F14 Q22

For determining a materiality standard in regards to the work product related to a rate indication for commercial auto, they use % of WP as a threshold but I'm a little confused by this since WP isn't really something that's discussed as an acceptable standard. Is there something else we could/should have proposed and can you explain why WP was accepted in this instance?

Comments

  • I think this was one of those questions they throw in from time to time that's intentionally a little outside of what's discussed in the syllabus.

    • The first part of part (a) relates to the SAO so you could pick one of the usual SAO materiality standards. This is directly from the syllabus.

    • The second part of part (a) about a rate indication has a different purpose from an opinion on reserves so the materiality standard should be something more directly related to data that's important for indications. And since the only information specifically about commercial auto is the written premium, that's the most reasonable choice, either a percentage or a specific dollar value based on a percentage. I don't think the graders would have accepted anything else.

    • The third part of part (a) about an opinion on the adequacy of reserves for a merger was a trick to get people to select a percentage of reserves for the materiality standard.

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