1. SOA COPFLR Flashcards
Narative part of Actuarial report
conclusion/recommendation for audience: regulators & board of directors
Technical part of Actuarial report
Opinions methods & loss triangles w/ enough clarity so actuary in same field can evaluate work
Actuarial report
confidential or public
audience
file by date
keep how long?
Confidential
Audience = regulators + board of directors
Filed by 5/1
7 years
Actuarial Report 6 requirements
- RMAD (extended comments)
- Unusual IRIS 11-13 (extended comments)
- Exhibit of Schedule P reconciliation
- Exhibit of comparison b/w carried rsv amt & actuarys estimate
- Exhibit of Change in estimates (vs prior act report)
- Appointed Actuary’s affiliation to company
Actuarial Opinion Summary,
confiedntial or public
filed with whom
filed by date
audience
Confidential
Filed w/ just domiciliary state
Filed by 3/15
Audience = regulators
Actuarial Opinion Summary (AOS) parts
A: range of actuarys rsvs (net & gross) in scope
B: pt estimate of actuary rsvs (net & gross)
C: carried rsvs (net & gross)
D: difference bw C and A/B (net & gross)
E: adverse development: is 1 yr adverse development at least 5% in at least 3 of past 5 Calendar Years?
answer yes or no
IF yes THEN why
Actuarial Opininion Summary (AOS) parts A-D for Qualified Opinion where actuary chooses not to have a range
assume actuarys pt estimate is 500 less than the total carried of 10,000
10% of carried rsvs are excluded from the opinion
Include both net and gross
A: range NA
B: pt. estimate 9,500
C1: total carried 10,000
C2: carried portion excluded from opinion 1,000
C3: carried portion covered by opinion 9,000
D: difference = C3-B = 9,000-9,500 = -500
Need to disclose both range & point estimate in Actuarial Opinion Summary (AOS)?
NO
Exception: IF range & pt estimate are used for 2 different portions of the rsvs THEN show how both combine to match SAO
Actuarial Opinion Summary (AOS) if 0% pool participant
- State that company is 0% pool participant
- # s presented will be from lead company
actuary gross/actuary net/carried gross/ carried net are…
loss rsvs 1000/400/950/400
lae rsvs 500/200/500/180
UEP rsvs for Long Duration contractsd 20/10/30/20
actuarys doesnt care about range
AOS parts A, B, C, D=?
GROSS NET
A: NA NA
B: 1520 610
C: 1480 600
D: -40 -10
include UEPR
Actuarial Opinion Summary (AOS) if 25% pool participant
- State that company is 25% pool participant
- # s are presented AFTER pool% applied
Exh A of SOA (#s reflect company share of pool if applicable)
- Net Loss rsvs
- Net LAE rsvs
- Direct & Assumed Loss rsvs
- Direct & Assumed LAE rsvs
- Write-ins
- Other L&LAE rsvs
- Net UEP rsvs on long duration contracts
- Direct & Assumed UEP rsvs on long duration contracts
Exh B of SOA (based on NET rsvs) (#s reflect company share of pool if applicable)
7 parts?
based on net or gross opinion?
what if company is lead co in intercompany pooling?
