Spring 2016 #28b

Kh92

Based on the marks and given answer, I think the question should be re-worded as "... should be classified as an adjusting event." instead of "subsequent event"?

graham

An event can be both a subsequent event and an adjusting event so I think the statement of the question is ok. (Unless I've misunderstood what you're saying.)

Kh92

To quote the wordings from (b)
" Using the subsequent event decision tree, assess whether or not this event should be classified as a subsequent event " (1.25 pts).

Based on the question wordings, we should be able to identify if an event is 'subsequent' solely based on the date of actuary first became aware of the event. The question did not mention 'adjusting event' anywhere else.

To circle back to my original question, is this more of a wording issue, or are we expected to go through the end of decision tree to give a more comprehensive view in this type of question?

graham

Ok, I'm with you now. I believe this was actually a defective exam question because you don't need the decision tree to assess whether it's a subsequent event. For that, you only need the calculation date and report date. If the actuary becomes aware of the event in between those 2 dates then it's a subsequent event.

The question really meant to say: "Use the decision tree to determine the appropriate course of action."

I know someone who submitted an appeal for this question. For their answer, this person simply stated whether or not this was a subsequent event but did not specify an action because the question did not ask for an action. I believe the appeal should have been successful but unfortunately it was not.

To answer your question, the graders did want you to give a more comprehensive answer and specify an action based on the decision tree (not just say whether or not it's a subsequent event.)

jxtang97

another question on this - the solution clearly states that it does NOT change the entity since the 0.5% ceded business is likely IMMATERIAL

but the solution also states that the AA must report it (rather than do nothing)

for events that aren't material, shouldn't it be that no actions are required by the AA?

can I interpret it this way:

• since the impact is immaterial, it did not change the entity BEFORE the calculation date
• but going forward, since the reinsurer is indeed insolvent, hence will change the entity AFTER the calculation dat - thus we follow through the rest of the decision tree (purpose of work) and conclude that it should be reported but not reflected?

Staff_J1

I am going to assume you are talking about Fall 2016 Question 28 as Spring 2016 Question 28 does not mention anything about the 0.5% ceded.

Yes, correct that it is immaterial (only 0.5%) and yes, following the decision tree and from what the CAS reading says - "In conclusion, if the event makes the entity different on or before the calculation date, then the actuary reflects the event in their work (not the case for this question). If the event makes the entity different after the calculation date (the case for this question), then in the context of financial reporting, a disclosure in the financial statement would be required."