COPLFR SAO Flashcards
Qualified Actuary
Qualified Actuary is a person who…
* meets education, experience, continuing education requirements
* of the SQS for SAO (Specific Qualification Standards for Statements of Actuarial Opinion)
* as set forth in the QS (Qualification Standards) for actuaries issuing opinions in the US
* promulgated by the AAA (American Academy of Actuaries) not the CAS
AND both
1. maintains an AAD (Accepted Actuarial Designation)
2. is a member of a professional actuarial association that
* requires adherence to the AAA code of conduct
* requires adherence to the US qualification standards
* participates in ABCD (Actuarial Board for Counselling & Discipline) for members practicing in the US
Exceptions to Definition of Qualified Actuary
Can still be qualified actuary if:
you are evaluated by the Academy’s CPC (Casualty Practice Council) and determined to be a Qualified Actuary for particular lines of business
Special Situations:
1. The AA is a qualified actuary by the exception above.
2. The AA is not a qualified actuary but is approved by the domiciliary commissioner.
For these situations, the company must attach, each year, the approval letter and reference such in the Identification paragraph of the SAO.
4 categories of qualification standards for P&C appointed actuaries
US Qualification Standards - General
* FCAS/ACAS/MAAA, 3 years experience, 30 hours continuing ed
US Qualification Standards - Specific
* general requirements + 3 years experience in relevant area + 15 hours continuing ed in relevant area
NAIC Standards
* has an AAD or the CPC (Casualty Practice Council) has determined the actuary is a qualified actuary for that line of business/activity
* NAIC standards largely just restate items (i) and (ii) from the definition of “qualified actuary”
CAS Standards
* actuaries doing the SAO must meet US Qualification Standards
* the CAS standard just seems a repeat of the above
AAD or Accepted Actuarial Designation
designation that meets or exceeds the NAIC’s minimum standards for an appointed actuary
minimum standards are satisfied by:
* FCAS with Exam 6U
* ACAS with Exam 6U, 7
* FSA with additional relevant exams
Qualification documentation (Who, When, What?)
Who: to the BOD (Board of Directors)
When: on occasion of appointment
What: biographical info and how requirements for qualified actuary will be met
Scope section disclosures
- Data sources
- Reserve items in opinion
- Evaluation of the data for reasonableness & consistency
- Accounting basis for reserves
- Review date
- Intercompany pooling (if applicable)
- Reviewed methods & assumptions in determining reserves
- Reconciliation to Schedule P
Schedule P Reconciliation
- reconcile the given data on a direct + assumed basis and net of reinsurance basis to Schedule P - Part 1 or explain why omitted reconciliations were not done.
- reconcile by line of business & accident year
- explain any discrepancies
Schedule P reconciliations often include complicated mapping of the data used by the AA to the data within Schedule P
“I reconciled the data to Schedule P - Part 1 of the company’s current Annual Statement”
“The data generally reconciled with one exception: The total amount of Company XXX’s paid loss differs by $21,000. This difference results from rounding and is not material.”
Letter of Representation
Non-employee Appointed Actuaries often request a letter of representation from company management.
Items cited in this could include:
* company-provided complete and accurate data
* information on subsequent events
* bases of carried reserves (net/gross of reinsurance, salvage & subrogation, risk margin)
* changes in reserving methodology
Assures that the non-employee AA has all the relevant info on which to form an opinion.
SAO - Types of Opinion
- Reasonable: recorded reserves are within actuary’s reasonable range of unpaid claim liabilities
- Inadequate: recorded reserves are below actuary’s reasonable range of unpaid claim liabilities
- Excessive: recorded reserves are above actuary’s reasonable range of unpaid claim liabilities
- Qualified: actuary is unable to issue an opinion on certain material items (reserves could still be within actuary’s range)
- None: actuary is unable to conclude that reserves are reasonable
Opinion language - Reasonable
In my opinion, the amounts carried in Exhibit A on account of the items identified…
[A] Meet the requirements of the insurance laws in state X.
[B] Are computed in accordance with accepted actuarial standards and principles.
[C] Make a reasonable provision for all unpaid loss and loss adjustment expense obligations of the Company under the terms of its contracts and agreements.
[D] Make a reasonable provision for the unearned premium reserves for long duration contracts (and possibly Other Loss Reserve items on which the Appointed Actuary is expressing an Opinion) of the Company under the terms of its contracts and agreements.
SAUl Up
S = State X - meets requirements of
A = Actuarial principles and standards - computed with
Ul = Unpaid losses - makes a reasonable provision for the computer under its contracts and agreements
Up = Unearned premium - makes a reasonable provision for long duration contracts
Accepted actuarial standards - illustrative language
AA reviewed the assumptions & methods used in setting the recorded reserves, assuming it is factually correct:
* Are computed in accordance with accepted actuarial standards.
AA performs an independent analysis of the reserves:
* Are consistent with reserves computed in accordance with accepted actuarial standards.
Opinion language - different conclusions
[C] Make a reasonable provision for all net unpaid loss and loss adjustment expenses obligations of the Company under the terms of its contracts and agreements, but a deficient [or redundant] provision on a gross of reinsurance basis. The provision for all gross unpaid losses and loss adjustment expenses is $X less than [or greater than] the minimum [or maximum] amount I consider necessary to be within the range of reasonable estimates.
Opinion language - Inadequate/Excessive
[C] Make an inadequate [or excessive] provision for the unpaid loss and loss adjustment expenses obligations of the Company under the terms of its contracts and agreements. The provision for unpaid losses and loss adjustment expenses is $X less [greater] than the minimum [maximum] amount I consider necessary to be within the range of reasonable estimates.
Opinion language - Qualified
In my opinion, with the qualification that it does not include the [identify the item(s) to which the qualification(s) relate(s)], the amounts carried in Exhibit A on account of the items identified:
[A]
[B]
[C]
The Company’s management has informed me that the reserves listed in Exhibit A include $X (x.x%) on a net of reinsurance basis, and $Y (y.y%) on a direct and assumed basis, for [item(s) to which the qualification(s) relate(s)]. I did not include in my review an evaluation of the reserves related to [item(s) to which the qualification(s) relate(s)] because there was not sufficient information available for me to assess the reasonableness of those reserves. Thus, this is a qualified statement of actuarial opinion.
Opinion language - No Opinion
The ABC Insurance Co. commenced operations in 20XX. Therefore, the Company has only been in business for Y years and, as a result, does not, in my opinion, have sufficient historical experience upon which to base a reliable actuarial estimate of the loss and loss adjustment expense reserves as of Dec. 31, 20XX. I am not aware of appropriate external data upon which to base an estimate.