- Name of appointed actuary
- Affiliation to company (i.e. employee)
- Credentials (FCAS)
- Type of opinion (based on net rsvs)
- Materiality standard (0 if 0% share in pool (like lead co)
- RMAD Yes/No? (NA if 0% share in pool (like lead co)
- Surplus amt
Reason for SAO or AOS exemption (4)
exemptions are the same for both SAO and AOS
- Size: <1M GWP @ yr end (GWP = Direct + Assumed)
- LOB: certain lob
- Supervision: insurer under supervision
- Hardship: SAO cost >1% of CY capital & surplus OR SAO cost >3% of CY GWP
Appointing Qualified Actuary (5)
by 12/31 Board of directors inform DOI commish w/ in 5 business days of appointment
- Name
- Title
- Date appointed
- Who appointed (board of directors)
Changing Appointed Qualified Actuary (2)
- Inform DOI commish in writing w/ in 5 business days of appointment
- Inform DOI commish in writing w/ in 10 business days of disagreements bw company & prior appointed actuary (about opinion, RMAD, disclosures, scope, data quality) (Prior actuary agrees or disagrees)
Disclosures required if appointed actuary relies on NONactuary for material portion of rsvs (4)
- Name (of non actuary)
- Affiliation to company
- Their Methods/assumptions
- Review their work & say it is reasonable
Qualifications of Qualified Actuary (3)
- 3 yrs experience
- CAS member in good standing OR AAA member in good standing & approved by CPC of AAA
- 30 hours continuing education
Disclosures required if appointed actuary relies on OTHER actuary for material portion of rsvs (3)
- Name (of other actuary)
- Credentials
- Affiliation to company
Statement of Actuarial Opinion (SAO)
public or confidential
filed with whom?
filed by date
audience?
Public
Filed w/ domiciliary state, NAIC, annual statement
Filed by March 1
Audience = regulators
SAO Purpose (3)
- rsv opinion
- Inform regulators of risks
- Advise whether risks lead to RMAD
SAO Identification section (5 parts)
- date (actuary was) appointed
- name
- credentials (FCAS & member of CAS or AAA)
- affiliation to company (employee)
- appointed by board of directors
SAO Scope Section(8 parts)
- rsv items (in opinion i.e L&LAE, retroactive reinsurance, UPR)
- stated basis of rsvs (i.e. nominal or discounted, gross or net of recoverable, types of LAE in rsvs, opinion on just portion of rsvs?)
- review date
- Data sources (person not company)
- Is data reasonable & consistent?
- Review of Methods & Assumptions
- Reconciliation to schedule P part 1 (net paid losses by AY & LOB, explain material discrepancies)
- Intercompany pooling (lead co & state + other companies & states, & pool%s) (IF company has/ 0% share THEN SAO reflects lead company)
SAO Scope example
- I have examined actuarial assumptions and methods used in determining rsvs in Exh A /w state regulators
- As of 12/31/12 (end of year) w/ info thru 9/30/12 (review date)
- Reconciles w/ schedule P Part 1
- w/ data from person x & their title
- evaluated data for reasonableness & consistency
scope - evaluation of data for reasonability and consistency
what if data is not reasonble or consistent?
appointed actuary may either…
- not rely on the data to issue opinion
OR
- issue no opinion
SAO Scope - Reconciliation to schedule P part 1
If difference CAN be explained
- State differences are not material OR due to known causes (not error)
SAO Scope - Reconciliation to schedule P part 1
If difference CAN NOT be explained? (3)
- Disclose differences in SAO scope AND actuarial report
- Issue qualified opinion
- Recommend informing external auditors
Definition of No Opinion
Can not reach CONCLUSION because of…
deficiencies or limits
in data, analyses, assumptions
Definition of Qualified Opinion
Can not GIVE opinion because
a) rsvs cannot be estimated
b) OR material part of rsvs cannot be estimated
Qualified Opinion Disclosures (3)
- Why qualified? (not enough info or can’t tell if material)
- $Amt of qualified items
- List qualified items
Qualified Opinion: disclosures if portion of business is material to loss rsvs
not enough info to perform review
Qualified Opinion: disclosures if portion of business is NOT material to loss rsvs
Do NOT issue qualified opinion
Qualified Opinion: disclosures if portion of business is outside scope of actuarys review
Disclose that portion of business is outside scope of actuary’s review
Qualified Opinion: disclosures if portion of business may be material to loss rsvs
not enough info to perform review OR unable to conclude if material
SAO Opinion section wording
- Amounts carried in exh A…
- Meet the requirements of insurance laws of MO (state of domicile)…
- Computed in accordance w/ accepted actuarial standards & principles…
- Make a reasonable provision for unpaid L&LAE for company under terms of its contracts & agreements
SAO Opinion section wording if net rsvs are reasonable but gross rsvs are deficient
- Make a reasonable provision for net unpaid L&LAE
- BUT deficient provision on gross unapid L& LAE
- Provision for gross unpaid L&LAE is $x less than the minimum amt I consider to be w/ in reasonable range
SAO Relevant comments (11 parts)
- RMAD exist yes or no? + materiality standard (causes of RMAD & how mitigate)
- Company risk factors
- IRIS ratios 11-13 (are they unsual? why unusual?)
