CAS Exam 6C Fall 2013, Question 22
Study guide: Exam 6C
The following table summarizes the claim liability estimates of the Appointed Actuary of a P&C insurance company:
| Item | Amount |
|---|---|
| Undiscounted Estimate of Claim Liability | $111,453 |
| Discounted Estimate of Claim Liability Excluding PfADs | $103,345 |
| PfAD – Investment Return Rate | $500 |
| PfAD – Claims Development | $7,300 |
| PfAD – Reinsurance Recovery | $4,000 |
The income tax rate is 35% and the reported reserve is $120,000.
Part a (0.5 points)
Describe how a "future tax temporary difference" may arise.
Part b (0.5 points)
It is anticipated that in most cases the effect of discounting the asset for future income taxes would not be material to the valuation of a P&C insurer. Define the concept of materiality according to the Canadian Standards of Practice.
Part c (1 point)
Calculate the estimated effect of discounting the asset for Future Income Taxes (presently identified as Deferred Tax Assets on the P&C-1).
No current syllabus covers this question; it is kept for the record.
Answer this question and see the worked solution
Concepts tested
- Future Income Tax Asset
- Insurance Income Tax
- Materiality
- Loss Reserve Discounting
- Margin for Adverse Deviations