2018 Fall #10
Based on Part C's examiner's report, it sounds like even if this is considered a Type I event and even if the amount if material, you would not change the Financial Statements because this is a non-admitted asset. But wouldn't you still reallocate this amount from "Agents > 90D" to "Cash"?
Here's the text from the report:
Common errors include:
Stating that the non-admitted assets would be reflected in the surplus
Comments
Type 1 subsequent events, if material, are disclosed in the relevant note to the financial statement. Balance sheet items are not restated for these events. So, no, you would not reallocate to Cash.
https://www.battleacts6us.ca/wiki6us/NAIC.SSAP-9
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.
The sample answer does not state what type of subsequent event it considers this. I think it's Type 1.
The passage on this subject on Odomirok page 73 is ambiguous as to whether a statement change is needed for Type 1. I now read the SSAP 9 source, and it more clearly instructs to change the statement amount for Type 1. I guess SSAP 9 governs.
However, SSAP 9 also makes an exception specifically for subsequent collection of agents' balance overdue >90 (COPLFR page 231, item 6). So, in this case, you would not reallocate to Cash.
I believe that reasoning is correct but it's crazy if they expected you to memorize that exception.
(Further down in the examiner's report, they do mention that it's a Type 1 event, but I think an argument could be made that it's Type 2. In any case, it's not a major topic and that subpart was only worth 0.25 pts. Not worth stressing about any further...)
Question about calculation of bonds in part a... What is the formula for what bond value to use? I need a refresher on this and don't know what section to refer to. Thanks!
Bond valuations are covered in Odomirok.6-7-BS, and this problem is given as an example there.
Just want to clarify, if a subsequent event is material, then the balance sheet and income statement should be adjusted for it even the event is recognized after balance sheet date?
My original thought was that subsequent event will only appear in the notes to financial statement but not impacting the financial statement itself.
A type I event must be recognized in the Financial Statement.
A type II event must be disclosed in the Notes to the Financial Statement.