NAIC.SSAP-9

SSAP-9 is about subsequent events - things that happen after you've started your analysis so you might have to go back and change what you've done. :-(

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Study Tips

The CAS syllabus citation for this article is confusing. The syllabus says this is a new reading, however, it actually isn't. The year of publication for the manual changes each year but the content generally does not. We will let you know if there is a major change.

There was an exam question from way back in 2014. Memorize the definition of subsequent events, do the exam problem, and you're done. (30 minutes max on this reading)

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

• definition of subsequent event & the 2 types
• actions required when a subsequent event occurs

reference	part (a)	part (b)	part (c)	part (d)
E (2018.Fall #10)	Odomirok.6-7-BS	Odomirok.8-9-IS	required actions: - for subsequent events 1
E (2014.Fall #14)	types: - of subsequent events	required actions: - for subsequent events

¹ I believe the answer to part (c.i) in the examiner's report is partially incorrect. Part (c.i) is a Type 2 subsequent event, not Type 1. See this forum thread for further discussion. (thx a123!)

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In Plain English!

It's a cold January day and Alice the Actuary is working on year-end reserves. On Jan 15, there were 2 major events:

• an insolvency pertaining to one of their reinsurers (reinsurer accounts for material portion of their reinsurance arrangements)
• an ice-storm that will have a material effect on future reserves

These are subsequent events because they occurred after the balance sheet date but before issuance and audit of the financial reports. The insolvency is a Type I subsequent event and the ice-storm is a Type II subsequent event. The definitions are as follows:

Type I: (Recognized Subsequent Event) provides additional evidence with respect to conditions that existed at the balance sheet date

Type II: (Nonrecognized Subsequent Event) provides evidence with respect to conditions that did not exist at the date of the balance sheet

Alice wasn't surprised about the reinsurer insolvency. She knew that particular reinsurer's surplus had been deteriorating over the past year. That's why it's a Type I event. The insolvency simply provided further evidence of the weak surplus that existed at the balance sheet date. This must be recognized in the financial statements. For Alice, this may mean increasing the provision for reinsurance in Schedule F.

On the other hand, the ice-storm was not a foreseeable event. The storm did not provide further evidence of conditions at the balance sheet date. It does not have to be recorded in the prior year's financial statements but it must be disclosed in the notes to the financial statements (nature of event, and financial impact if it can be estimated.)

Part (c) of the following exam problem on the income statement (see Odomirok.8-9-IS) requires basic knowledge of subsequent events. Take a quick look. It's easy.

E (2018.Fall #10)

Paragraphs 11 & 12 in the source text list examples of Type I and Type II events including these which related to the 2018.Fall exam problem.

Type I:

• If the events that gave rise to litigation had taken place before the balance sheet date and that litigation is settled, after the balance sheet date but before the financial statements are issued or are available to be issued, for an amount different from the liability recorded in the accounts, then the settlement amount should be considered in estimating the amount of liability recognized in the financial statements at the balance sheet date.

And in contrast:

Type II:

• Settlement of litigation when the event giving rise to the claim took place after the balance sheet date but before financial statements are issued or are available to be issued.

So you have to be careful as to whether the triggering event for the litigation took place before or after the balance sheet to know if it's Type I or Type II. Most of the time it's easy to figure out the type based on the definition of subsequent event. One more example of a Type II event is sale of a bond issued after the balance sheet date but before the financial statement date. Note the bond would have to have been purchased before the balance sheet date.

The quiz covers basic facts on subsequent events.

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