2019_1-Spring Question 19 Part e
The examiner reports stated that
"Common errors included:
Identifying this event as a subsequent event, which was not the case as the catastrophe
occurred after the report date. Assuming that a catastrophic event would automatically
invalidate the report. This is not necessarily the case if the event is not material to the
company. "
The definition of subsequent event is defined as "an event (of which an actuary first becomes aware) AFTER the CalcDt but BEFORE the corresponding report date"
So in this case, the actuary is aware of the catastrophic event, AFTER the calculation date but BEFORE the report date. Based the definition, it doesn't mention any specific condition on the accident date, so my understanding is it should satisfy the condition of subsequent events. Correct me if my logic is wrong.
Comments
Hello,
The event in question occurred after the report date in this particular question. Are you possibly getting mixed up with the actual report date and board presentation? For the latter case it has no impact on whether an event should be considered as subsequent or not.
Hello,
I still kinda don't understand why this is not the subsequent event.
A. Subsequent event is defined as an event (of which an actuary first becomes aware) AFTER the CalcDt but BEFORE the corresponding Rpt Date
The Calculation Dt is Decem 31, 2018; Report date is the presentation to the Board (No?)
Here: the event occurs after the report date (assume the actuary is aware of this as of the accident date). In addition, this date is BEFORE the Report date (presentation to the Board) => Hence, isn't it a subsequent event?
Am I missing anything?
Ohh. Nevermind, the report date is the date on which the actuary completes his/her work. so this is not a subsequent event!
This event is not a subsequent event and so we would move to the right wing of the decision tree. The first question is if this event were a subsequent event would we include it in the work?
If no: No further action
If Yes: we ask if the event invalidates the report and then depending on whether this is yes or no we would withdraw/amend or inform.
The examiners solution to this question is consistent with the above question being yes.
However when I try to do the work myself I cannot understand why this event would be reflected in the work if it was a subsequent event. I was wondering if you could help clarify this for me?
For example,
To answer this question we would have to go to the middle branch and answer EWDP.
E: not an error
W: after the calc date
D : entity is different after the calc date
P: I wasnt sure what the right answer for purpose of the work was here. Could you explain how I would think of this step of the decision tree for this example?
It is not an error and happens after the calculation date. But given that this is an FCT which is meant to project the financial condition of the firm out 3 years, it is meant to reflect on the entity as it will be as a result of the event. The catastrophe if material will change the current asset/liability structure as well as projected reinsurance costs which will change the results of the FCT projection.
Thanks I think that makes sense! Just to confirm I understand, because FCT is a forward looking report and the goal of FCT is to reflect the position of the entity after the event, we will ALWAYS include subsequent events in our work (because the purpose condition will always lead us to reflect the event in the work)?
For historical reports that are meant to reflect the entity as it was at the calculation date (say the financial position report) subsequent events would need to go through the EDWP test to determine if they should be reflected in the report.
As a secondary question, are there any other reports other than FCT where the purpose is to reflect the entity as it will be after the event?
I wouldn't say always. If it's not material then we shouldn't reflect it in the work. If an error only affects historical figures and not projected figures then you wouldn't reflect it in the FCT report.
There's no one size fit all approach here. You have to think critically as we do for actual real life problems.
The two main reports are just the AAR and FCT, so no not off the top of my head