RMAD Carried or Point Estimate?
When coming up with a standard for Risk of material adverse deviation... I can't seem to get it clear if we should multiply 10% of carried reserves? Or 10% of actuary net loss and lae point estimate? To determine if there is RMAD... do we add that standard to the carried? Or the Actuary point estimate?
****Example****
Carried = 21M
Actuary Est = 22M
Range = 18M to 24M
Which of the below is right?
Standard = 10%(21M) = 2.1M; 2.1M + ****21M**** = 23.1M which is less than 24M so yes RMAD
Standard = 10%(21M) = 2.1M; 2.1M + ****22M**** = 24.1M which is greater than 24M so no RMAD
Standard = 10%(22M) = 2.2M; 2.2M + ****21M**** = 23.2M which is less than 24M so yes RMAD
Standard = 10%(22M) = 2.2M; 2.2M + ****22M**** = 24.2M which is greater than 24M so no RMAD
Comments
There is no single correct answer for the standard of materiality, although some answers certainly make more sense than others.
Your first and third statements above are correct because you must use the carried reserves in the test.
But for the materiality standard you can use 10% of carried reserves or 10% of actuary's estimate, or many other options provided you can justify them. According to the COPLFR source text, here are some choices for the standard of materiality:
The test for RMAD is given here in this example in the wiki:
Makes sense, thank you!