Spring 2016 21
Can you elaborate 'It is the appointed actuary’s responsibility to provide the list of significant data items to the auditor and should therefore be considered within the scope of the auditor’s audit'? I don't quite understand. For part b, why is net paid L&LAE not net UNPAID L&LAE data reconcile to Schedule P, Part 1?
Comments
Question 1: (part a)
Since the auditor is not an actuary, the auditor wouldn't necessarily know which items are actuarially significant and need to be tested. The actuary therefore needs to specifically tell the auditor which items to test. These listed items then fall within the scope of the audit.
Question 2: (part b)
Schedule P reconciliation pertains to data the actuary used in their analysis. Part (b) of this problem only stated that paid losses were used so that's what has to be reconciled to Schedule P. (It's true that Schedule P contains unpaid loss data and the actuary may indeed have used unpaid data but this was not mentioned in the question so you don't have to say anything about it.)
From section 3.7 of COPLFR (Schedule P Reconciliation):
I'm confused on the wording of this section of COPLFR. If the AA is providing what data is significant, why would the auditor then need to decide what data elements to include? Shouldn't they include all that the actuary provided, as they're all significant?
My interpretation is that the auditor has independent authority over what to include as part of the data testing requirement. The auditor however does need to work with the AA to come to a final decision as to what to include because the AA is obviously more familiar with the analysis than the auditor would be.
I believe you are correct that the auditor should include everything the AA says is significant, but the auditor may also choose to include other items as well.
Hello, I'm confused in the question's part(b) wording: "fully describe the reconciliation of this data as provided in discussion and guidance around the NAIC Annual Statement Instructions" At first glance I don't see why the question is asking for the answer that comes from 3.7 Reconciliation to Schedule P?
thanks
The question's wording, "fully describe the reconciliation of this data as provided in discussion and guidance around the NAIC Annual Statement Instructions," implies that there is an expectation for the candidate to explain the process as it is guided by the relevant section of the NAIC instructions. This would naturally lead to Section 3.7 concerning Schedule P Reconciliation, as it is a key component of the NAIC instructions that deals directly with the handling of loss data.
So the exam question is drawing on the assumption that candidates are aware that reconciliation to Schedule P is a fundamental part of the NAIC Annual Statement Instructions and is testing their knowledge on how to perform and describe this task.
The examiner's report shows several bullets for parts b and c of this question. Was a candidate expected to write all of the bullets listed in the examiner's report for their answer to these parts to receive full credit? It's difficult to tell based on the bullets since they seem like separate answers, but it seems like they were looking for everything.
For part (b), the examiners' report listed 7 bullet points but since the question is worth only 0.75 pts, you only need to provide 3 bullet points in your answer. The rule of thumb is that each bullet point is worth 0.25 pts. If you look further down in the examiners' report, you'll see this explanation and it implies you only need to state those 3 things:
For part (c), I think you probably did need all 3 bullet points. It looks like the 3rd bullet point was probably worth 0.5 pts (rather than 0.25 pts) because of how long it was.
For questions worth a full point, like part (c), I would err on the side of providing too much rather than too little detail. (But don't write several paragraphs because that would waste too much time on a single question and increase the risk of not finishing the exam.)