VFIC Publishes Materiality Note and Completes Acquisitions Report

The CAS Valuation, Finance, and Investments Committee (VFIC) has released its new study, Materiality and ASOP No. 36: Considerations for the Practicing Actuary. VFIC wrote its study to aid the actuary who must evaluate materiality in the course of preparing a statement of actuarial opinion (SAO). VFIC recommends that its note be read in conjunction with ASOP No. 36.

As background, VFIC notes that Actuarial Standard of Practice No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves, became effective on October 15, 2000. Among other things, the new ASOP requires the actuary to use the concept of materiality in a number of important ways, including:

determination of whether or not to issue a qualified opinion;
determination of the need for disclosure of significant risks and uncertainties;
consideration of factors likely to affect the actuary's reserve analysis; and
determination of the need for a number of other possible disclosures.

There is no formulaic approach to determining the standard of materiality the actuary should use for a given SAO. The ASOP instructs the actuary to evaluate materiality based on professional judgment, any applicable guidelines or standards, and the intended purpose of the SAO.

The CAS asked VFIC to prepare a note that would aid the actuary considering materiality in the context of ASOP No. 36. The note includes discussion of the accounting concept of materiality as discussed by the NAIC and the SEC, but emphasizes that the accounting discussions do not directly apply to the actuary preparing an SAO.

Now available on the CAS Web Site, the note will also be distributed as an appendix to the Practice Note prepared by the Committee on Property and Liability Financial Reporting of the American Academy of Actuaries.

VFIC recently completed a second report entitled Use of Actuaries In Acquisitions. The report is based on a survey of the role played by actuaries in recent mergers and acquisitions. Questions addressed include how the actuary was perceived as a member of the mergers and acquisitons team, what additional roles actuaries are able to fill, and what training and development programs are needed to accomplish this expanded role for the actuary.

Preliminary findings were provided at the April 2000 Valuation Seminar. The final report is currently being reviewed by the CAS vice president-research and development and should be available to members shortly.