ASOP 28: Statements of Actuarial Opinion Regarding Health Insurance Liabilities

Question 1

Purpose and Scope

Answer 1

1. This standard applies to actuaries providing written Statements of Actuarial Opinion (SAOs) with respect to health insurance liabilities under one or more of the following circumstances:
   a. SAO is prepared to comply with NAIC Health Annual Statement instructions
   b. SAO prescribed by law or regulation
   c. Fulfill contractual obligations of the principal
2. Does not apply to Retiree Group Benefits or Property/Casualty
3. Applies to SAO for life insurance companies with respect to health insurance liabilities and assets included in such analysis

Question 2

Definitions

Answer 2

1. Actuarial Memorandum: document that provides information regarding the analyses completed
2. Claim: demand for payment under the coverage provided by a plan
3. Contract Reserve: liability established when a portion of premium due prior to the valuation date is designed to pay claims expected to be incurred after the valuation date
4. Health Benefit Plan: contract providing health-related benefits (medical, prescription drug, dental, vision, disability income, AD&D, long term-care, or other) on a reimbursement, indemnity, or service benefit basis
5. Health Insurance Asset (Asset): amount recorded in financial statement to reflect plan receivables valued using actuarial approaches. E.g. pharmacy rebate receivables, provider settlement receivables and Medicare Part D settlement receivables
6. Health Insurance Liability (Liability): amount recorded in financial statements to reflect health benefit plan obligations. E.g. claims in course of settlement, claims incurred but not yet reported, liabilities for settlements of provider contracts, contract reserves, experience refund liabilities, premium deficiency reserves, premium stabilization reserves, amounts not yet due, reinsurance payable
7. Loss Adjustment Expense: cost of administering claims, also known as “claims adjustment expense”
8. Moderately Adverse Conditions: one or more unfavorable, but not extreme, events that have a reasonable probability of occurring
9. Qualified Actuary: actuary who meets the qualification requirements set forth by licensing organization requiring an opinion of health insurance liabilities, and the AAA Qualification Standards
10. Provision for Adverse Deviation: explicit amount to make some provision for uncertainty in an asset or liability
11. Statement of Actuarial Opinion: opinion expressed by an actuary in the course of performing actuarial services and intended to be relied upon by the person to which the opinion is addressed
12. Valuation Date: date for which the actuarial opinion is provided

Question 3

Analysis of Issues and Recommended Practices

Answer 3

1. Legal, Regulatory, and Contractual Requirements
   a. Actuary should have the necessary knowledge to comply with law, regulatory authorities and principal to whom the opinion is to be expressed
2. Purpose of the Statement of Actuarial Opinion
   a. Identify the intended purpose
3. Liabilities and Assets Being Opined Upon
   a. Actuary should identify the following for which the opinion is being prepared:
   - Liability and asset amount(s)
   - Valuation date
   - Accounting standards applicable (for example, US SAP, US GAAP, IFRS, etc.)
4. Stated Basis of Liability and Asset Presentation
   a. State the basis of liability and asset presentation. Includes:
   - Whether amounts are gross or net of recoverables, such as ceded reinsurance or salvage and subrogation
   - Types of loss adjustment expenses covered
   - When the opinion is limited to only a portion of the business, the claims exposure to be covered by the liability

b. If unable to obtain these items, actuary should identify what the actuary assumed to be the intended

5. Scope of the Analysis Underlying the Statement of Actuarial Opinion
   a. Date of the data that underlies the actuary’s analysis
   b. Date of the actuary’s analysis
   c. If separate amounts for different liability and asset items are disclosed in the SAO, whether the actuary’s opinion applies to those items in the aggregate or individually
6. Materiality
   a. Evaluate materiality based on the actuary’s professional judgment, applicable guidelines, and the intended purpose

b. Understand which financial values are usually important to the intended users and how those financial values are likely to be affected by changes in the liabilities and assets

7. Liability and Asset Evaluation
   a. Consider the amount to be reasonable if it is within a range that could be produced by analysis consistent with either ASOP No. 5 (Incurred Health and Disability Claims) or
   ASOP No. 42 (Health and Disability Liabilities Other than for Incurred Claims)

b. Consider relevant past, present, reasonably foreseeable future conditions

c. Take into account the specific characteristics of the policy provisions

d. Include a provision for adverse deviation

e. If the actuary makes use of other personnel, the actuary should review their contributions

f. Evaluation Based on Actuary’s Estimate of Unpaid Claim or Other Liabilities or Assets
- Actuary may develop a point estimate, a range of estimates, or both
- Be guided by ASOP No. 5 for unpaid claim estimates
- Be guided by ASOP No. 42 for liabilities other than unpaid claims

g. Evaluation Based on the Actuary’s Use of Another’s Estimates or Opinions
- Actuary should understand the intended purpose of the analyses or opinions, and assess whether consistent with the stated purpose of the SAO
- Only make use of another’s analyses or opinions when, in the actuary’s professional judgment, it is reasonable to do so
- Consider amount of the liabilities or assets covered by the others’ analyses in comparison to the total subject to the actuary’s opinion. Also consider nature of the
business and credentials of the other individual
- If actuary reaches conclusions materially different from those in the others’ work, contact the producers of those analyses to discuss the differences
- If does not result in resolution of the differences, then actuary should take this into consideration when forming an overall opinion

