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Exam 6 > COPLFR > Flashcards

COPLFR Flashcards

1
Q

SAO file date

A

3/1

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2
Q

Main purposes of SAO

A

States actuary’s opinion about reasonableness of reserves
Notify stakeholders of significant risks and uncertainties that may impact reserves
Disclose potential for significant adverse deviation

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3
Q

Qualified Actuary

A

Member in good standing with CAS – or AAA approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the AAA

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4
Q

Appointment date of Actuary

A

12/31 of calendar year for which opinion will be given

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5
Q

Insurance Commissioner, appointment of actuary

A

Within five days of appointment of actuary, notify commissioner of name, manner of appointment, and qualified statement

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6
Q

Replacing actuary

A

Notify insurance department within five days, figure out what went wrong

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7
Q

Exemptions from SAO

A

Small companies (less than $1M in premium and less than $1M in reserves), financial hardship (1% of surplus or 3% of reserves), in receivership or liquidation

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8
Q

SAO contents

A 
ISOR:
Identification paragraph
Scope paragraph
Opinion paragraph
Relevant comments
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9
Q

Identification Paragraph, SAO

A 
Appointed Actuary
Relationship to company
Qualifications
Date of appointment
State that Board made appointment
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10
Q

Scope Paragraph, SAO

A

Mentions reserve elements upon which the actuary is opining (and not); should include a paragraph about examination of assumptions and methodology that support booked reserves

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11
Q

Stated basis of the reserves

A

Discount, risk margin, recoverable gross/net, potential for uncollectible receivables, types of unpaid LAE

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12
Q

SAO Additional Disclosures

A

Review date
Data was reconciled to Schedule P by actuary, or
Actuary reviewed reconciliation prepared by insurer

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13
Q

Review date, SAO

A

Date through which the material information known to the actuary is included in forming the reserve opinion

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14
Q

Opinion Paragraph, SAO

A

Must list opinion of actuary regarding reserves (in aggregate); state whether for combined or separate loss andLAE

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15
Q

Reasonable Provision

A

Stated reserve is in the actuary’s range of reasonable estimates

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16
Q

Deficient Provision

A

Stated reserve < minimum of range; actuary needs to disclose minimum

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17
Q

Redundant Provision

A

Stated reserve > maximum of range; actuary needs to disclose maximum

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18
Q

Qualified opinion

A

If certain items cannot be estimated or if the actuary is unable to provide an opinion on those items; all it means is there is a portion of the reserves not covered by SAO

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19
Q

Qualified opinion disclosures

A

Items to which qualification relates
Reason for qualification
Amount for above items, if possible
(If not deemed to be material, qualified opinion does not need to be made)

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20
Q

No opinion

A

Cannot reach conclusion due to limitations in the data, analyses, etc.; should provide description as to why

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21
Q

Relevant Comments, SAO

A

Provides context to regulators; considered most valuable section of SAO;

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22
Q

Relevant Comments sections

A 
Risk of Material Adverse Deviation
Anticipated Salsub
Reinsurance
IRIS Ratios
Methods and Assumptions
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23
Q

Risk of Adverse Deviation

A

Amount of deviation actuary considers to be material (how)
Description of factors or conditions underlying significant risks
Statement about whether actuary believes there are significant risks that could result in RAD

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24
Q

Asbestos exposures

A

Any loss or potential loss related directly or indirectly to the manufacture, distribution… of asbestos, excluding policies specifically written for this

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25
Q

Environmental exposures

A

Loss or potential loss related directly or indirectly to the remediation of a site arising from past operations or waste disposal

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26
Q

AE exposures in SAO

A

Receive special attention in SAO because mass torts cause material adverse deviation, traditional methods not applicable

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27
Q

Financial reinsurance, SAO

A

Determination is from insurer, not actuary; must always comment on this in the SAO

28
Q

Uncollectible reinsurance, SAO

A

Review reinsurer ratings, talk to management, discuss materiality of losses ceded to reinsurers in poor financial health

29
Q

IRIS ratios, SAO

A

11, 12, and 13; paragraph required if there are exceptional values; if none, still include wording to indicate review of calculations

30
Q

Changes in methods and assumptions, SAO (not considered)

A

Use of assumptions for new segments of business; updating of data, factors, or weights

31
Q

Other disclosures

A

Intended users/purpose of SAO

Whether any material assumption was prescribed by law

32
Q

Actuarial Report

A

Document or other presentation, prepared as a formal means of conveying to state regulatory authority;

33
Q

Actuarial report must include

A

Actuary’s relationship to company, exhibit that ties to annual statement, exhibit that reconciles and maps data, changes in estimates, comments on trends, IRIS ratios

34
Q

CASTF most notable deficiencies in Actuarial Reports

A

“Actuarial judgment” not sufficient explanation; lack of incorporation of inflation, Schedule P reconciliation only in summary format

35
Q

AOS

A

Supplement to SAO:

1) Range of estimates/point estimate
2) Carried reserve
3) Difference between two on net basis
4) Difference between two on gross basis
5) Whether insurer has experienced adverse development recently (more than 5% of surplus in 3 out of last 5 years)

36
Q

Risk of material adverse deviation

A

If there is reasonable possibility company will experience deviation that will cause it to reach “adverse” condition; about 1/3 conclude this

37
Q

Bright Line Test

A

If actuary does not address material adverse deviation, but 10% of net LLAE reserves exceed difference between TAC and CAL, comment should be sought.

