Subsequent Events

By Canadian Institute of Actuaries · 2023 · 223127

Study guide: Exam 6C

A CIA educational note giving guidance on identifying subsequent events and on the appropriate courses of action for them. Revised by the Committee on Property and Casualty Insurance Financial Reporting to reflect changes in the CIA Standards of Practice and IFRS, approved for distribution by the Actuarial Guidance Council on August 8, 2023 and dated August 10, 2023 (document 223127), it applies to members in P&C and L&H insurance and works the Standards' event decision tree through nine examples.

On the syllabus

• Exam 6C — objectives C1 and C5; excluding Appendix B, which the August 2023 note does not contain.

Preamble

• Process
• Your feedback

1 Introduction

• The note focuses on subsequent events relevant to actuarial analysis supporting financial reporting — insurance contract liabilities valuations for year-end and quarterly statements — and is aligned with CPA Canada's definitions and input from senior audit professionals.
• IFRS 17 terminology prevails: insurance contract liabilities means the liabilities for incurred claims, the liabilities for remaining coverage and other policy liabilities.
• The key standards are IAS 10 "Events After the Reporting Period" in the CPA Canada Handbook and subsection 1430 of the Standards of Practice.

2 Definitions and Standards of Practice

• Subsection 1120 defines a subsequent event as "an event of which an actuary first becomes aware after a calculation date but before the corresponding report date."
• Paragraph 1430.02: the actuary takes a subsequent event into account if it provides information about the entity as it was at the calculation date, retroactively makes the entity different at the calculation date, or makes it different after the calculation date when a purpose of the work is to report on the entity as it will be; the note addresses the first two.
• IAS 10 separates adjusting events (evidence of conditions that existed at the end of the reporting period) from non-adjusting events (conditions that arose after it); its "reporting date" is the Standards' calculation date, not the report date.
• The actuary either takes an event into account or reports it without taking it into account (1430.05) — similar to adjusting for adjusting events and disclosing non-adjusting ones.

3 Materiality

• Paragraph 1240.02: an omission, understatement or overstatement is material if the actuary expects it materially to affect the user's decision making or reasonable expectations; the Task Force on Materiality's report distinguishes materiality from the range of reasonable values and from inherent uncertainty.
• Subsection 1520 requires the actuary and auditor to communicate about materiality; the actuary's level for financial reporting would generally not be greater than the auditor's.
• An event not material to the valuation may not need the decision tree, but the actuary would still tell the auditor about it.

4 Event decision tree

• The tree, taken from subsection 1420 of the Standards, first asks when the actuary first became aware of the event.
• 4.1 Knowledge on or before calculation date
  • The event is not a subsequent event and is treated like other information used in the valuation.
• 4.2 Knowledge between calculation date and report date
  • 4.2.1 Data defect or calculation error
    • A material error is corrected (1430.01) and the revised estimate communicated to management and the auditor, whether it is found before or after the report date.
  • 4.2.2 No data defect or calculation error
    • 4.2.2.1 On or before the calculation date
    • 4.2.2.2 After calculation date
      • An adjusting event makes the entity different on or before the calculation date and the liabilities are recalculated; a non-adjusting event makes it different after, and is disclosed while the liabilities in the financial statements stay unchanged.
• 4.3 After report date
  • Not a subsequent event: if it would have been reflected as one and it invalidates the report, the report is withdrawn or amended; otherwise the actuary considers informing users.

5 Disclosure requirements

• Management is ultimately responsible for the notes to the financial statements, but after a non-adjusting event the actuary often determines the insurance contract liability estimates in them.
• An actuarial disclosure could describe the event and estimate its financial effect — gross claims and loss adjustment expenses, reinsurance recoveries, reinstatement premiums — or state that no estimate can be made.

6 Examples

• 6.1 Catastrophic event
  • The January 1998 Eastern Canada ice storm made insurers different after the December 31, 1997 calculation date: disclose its effect, but change nothing in the 1997 calculations.
• 6.2 Judicial decision
  • Most classified the February 2008 Alberta decision striking down the $4,000 cap on non-pecuniary damages for soft-tissue injuries as an adjusting event.
• 6.3 Failure of a reinsurance company from the ceding company's perspective
  • A failure that culminates a gradual deterioration in the reinsurer's condition is classified as an adjusting event and taken into account.
• 6.4 Change in investment markets
  • Under IAS 10, a decline in the fair value of investments after year-end is a non-adjusting event: disclosed, not reflected in the liabilities.
• 6.5 Knowledge of missing claims
  • Claims missing from the valuation database are a data defect to be corrected; discovered after the report date, they invalidate the report.
• 6.6 Late reported claim(s)
  • A reinsurer's late notice of a case reserve increase is not an error, and because the increase occurred before the calculation date it is reflected in the work.
• 6.7 Change in incurred value of a large loss
  • Where the IBNR is insufficient to absorb the change, the actuary may treat it as a non-adjusting event and disclose it.
• 6.8 Change in insurance industry benchmarks
  • New industry development data is not usually expected to make the entity different, though the actuary verifies its effect would not be material.
• 6.9 Pandemic events
  • For COVID-19, declared a pandemic on March 11, 2020, the classification depends on timing and circumstances, and additional disclosure may be appropriate.

7 Communication between actuaries, company management and auditors

• Under paragraph 1520.14, the actuary reviews the treatment of subsequent events with the auditor and management so that the audit and actuarial approaches are consistent — see Actuary and Auditor Relationship.
• For an industry-wide event, the CIA and CPA Canada facilitate discussion of its classification, which is not a substitute for discussion at the company level.

Related readings

• CIA CSOP — the Standards of Practice, whose subsections 1120, 1240, 1420, 1430 and 1520 the note quotes
• CIA Materiality — the report of the CIA Task Force on Materiality, cited in Sections 3 and 7

Sources

• Subsequent Events (CIA, 2023) — the landing page (type, accession number, publication date, version) and the linked PDF: title page, contents, Preamble and Sections 1–7
• CAS Exam 6C Content Outline, Fall 2026 — the citation and the assigned scope