COPLFR Note - Q on Bright Line Indicator

[Mister_5]

In Appendx 9 the CATF discusses the ASOP. In regard to the subject of materiality (pg 81) they state.

"we beleive, however, that there is value is setting forth an indicator that would define an outside bound for materiality considerations"

"we would consider the following Bright line indicator as an outside bound of what is material"

"10% of the insurer's net reserves, that is 10% of the sum of lines 1 & 3 on page 3 of the A/S, are greater than the difference between the total adjusted capital and Company action level capital"

These comments are in regard to establishing a material standard in the the actuarial opinion. The actuary is then required to comment on any items that mght cause loss & lae reserve changes in excess of this standard. e.g they are defining what events could have a risk of material adverse deviation (RMAD).

OK, so I've covered RBC. Adjusted surplus is stat surplus - nontabular discount. And the company action evel captial is 50% of the RBC requirement. What I don't get is the meaning of the language here. Best I can come up with is -

(1) Should "are" be "or" (or)
(2) (when) 10% of lines 1 & 3 are greater than the difference between total adjusted captial and Company action level capital....(then what?)

[Suthrn]

From the 2005 COPFLR note (not on the syllabus):

"The indicator will identify companies that would be subject to additional regulatory requirements to address a low level of surplus if reserves were 10% higher."

This explains the rationale behind this confusing formula.

[JustASix]

Are the appedices on this paper fair game?
All Ten doesn't cover them and it doesn't appear that any questions hav ebeen asked from them in recent years.
Any ideas?

[Suthrn]

The appendices are not excluded from the syllabus, so they are fair game.

If I were writing exam questions and saw 70 pages that hadn't been tested recently ...