8. Prior Opinion
   a. If possible, determine whether current assumptions, procedures, or methods differ from those employed in the most recent prior opinion
   - If current assumptions, procedures or methods differ from prior, consider whether the changes are likely to have resulted in an estimate that is materially different
9. Adverse Deviation
   a. Consider whether there are significant risks and uncertainties that could result in future paid amounts being greater than provided for in the liabilities or future amounts received being less than provided for in the assets

b. When establishing a provision for adverse deviation, provision should increase as the level of uncertainty increases

10. Collectability of Ceded Reinsurance
    a. Consider the collectability of ceded reinsurance in evaluating net liabilities
11. Statements of Actuarial Opinion
    a. Unqualified Opinion
    - Unqualified opinion represents that the reserve amount makes good and sufficient provision for the specified liabilities
    - Actuary should be satisfied that the liabilities and assets opined on make reasonable provision to cover obligations under moderately adverse conditions

b. Adverse Opinion
- When the aggregate amount established is not sufficient for the actuary to provide an unqualified opinion

c. Qualified Opinion
- Liability or asset for certain items are in question because they cannot be reasonably estimated or when the actuary is unable to render an opinion for those

d. Inconclusive Opinion
- If actuary cannot reach a conclusion due to deficiencies in the data, analyses, assumptions, or related information, then issue an inconclusive opinion
- Include a description of the reasons that cause the opinion to be inconclusive

12. Adequacy of Assets Supporting Liabilities
    a. This standard does not obligate the actuary to evaluate the assets supporting the stated liability amount
13. Documentation
    a. Consider ASOP No. 41 (Actuarial Communications)
    b. Follow detailed requirements specified by regulators as to the form and content
    c. Provide sufficient detail to allow another qualified actuary to evaluate the methods and analyses of the opining actuary

Question 4

Communications and Disclosures

Answer 4

1. Actuarial Communication
   a. Consider intended purpose of the SAO and be guided by ASOP No. 41
   b. Provide reports, opinions and memoranda as required by applicable law
   c. When SAO is prepared to meet requirements of NAIC health Annual Statement, prescribed language is published by the NAIC
   d. Actuary may choose to use non-prescribed language in opinion or may meet the disclosure requirement of this ASOP by addressing disclosures within the required detailed
   supporting actuarial memorandum o Include the following in the SAO:
   - The words “statement of actuarial opinion,” or similar if required by law in the title of the written opinion
   - The intended user(s)
   - The intended purpose
   - The liabilities being opined upon
   - The basis of the amounts presented
   - The scope of the analysis and the review date if different from the date the opinion is signed
2. Disclosures – include the following, as applicable:
   a. Disclosure in ASOP No. 41 if any material assumption or method was prescribed by applicable law

b. Disclosure in ASOP No. 41, if actuary states reliance on other sources and disclaims responsibility for assumption or method selected by a party other than the actuary

c. Disclosure in ASOP No. 41, if actuary deviated from the guidance of this ASOP

3. Additional Disclosures
   a. The nature of changes in assumptions, or methods from those in the most recent prior opinion unless the changes are not likely to have a material effect on the actuary’s estimate.
   - If the actuary cannot review the prior work, then disclose that
   b. If actuary determines that the liability or asset is understated, disclose the minimum amount that the actuary believes is reasonable
   c. If actuary determines the liability or asset is overstated, disclose the maximum amount the actuary believes is reasonable
   d. If actuary issues a qualified opinion disclose the items to which the qualification relates, the reasons and the amounts for such items
   e. If actuary relies on another person for any data or analysis, disclose this reliance. Also identify the individual(s) responsible for the data or analysis
   f. If the actuary believes there are significant risks and uncertainties, an explanatory paragraph should include the major factors or particular conditions the actuary believes could result in material adverse deviation
   g. If liabilities are net of ceded reinsurance, comment on the collectability of that reinsurance
4. Follow the detailed requirements specified by regulators as to the form and content of the required disclosures, to the extent not addressed above