CIA Materiality

An omission, understatement, or overstatement is material if it is expected to materially to affect user's

• decision making or
• reasonable expectations

1. related to purposes and intended uses of work (regulatory, DCAT, etc.)
2. shouldn't solely rely on quantitative benchmarks. must consider purpose of work and entity’s circumstances
3. company characteristics that affect materiality level

• Regulatory or solvency work:
  • statutory surplus, the solvency benchmark ratio, MCT ratio, regulatory capital
• Appraisal work:
  • net worth, net income, earnings per share
• General purpose f.s.:
  • net income, net capital, net surplus

• Valuation: material impact on net income, earning
• DCAT: for surplus used in scenario testing, no need to be as rigourous.

1. Size: bigger the company, less the impact a small variation will have on estimate, e.g. 10m might be large as materiality standard for a small company but not high enough for a large company
2. Access to capital
3. Stage of organizational life cycle: mature company has a better understanding of what is material. new company may choose to be more conservative at first in selecting materiality standard
4. Type of business / risk exposure
5. Net retention: vary depending on reinsurance arrangements and retained portion
6. Financial strength (more rigorous if weak)

Enquiring make responding aware of enquiring’s needs, incl discussion to determine responding will be using a materiality level appropriate in relation to enquiring’s materiality level based on prof standards

• How does materiality relate to
  • range of reasonable results in actuarial estimate?
  • inherent uncertainty from actuarial estimate?
• Should the actuary
  • treat materiality difly in an internal user report?
  • consider not only disclosure about materiality but also application of materiality?