GHC 818-18: Revised Actuarial Statement of Opinion Instructions for the NAIC Health Annual Statement Flashcards
Introduction
- Document provides Year 2010 NAIC revisions on instructions for filing an actuarial opinion
- Actuarial statement of opinion relating to reserves and other actuarial items must accompany each annual statement filing
a. Type of annual statement filed (“statement blank”) depends on the insurer’s line of business in force
b. Health insurers file the orange blank
c. Life or P&C insurers that file the orange blank may also be subject to additional requirements
Background
1. Intent of revisions – bolster regulatory value of the opinion and to make the Life/Accident and Health, Property/Casualty and Health blank opinions more consistent
a. Also intended to make it easier for non-actuaries to review and to improve clarity of instructions
2. Major 2010 Revisions to Health Actuarial Opinions
(1) Qualified health actuary appointed by company’s board of directors – must report annually to the board or audit committee
(2) Process to request exemptions from having to file actuarial opinion
(3) Checkbox section to indicate whether opinion is unqualified, qualified, adverse or inconclusive
(4) Scope of opinion expanded to include specified actuarial items presented as assets in annual statement
(5) Definition of prescribed language (with deviations noted in a checkbox section)
(6) Requirement to reconcile underlying claim lag data to Part 2B of Underwriting and Investment Exhibit
(7) Supporting Actuarial Memorandum
Role of Appointed Actuary
- Appointed actuary – qualified health actuary appointed by the Board of Directors (or its equivalent)
a. Member of American Academy of Actuaries (or recognized by the AAA as qualified for such valuations)
b. Must meet Qualification Standards for Actuaries Issuing Statements of Actuarial Opinions in the United States and must follow ASOPs
c. Must be appointed by December 31 of the calendar year for which opinion is given
- Company must notify insurance commissioner within 5 business days of appointment – provide name, title, firm, manner of appointment and statement that they meet requirements
- Actuaries who gave opinion with 2009 instructions (and prior) don’t need to be reappointed
* If not formally appointed or previously appointed by management (not the board), then needs to be reappointed
- Appointed actuary must report to company’s board or audit committee each year on items in scope of the health actuarial opinion (can be written or in person)
- Must prepare supporting actuarial memorandum to document and convey actuary’s work and conclusions
- If replaced, must notify commissioner within 5 business days
a. Also must provide notification about whether there were any disagreements with former appointed actuary about opinions, scope, procedure or data in the previous 24 months
* (Reported regardless of whether they were resolved or not)
Exemption to Actuarial Opinion Requirements
- Requested from domiciliary commissioner prior to December 1 of the calendar year
- Reasons for Exemption to Actuarial Opinion Requirements
a. Small Company Size – less than $1M direct and assumed written premiums and less than $1M total and assumed loss and loss-adjustment expense reserves
b. Companies under Survivorship or Conservatorship
c. Based on nature of business written
d. Financial Hardship – cost of actuarial opinion exceeds min(1% of insurer’s capital or surplus, or 3% of direct plus assumed written premiums)
Classification of the Scope of the Actuarial Opinion
- Opinion can be unqualified, qualified, adverse or inconclusive
a. Unqualified – liabilities and reserves make reasonable provision under moderately adverse conditions
b. Qualified – all liabilities make a good and sufficient provision, except for specifically defined components
* If amounts in question are immaterial, opinion doesn’t need to be qualified
c. Adverse – reserves and liabilities are not good and sufficient
* Significant regulatory repercussions
* Actuary should communicate this to Board prior to issuing opinion
d. Inconclusive – unable to form an opinion due to deficiencies in data, analysis, assumptions or related information
* Should include description of the deficiencies
Expansion of the Scope of the Actuarial Opinion
- Revision requires scope to include “specified actuarial items presented as assets in the annual statement”
a. Reported based on gross amount of asset (not net admitted amount)
b. Examples:
* Accrued retrospective premiums or contingent premium receivables
* Receivables related to risk-sharing provisions (e.g. Medicare Part D risk sharing or provider risk sharing)
* Pharmacy rebate receivables (not including rebates filed by not processed)
Body of the Actuarial Opinion
- Designated Sections of Health Actuarial Opinion
a. Table of Key Indicators – classification of opinion, any modifications or deviations
b. Identification Section – appointed actuary identified
c. Scope Section – examined assumptions and methods to determine actuarial liabilities and describes scope
- All line items are displayed (even if 0 value)
d. Reliance Section – anyone relied upon for data and/or summaries
e. Opinion Section – expresses actuarial opinion
- Must comply with state of domicile and minimum aggregate amount required by any state
* Two ways to comply
(1) Research all state requirements and comply
(2) Revert to prior wording of “meet the requirements of the
insurance laws and regulations of the state of domicile and are at least as great as the minimum aggregate amounts required by any state in which the statement is filed” and check box for revised wording
f. Relevant Comments Section – to further explain any circumstances
- Each section has defined requirements and prescribed wording (except Relevant Comments section)
a. Intended to allow regulators and analysts to help understand the overall content
b. Must check box if alternative wording is used
- Opinion should always conclude with signature, key contact info for actuary, and date of opinion
a. Date implies actuary considered any known events after the financial statement date but prior to opinion date
Sample Table of Key Indicators
