dec 31 and reported on Jan won't affect the report if it is on claims-made basis. Is that correct? I am going to write the assumption if it is on an occurence basis and the 500K is material for the company, then you must reflect, otherwise you inform as it will affect the premium liability.

Thanks

javid

Hi,

Materiality

I would say that materiality should be considered throughout the decision tree, which includes those two cases (amending & invalidating) you mentioned above.

I'll pull out some key pieces from the document (https://www.cia-ica.ca/docs/default-source/standards/sg0113e.pdf) that allude to this:

When working with the event decision tree, it is critical that the actuary keep in mind the concept of materiality.

From an auditor’s perspective, an adjusting event that is not material does not have to be reflected and a non-adjusting event that is not material does not require disclosure. If the actuary determines that an event is not material to the actuarial valuation of insurance contract liabilities, the actuary may not need to use the event decision tree. Nevertheless, the actuary would communicate to the auditor the details of such events since the auditor maintains various materiality thresholds.

Furthermore, throughout the document, they tend to say things like "if the actuary determines that the event...", which usually calls for the consideration of materiality.

Occurrence vs claims-made

With respect to your second question, I would think that they would tell you that in the question itself, whether occurrence vs claims-made. Usually, I would assume it is on an occurrence basis unless otherwise specified (you could always state your assumptions to be safe). With respect to your example, please see the various sample answers of 32) b) ii) of https://www.battleactsmain.ca/pdf/Exam_(2014_2-Fall)/(2014_2-Fall)_(32).pdf. They are in line with your thoughts of reflecting as it is material.

Now, with respect to claims-made policies, one question is whether it is material to the actuarial valuation of insurance contract liabilities as of the calculation date. The insurance contract for the claims-made policy, assuming it starts on Jan 1, will be after the calculation date, so this will not impact the valuation of liabilities as of the calculation date. Let me know if this last part is clear and if not, I can elaborate.

genevieve

Thank you very much for your answer. It confirms what I thought.