2017.Fall 28

slocksonslockson
in CIA.Subseq

I don't understand why "Reflect the event" is not an option for this question.

Are we choosing 'Inform but not reflect' because the change in reserves was mid January 2017, and that it does not affect the report of the entity as of December 31, 2016?

Comments

  • grahamgraham

    There are 2 ways the answer to your question can be explained. The first way is using the decision tree, but that might not get at the heart of your question. The second way is more intuitive.

    • Decision Tree explanation: If you follow the "EWDP" decision tree, you would answer no for E (Error), after calc date for W (When), and yes, after calc date for D (Different). Then for the last question P (Purpose), the purpose of the AA report is to report on the entity as it was on the calc date which was Dec 31. The appropriate action for this is to inform. (In this particular example however, if the IBNR is sufficient, then there is no need even to inform. You don't want include unnecessary or superfluous information in the AA report that has no actionable value.)

    • Intuitive explanation: Remember that the purpose of the AA report is to provide an opinion on the adequacy of reserves at the calc date, which is normally Dec 31. If there was an error in the database and a material quantity of claims were missing, this would have to be reflected because not doing so would provide inaccurate information. This is not the case for this example however. There was no error - the issue was some claims had adverse development which is a "normal" event and doesn't need to be reflected, or even mentioned if the amounts were within a certain range. This is because the adverse development could be absorbed by the IBNR. But if the change was much greater than what might reasonably have been expected then this is something the AA should report. This would be relevant and actionable information to management and possibly also regulators. The event would then be reflected in the current year as adverse development on the prior year.

  • Kh92Kh92

    Based on the description of the question, my initial thought was to categorize it as late reported claims (similar to that of reinsurer). However, that is not the case here. Given the answers and your explanation above, is it correct to think that:

    1) In the reinsurer case, the decision (eg: increase case) made by ceding company is prior to CalculationDate, but only reported to the reinsurer actuary after the CalculationDate. The late reporting here is referring to the long reporting pipeline between primary and reinsurer.

    2) In the primary insurer case, the decision/info of late reporting claim happened after CalculationDate. Is it fair to say that we implicitly assume there is no reporting pipeline delay within primary insurer, such that the 'late reported claim' occurred the same time as it was recorded within the claim database?

    I think this is the explanation resulted in #1-Before CalculationDate, but #2 as - After CalculationDate. Please let me know if I'm heading the right direction :dizzy:

  • grahamgraham

    I don't think you're heading in the right direction here:

    • There is no mention of a reinsurer being involved, so I don't think you even need to consider (1). You can just assume the AA is working on a reserve analysis for the primary insurer.
    • Note that "late reported claims" pertains to the delay in passing information from the primary insurer to the reinsurer, so this question is not really an example of late reported claims.

    This question is actually just like Example 6.7 from the source text, and the answer in the examiner's report comes directly from there.

Sign In or Register to comment.