38
Q

Actuarial Report Retention

A

7 years

39
Q

ASOP 36

A

Statements of Actuarial Opinion

40
Q

Materiality

A

Material omission or misstatement is defined as one where the judgment of a reasonable person would be influenced

41
Q

Contracts not long term

A

Mortgage guaranty, financial guaranty, surety

42
Q

Internal controls

A 
Segregation of duties (reserving/pricing)
Reserve committees
Internal audit
Actuarial peer review
Report from Appointed Actuary
43
Q

External controls

A

External audit
Attestations
Financial Examinations
Replacement of Appointed Actuary

44
Q

Undue Management Influence

A

Actuary not given comprehensive info
Late info leading to inadequate time
Actuary denied access to certain employees
Employment contingent on agreement of reserves
Actuary replaced with a yes-man

45
Q

Description of adverse reserve development requirement

A

If ratio of reserve development to prior year PHS is greater than 5% in 3 or more of last 5 years

46
Q

Long duration contracts

A

> = 13 months
Insurer cannot cancel or increase premium during term
Actuary must opine on UEPR

47
Q

Topics that must be addressed in SAO

A

Retro reinsurance
Collectibility
A/E reserves
Recoverables from voluntary/involuntary market pools

48
Q

Topics that must be included in Actuarial Report

A

Reconciliation to Schedule P
Risk of material adverse deviation
IRIS 11-13

49
Q

Significant parts to Exhibit B, SAO

A 
SPADDE
Salsub
Pools
A/E
Discounting
long Duration
EREs
50
Q

Relevant Comments section, SAO

A 
RAMBLR
Reinsurance
Assumptions/Methods
Materiality standard
exhibit B parts
Long-term contracts
Ratios (IRIS)
51
Q

Significant parts to Exhibit A, SAO

A 
GNOR
Gross Loss and LAE reserves (separately)
Net Loss and LAE reserves (separately)
Other reserves
Retro reinsurance reserves
52
Q

Common materiality standards

A

10% of carried reserve (decision change)
10% of PHS (solvency/triggers IRIS)
Change in RBC (regulation)
Change in rating

53
Q

Pooling disclosures, RELEVANT COMMENTS

A

If there is a lag, how is it accrued
If pool reserves are material to total reserves
Collectability of assessments
Whether actuary reviewed other actuary’s review
Nature of member’s liability as part of pool

54
Q

Scope paragraph disclosures

A

Date of review
Source of data (name, affiliation)
Evaluation date
Reconciliation to Schedule P
Disclosure Items Exhibit B
Reviewed data for reasonableness / consistency
Reviewed method / assumptions used in determining reserves listed in Exhibit A

55
Q

Disclosures when using another actuary’s analysis

A

Name of other actuary
Affiliation of other actuary
That the actuary reviewed the other actuary’s work
Extent of that review

56
Q

Disclosures, qualified opinion

A

Portion to which qualification applies
Reason for qualification
Amount of carried reserves (if disclosed by company)
Other reserves are reasonable

57
Q

SAO reconciliation to Schedule P

A

Net paid losses reconciled to Part 1
By AY and LOB
Should disclose whether s/he relied on reconciliation performed by someone else

58
Q

Financial hardship exemption

A

Cost of opinion > 1% PHS or 3% GWP

59
Q

SAO, Lack of historical data (considerations)

A

Whether there is enough data for an evaluation
If using industry data, be sure it is comparable
Whether to provide disclosure about variability and uncertainty of results

60
Q

Actuary obligations to board of directors

A

Report on items in Scope annually

Notify the board within five days if there is a material error (in data)

61
Q

RMAD example

A

In order to establish my materiality standard, I examined three amounts… My materiality standard is X. I have identified the major risk factors for this company’s reserves as ___, ___, and ___. The existence of these factors leads me to conclude that a risk of material adverse deviation exists.

62
Q

Replacing actuary, steps

A
  1. Notify commissioner within 5 days
  2. Notify commissioner of disagreements related to substantive wording of SAO
  3. Request letter from former actuary stating agreement/disagreement
  4. Replace by end of year that reserves are opined
63
Q

ASOP 20

A

Discounting of PC Unpaid Claim Estimates

64
Q

ASOP 41

A

Actuarial Communications

65
Q

ASOP 43

A

PC Claim Estimates

66
Q

Steps if there is an error

A

Actuary notifies company (5 days)
Notification includes summary of reason for error and amended SAO
Insurer notifies commissioner (5 days – should copy actuary)

Exam 6 (51 decks)

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