COPLFR.SAO Flashcards
Qualified Actuary is a person who…
i) meets education, experience, continuing education requirements of the Specific Qualification Standards for Statement of Actuarial Opinion as set forth in the Qualification Standards for actuaries issuing opinions in the US promulgated by the American Academy of Actuaries and both
ii) maintains an Accepted Actuarial Designation
iii) is a member of a professional actuarial association that requires adherence to the AAA code of conduct, adherence to the US qualification standards, participates in Actuarial Board for Counseling and Discipline for members practicing in the US
Disclosures in the Scope Section
- reserve items in opinion
- accounting basis for reserves
- review date
- data sources
- intercompany pooling
- evaluation of the data for reasonableness and consistency
- reconciliation to Schedule P
- reviewed methods and assumptions in determining reserves
Process for performing the Schedule P reconciliation
Net paid losses must be reconciled, the reconciliation is done against Schedule P - Part 1, the reconciliation should be done by line of business and accident years
Explain any discrepencies
Type of opinion - Reasonable
recorded reserves are WITHIN actuary’s reasonable range of unpaid claim liabilities
Type of opinion - Inadequate
recorded reserves are BELOW actuary’s reasonable range of unpaid claim liabilities
Type of opinion - Excessive
recorded reserves are ABOVE actuary’s reasonable range of unpaid claim liabilities
Type of opinion - Qualified
actuary is UNABLE to issue an opinion on certain material items (reserves could still be within actuary’s range
Type of opinion - None
actuary is UNABLE to conclude that reserves are reasonable
Basic language for a reasonable opinion
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 unearned premium reserves for long-duration contracts
Items the appointed actuary should consider when making use of the work of another
- Proportion of reserves covered by other person’s work
- Nature of coverage
- Effect of variation in other person’s estimates on appointed actuary’s opinion
- Credentials of other person
Company-specific risk factors (18 items)
- A&E losses (Asbestos & Environmental)
- CAT weather events
- cyber liability
- mass torts
- constructions defects
- new legislation
Items 11-16 - Data (thin data or unexplained changes)
- Operations (qualitative changes in operations)
- New (new products or new markets)
- Growth (rapid growth in 1 or more business segments)
- Adequacy (change sin adequacy of case reserves)
- Severity (changes in severity or frequency)
Last 2 items - Distributional changes in limits/attachment points/deductibles
- Terms of reinsurance contracts
Impacts from COVID-19 (in Relevant Comments section)
Direct impacts - loss and unearned premium reserves, claims patterns and loss trends, collectability of reinsurance and/or premiums, exposure
Indirect impacts - claims handling delays and procedural changes resulting from public health orders
Materiality Standard Illustrative language for Relevant Comments
My Materiality Standard for purposes of addressing the risk of material adverse deviation of the Company’s reserves for unpaid losses and loss adjustment expenses has been established as xx% of the Company’s net loss and LAE reserves, or $X million.
Examples of possible considerations in the choice of a materiality standard
- % of surplus
- % of reserves
- Amount of adverse deviation that would cause surplus to fall below minimum capital requirements
- The amount of adverse deviation that would cause Risk-Based Capital (RBC) to fall to the next action level
- Multiples of net retained risk
- Reinsurance considerations, such as levels of ceded reserves compared to surplus or concerns about solvency or collectability of reinsurance
- The upper limit of a company’s reinsurance protection on reserve development, if any
Bright Line Indicator Test
If a) The AA does not address material adverse deviation b) 10%*(net L&LAE reserves) > TAC - CAL
then the financial analyst should pursue comments from the AA
