COPLFR Flashcards
SAO file date
3/1
Main purposes of SAO
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
Qualified Actuary
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
Appointment date of Actuary
12/31 of calendar year for which opinion will be given
Insurance Commissioner, appointment of actuary
Within five days of appointment of actuary, notify commissioner of name, manner of appointment, and qualified statement
Replacing actuary
Notify insurance department within five days, figure out what went wrong
Exemptions from SAO
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
SAO contents
ISOR: Identification paragraph Scope paragraph Opinion paragraph Relevant comments
Identification Paragraph, SAO
Appointed Actuary Relationship to company Qualifications Date of appointment State that Board made appointment
Scope Paragraph, SAO
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
Stated basis of the reserves
Discount, risk margin, recoverable gross/net, potential for uncollectible receivables, types of unpaid LAE
SAO Additional Disclosures
Review date
Data was reconciled to Schedule P by actuary, or
Actuary reviewed reconciliation prepared by insurer
Review date, SAO
Date through which the material information known to the actuary is included in forming the reserve opinion
Opinion Paragraph, SAO
Must list opinion of actuary regarding reserves (in aggregate); state whether for combined or separate loss andLAE
Reasonable Provision
Stated reserve is in the actuary’s range of reasonable estimates
Deficient Provision
Stated reserve < minimum of range; actuary needs to disclose minimum
Redundant Provision
Stated reserve > maximum of range; actuary needs to disclose maximum
Qualified opinion
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
Qualified opinion disclosures
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)
No opinion
Cannot reach conclusion due to limitations in the data, analyses, etc.; should provide description as to why
Relevant Comments, SAO
Provides context to regulators; considered most valuable section of SAO;
Relevant Comments sections
Risk of Material Adverse Deviation Anticipated Salsub Reinsurance IRIS Ratios Methods and Assumptions
Risk of Adverse Deviation
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
Asbestos exposures
Any loss or potential loss related directly or indirectly to the manufacture, distribution… of asbestos, excluding policies specifically written for this
Environmental exposures
Loss or potential loss related directly or indirectly to the remediation of a site arising from past operations or waste disposal
AE exposures in SAO
Receive special attention in SAO because mass torts cause material adverse deviation, traditional methods not applicable
Financial reinsurance, SAO
Determination is from insurer, not actuary; must always comment on this in the SAO
Uncollectible reinsurance, SAO
Review reinsurer ratings, talk to management, discuss materiality of losses ceded to reinsurers in poor financial health
IRIS ratios, SAO
11, 12, and 13; paragraph required if there are exceptional values; if none, still include wording to indicate review of calculations
Changes in methods and assumptions, SAO (not considered)
Use of assumptions for new segments of business; updating of data, factors, or weights
Other disclosures
Intended users/purpose of SAO
Whether any material assumption was prescribed by law
Actuarial Report
Document or other presentation, prepared as a formal means of conveying to state regulatory authority;
Actuarial report must include
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
CASTF most notable deficiencies in Actuarial Reports
“Actuarial judgment” not sufficient explanation; lack of incorporation of inflation, Schedule P reconciliation only in summary format
AOS
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)
Risk of material adverse deviation
If there is reasonable possibility company will experience deviation that will cause it to reach “adverse” condition; about 1/3 conclude this
Bright Line Test
If actuary does not address material adverse deviation, but 10% of net LLAE reserves exceed difference between TAC and CAL, comment should be sought.
Actuarial Report Retention
7 years
ASOP 36
Statements of Actuarial Opinion
Materiality
Material omission or misstatement is defined as one where the judgment of a reasonable person would be influenced
Contracts not long term
Mortgage guaranty, financial guaranty, surety
Internal controls
Segregation of duties (reserving/pricing) Reserve committees Internal audit Actuarial peer review Report from Appointed Actuary
External controls
External audit
Attestations
Financial Examinations
Replacement of Appointed Actuary
Undue Management Influence
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
Description of adverse reserve development requirement
If ratio of reserve development to prior year PHS is greater than 5% in 3 or more of last 5 years
Long duration contracts
> = 13 months
Insurer cannot cancel or increase premium during term
Actuary must opine on UEPR
Topics that must be addressed in SAO
Retro reinsurance
Collectibility
A/E reserves
Recoverables from voluntary/involuntary market pools
Topics that must be included in Actuarial Report
Reconciliation to Schedule P
Risk of material adverse deviation
IRIS 11-13
Significant parts to Exhibit B, SAO
SPADDE Salsub Pools A/E Discounting long Duration EREs
Relevant Comments section, SAO
RAMBLR Reinsurance Assumptions/Methods Materiality standard exhibit B parts Long-term contracts Ratios (IRIS)
Significant parts to Exhibit A, SAO
GNOR Gross Loss and LAE reserves (separately) Net Loss and LAE reserves (separately) Other reserves Retro reinsurance reserves
Common materiality standards
10% of carried reserve (decision change)
10% of PHS (solvency/triggers IRIS)
Change in RBC (regulation)
Change in rating
Pooling disclosures, RELEVANT COMMENTS
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
Scope paragraph disclosures
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
Disclosures when using another actuary’s analysis
Name of other actuary
Affiliation of other actuary
That the actuary reviewed the other actuary’s work
Extent of that review
Disclosures, qualified opinion
Portion to which qualification applies
Reason for qualification
Amount of carried reserves (if disclosed by company)
Other reserves are reasonable
SAO reconciliation to Schedule P
Net paid losses reconciled to Part 1
By AY and LOB
Should disclose whether s/he relied on reconciliation performed by someone else
Financial hardship exemption
Cost of opinion > 1% PHS or 3% GWP
SAO, Lack of historical data (considerations)
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
Actuary obligations to board of directors
Report on items in Scope annually
Notify the board within five days if there is a material error (in data)
RMAD example
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.
Replacing actuary, steps
- Notify commissioner within 5 days
- Notify commissioner of disagreements related to substantive wording of SAO
- Request letter from former actuary stating agreement/disagreement
- Replace by end of year that reserves are opined
ASOP 20
Discounting of PC Unpaid Claim Estimates
ASOP 41
Actuarial Communications
ASOP 43
PC Claim Estimates
Steps if there is an error
Actuary notifies company (5 days)
Notification includes summary of reason for error and amended SAO
Insurer notifies commissioner (5 days – should copy actuary)
