A model error found three days before the audit committee

The core issue is not the spreadsheet. It is a request to allow a known material error to stand in information that will be used by the board, the auditor, the market and the regulator.

Obligations and to whom.

• The actuarial profession. The Actuaries' Code requires integrity, competence and care, impartiality, compliance, and openness and transparency. Agreeing to defer a known error in reported profit is not compatible with any of these. The FRC's Technical Actuarial Standards require that work is documented, that data and model deficiencies are identified and that materiality judgements are reasoned and recorded.
• The board and audit committee. They are entitled to accurate information on which to recommend the results. Deferring the correction means they sign on a false basis.
• The auditor. You are the signing actuary; the auditor is testing the same numbers and will rely on your work.
• The regulator. As a certified person you must act with due skill, care and diligence and deal with the PRA openly and cooperatively. A materially misstated return or ORSA is a regulatory matter, not a presentational one.
• Policyholders and the market. If the insurer is listed, delaying disclosure of inside information is governed by market-abuse rules and permissible only in narrow circumstances, on which legal advice is needed.
• The analyst. They must not be pressured, or allowed to believe their bonus depends on silence.

The CFO's two arguments fail. 'Within tolerance' is an assertion that must be documented and tested against a stated materiality threshold - 40% of profit is unlikely to pass. 'Defer to Q2' is the wrong remedy for a prior-period error.

Day 1 - verify and document. Re-perform the calculation independently. Quantify the effect on profit, on the technical provisions, on the ORSA projections and on the three-year capital plan. Write down the materiality assessment against the stated threshold, the date of discovery and the model change that caused it. Create a version-controlled record; do not edit the original file.

Day 1 - respond to the CFO in writing. Confirm the finding, state that I cannot sign the valuation on the uncorrected basis, and set out the options with consequences. Facts, not accusation. Put it in an email so the request and my response are recorded.

Day 2 - escalate. Tell the CEO (by phone and in writing, notwithstanding leave). Notify the chair of the audit committee directly if the CFO does not agree to correct within the day - the audit committee meets in three days and must have the corrected figures in its papers. Inform the external auditor, who is entitled to know before concluding. Do not use the 'informal word with the deputy' route as a substitute for escalation; it can be a supplement, not the mechanism.

Day 2 - obtain advice. Contact the IFoA's professional support service for confidential guidance on the disclosure route. Check with the company secretary and legal on market-abuse obligations and the disclosure timetable.

Day 3 - remediation and the meeting. Prepare a short paper for the audit committee: the error, the cause, the corrected numbers, the effect on the ORSA and capital plan, and the control remediation (independent validation of model changes, testing of spreadsheet logic, change control). Attend and present it. If the correction is still refused, escalate formally to the board and, if necessary, to the PRA through the appropriate channel, having taken advice.

Throughout: support the analyst, make clear that raising the issue was correct, and confirm that their reward is not linked to the outcome.

To the audit committee - key messages.

1. A model error introduced in 2023 has double-counted the lapse effect of an 8% rate increase, overstating 2024 profit by approximately £6.5m.
2. The corrected figures are shown, with the effect on the technical provisions, the ORSA projections and the three-year capital plan approved in December.
3. The error is a prior-period error, not a change in estimate: it should be corrected and disclosed, with the comparative treatment agreed with the auditor.
4. The correction does not by itself signal anything about the underlying profitability of the book; the rate increase is still expected to improve the loss ratio, just by less than reported.
5. The control weakness is identifiable and remediable: model changes were not independently validated and the spreadsheet logic was not tested.
6. I recommend the committee does not recommend the results on the uncorrected basis.

To the board. Same factual content, in the board's language: what changed, by how much, what it means for the capital plan and the dividend, what we are doing about it, and by when. No speculation about the share price. Record the discussion.

To the regulator. Follow the firm's usual supervisory engagement route. Be straightforward: what was found, when, what the effect is, what has been corrected, and what the remediation plan and timetable are. Do not wait to be asked. If the firm's own escalation fails and the misstatement proceeds, the matter moves from a notification to a fitness-and-propriety question, and I should take professional advice on making a protected disclosure.

Tone throughout. Openness and transparency, precision about what is known and what is not yet known, and no minimisation - the credibility of the actuarial function depends on how it behaves in exactly this situation.