- S&S (are rsvs gross or net of S&S?)
- Reinsurance (retroactive & financial & collectability)
- Discounting (amt of tabular & non-tabular discount in rsvs)
- UW pools & associations
- Asbestos/environmental liability
- ∆ in methods/assumptions
- Extended reporting endorsements
- Long duration contracts (UEP)
relevant comment RMAD language
considered company risk factors when picking reasonable range or rsvs
considered whether there are risks that could cause RMAD
conclude risks would not cause RMAD
SAO relevant comments about RMAD (3)
RMAD exist yes or no?
materiality standard
causes of RMAD & how mitigate
Materiality standards (4)
- ∆ in surplus to change financial rating
- ∆ in surplus to trigger next Rbc level
- ∆ in rsvs to cause unusual IRIS ratio 11 or 12
- 10% of surplus, 10% of pt estimate, 10% of rsvs
SAO relevent comments company risk factors
operational change
reinsurance collectibility
cats
asbestors
soft markets (low prices)
rapdi growth
LOB w/ little expertise
∆ in known case rsv adequacy
relevant comments - S&S
name disclousres
are carried loss rsvs net or gross of S&S?
SAO is prepared on same basis
relevant comments - discounting
disclosures (3)
are rsvs discounted?
which liabilities are discounted?
discount is x% of rsvs or y% of surplus
Relevant comments on financial reinsurance (3)
- Contracts exist?
- Prospective or retroactive reinsurance?
- contract accounted for correctly w/ deposit accy? (deposit accy if missing either timing or UW risk)
Relevant comments on reinsurance collectability (4)
includes both qualitative & quanitative info (better than schedule F - just quanitative)
appointed acuary dutuies before commented: ask managment, review reinsurer ratings, examine Schedule F
- Material uncollected amt from troubled reinsurers?
- Material disputed amts?
- Reinsurance highly concentrated?
- Reinsured financially sound?
Relevant comments on retroactive reinsurance (3)
Only comment if retroactive accy was used (in such case → no impact on actuarial opinion nor loss rsvs)
- retroactive contracts exist? if yes –> was contract appropriately accounted for?
- did contract have material impact on RMAD?
- Disclose rsvs are gross of ceded retroactive reinsurance
Relevant comments: Changes in assumptions/methods (2)
Disclose changes in assumptions & methods IF
1a) material impact on reserves OR
1b) unknown if changes are material
2) if unable to review work of prior appointed acutary
Relevant comments: Environmental/asbestos Liabilities (4)
- Material exposure? (no coverage, yes coverage RMAD unlikely, yes coverage maybe RMAD)
- Net Rsv amt
- variablitty/uncertainity in net rsv amt
- Specialized claims or legal unit is handling A&E claims?
Relevant comments: Long duration contracts (13+ months, can not cancel, can not raise prem) (4)
- Materiality standard
- UEPR amt
- UEPR as % of total UEP
4. State no long duration contracts exist OR UEPR on LDC is immaterial OR UEPR on LDC is material (if material then include long duration contract amts in Exh A lines 7&8 & opinion paragraph)
Relevant comments: Pools & associations (3)
- Pool reserves material?
- IF booking lag of pool losses exists THEN is it material?
- Net rsv amt for company share of pool
Retroactive reinsurance treatment in SAO
Does not reduce rsvs
no impact on rsv range nor opinion
(negative liability in SAP)
How to fix SAO or AOS error (2)
- Notify board of directors w/in 5 days
- send notice, fixed SAO, reason for error to state DOI commish
