Actuarial Certification of Reserves

Question 1

Sources of requirements & guidance for setting reserves (6)

Answer 1

1. ) State laws & regulations - these often prescribe certain requirements for calculating reserves or particular language to include in the actuarial opinion.
2. ) NAIC Accouting Practices & Procedure Manual - is intended to be used in situations where state regulations are silent.
3. ) NAIC annual statement instructions - these specify what should be included in various annual statement line items. The health instructions also include standard wording for these actuarial opinion.
4. ) ASOPs
5. ) Health Reserves Guidance Manual (HRGM) - is intended to assist actuaries that estimate reserves & examiners who review the financial statements.
6. ) Actuarial practice notes - developed to provide info on current practices in new & developing areas. They aren’t binding on any actuary.

Question 2

Standard wording for the actuarial opinion in the health insurance annual statement (3)

Answer 2

1. ) Identification paragraph - identifies the actuary and his or her relation to the company
2. ) Scope paragraph - identifies the liabilities on which an opinion is to be expressed
3. ) Opinion paragraph - states that it is the actuary’s opinion on the liabilities on the balance sheet. (another card)

Question 3

Components of Opinion on liabilities (in the opinion paragraph) (6)

Answer 3

1. ) Are in accordance w/ accepted actuarial standards & sound actuarial principles
2. ) Are based on relevant & appropriate actuarial assumptions
3. ) Meet the requirements of the state laws
4. ) Make good & sufficient provisions for all actuarial liabilities of the organization
5. ) Are computed based on assumptions that are consistent with the prior year’s assumptions
6. ) Include approprate provision for all actuarial items that ought to be established

Question 4

Statements included in Opinion Paragraph (2)

Answer 4

1. ) The Underwriting & Investment Exhibit - Part 2B was prepared in accordance with ASOP #5.
2. ) The methods, considerations, and analysis used in forming the opinion conform to the relavant ASOPs.

Question 5

Approaches for signing the Statement of Actuarial Opinion when reserves are too high or too low (3)

Answer 5

1. ) Issue a qualified opinion - be straightforward in laying out the concerns, and then state the actuarial opinion with those exceptions noted
2. ) Convince management to change the reserves to an appropriate level
3. ) If other options fail, notify management that you must sign an opinion stating that reserves are inadequate - this decision cannot be taken lightly, sinse you will probably lose your job as a result

Question 6

ASOP #28: Types of statements of actuarial opinion (4)

Answer 6

(ASOP #28 - Statements of Actuarial Opinion Regarding Health Insurance Liabilities and Assets)

1. ) Unqualified opinion
   a. ) For NAIC Health Annual Statement, says the reserve amount makes good & sufficient provision for all unpaid claims & other actuarial liabilities, and that obligations are covered even under moderately adverse conditions.
   b. ) In other circumstances, says the liability and asset amounts are reasonable for the intended purpose
2. ) Adverse opinion
   a. ) For NAIC Health Annual Statement, says that the aggregate amount established is not sufficient for the actuary to provide an unqualified opinion.
   b. ) In other circumstances, says the liabilities fall outside a reasonable range for the specified purpose.
3. ) Qualified opinion - issued when there are certain liabilities or assets that the actuary believes can’t be reasonable estimated or for which the actuary is unable to render an opinion.
4. ) Inconclusive opinion - issued when actuary cannot reach a conclusion due to the deficiencies or limitations in the data, analyses, assumptions, or related information.

Question 7

ASOP #28: Information to include in a statement of actuarial opinion (7)

Answer 7

1. ) The words “statement of actuarial opinion” (or alternative wording) in the title
2. ) Intended users
3. ) Intended purpose
4. ) Liabilities being opined on
5. ) Stated basis of the amounts presented
6. ) Scope of the analysis underlying the opinion & the review date if different from the date the opinion is signed
7. ) Type of opinion (separate card).