Supporting Actuarial Memorandum
- Required in support of the actuarial opinion
- Document or presentation to convey conclusions and recommendations, methods and procedures,
significance of findings and analysis of the opinion - Includes proprietary information
a. Not filed with state insurance department
b. Available upon request
c. Must be available May 1 following submission of opinion or 2 weeks after a request from commissioner
d. Made available to Board of Directors - Contains narrative and technical components
a. Narrative – explain findings, recommendations, and conclusions (audience – non-actuaries)
b. Technical – analyses from data to conclusions (audience – health actuaries) - Must conform to ASOPs
- Include enough detail that health actuary could understand how conclusions were reached but not
necessarily all the detailed work papers
a. E.g. data reconciliations, claims lags/triangles, trend analyses, development of assumptions, and any other actuarial studies performed - Actuarial Memorandum must also include:
a. Exhibit that ties to annual statement and compares actuary’s conclusion to these
b. Documentation of how reconciliation from data used for analysis to Underwriting and Investment Exhibit Part 2B of health annual statement
c. Any other follow-up studies of prior-year claim liability and reserve run-off (as considered necessary)
d. Documentation of assumptions for contract reserves and material changes to prior assumptions used
Summary
- 2009 and 2010 – adopted significant modifications to actuarial opinion requirements
a. Appointment of actuary
b. Inclusion of checkboxes
c. Use of prescribed language
d. Supporting actuarial memorandum - Stay current on other changes and comply with qualification standards and ASOPs
Appendix A - Excerpt from the 2010 Health Annual Statement Instructions
- Introduction
a. Page 1 must state actuarial opinion on claim reserves
b. Actuary must be qualified and appointed
- Within 5 days of appointment, commissioner must be notified
- If replaced, must notify commissioner within 5 days
- Separate letter within 10 days describing any disagreements in prior 24 months
- Actuary must report to Board or Audit Committee each year
- Separate Actuarial Opinion for each company filing an annual statement
- Conform to ASOPs
c. Definitions
- Insurer – writes accident or health contracts and files a Health Blank
- Actuarial Memorandum – document with conclusions and recommendations, methods and procedures and shows significance of actuarial opinion
d. Exemptions
- Must be filed by December 1 (and can be denied by December 31)
- Approved exemption should be filed instead of Actuarial Opinion with the state
- Exemption for Small Companies
* Less than $1M written premiums and less than $1M loss and loss reserves
- Exemption for Insurers under Supervision or Conservatorship
- Exemption for Nature of Business
- Exemption for Financial Hardship
* If Actuarial Opinion cost exceeds lesser of: 1% of capital or surplus OR 3% of written premiums
e. Memorandum and work papers must be available for 7 years
- Contains proprietary info and will be confidential
- Must be available May 1 of following year or 2 weeks after commissioner’s request
- Sections
a. Table of Key Indicators
- Shows boxes to be checked for type of opinion and wording used in each section
b. Identification
- Appointed actuary’s information, qualifications and date and manner of appointment
c. Scope
- Prescribed wording below
- “I have examined the assumptions I have examined the assumptions and methods used in determining loss reserves, actuarial liabilities and related items listed below, as shown in the annual statement of the organization as prepared for filing with state regulatory officials, as of December 31, 20 __.
A. Claims unpaid (Page 3, Line 1);
B. Accrued medical incentive pool and bonus payments (Page 3, Line 2); C. Unpaid claims adjustment expenses (Page 3, Line 3);
D. Aggregate health policy reserves (Page 3, Line 4) including unearned
premium reserves, premium deficiency reserves and additional policy reserves from the Underwriting and Investment Exhibit – Part 2D;
E. Aggregate life policy reserves (Page 3, Line 5);
F. Property/casualty unearned premium reserves (Page 3, Line 6);
G. Aggregate health claim reserves (Page 3, Line 7);
H. Any other loss reserves, actuarial liabilities, or related items presented
as liabilities in the annual statement: and
I. Specified actuarial items presented as assets in the annual statement.”
- Each line item should be followed by the amount as reported in the annual statement
d. Reliance
- Use one of two prescribed statements, depending on whether or not the actuary has examined the underlying liability records (or relied on data prepared by company)
e. Opinion
- Prescribed wording below
- “In my opinion, the amounts carried in the balance sheet on account of the items identified above:
A. Are in accordance with accepted actuarial standards consistently applied and are fairly stated in accordance with sound actuarial principles;
B. Are based on actuarial assumptions relevant to contract provisions and appropriate to the purpose for which the statement was prepared;
C. Meet the requirements of the Insurance Laws and regulations of the state of [state of domicile]; and
* 1. are at least as great as the minimum aggregate amounts required by any state,
* 2. are at least as great as the minimum aggregate amounts required by any state with the exception of the following states [list states]. For each listed state a separate statement of actuarial opinion was submitted to that state that complies with the requirements of that state;
D. Make a good and sufficient provision for all unpaid claims and other actuarial liabilities of the organization under the terms of its contracts and agreements;
E. Are computed on the basis of assumptions and methods consistent with those used in computing the corresponding items in the annual statement of the preceding year-end; and
F. Include appropriate provision for all actuarial items that ought to be established.
- The Underwriting and Investment Exhibit – Part 2B was reviewed for reasonableness and consistency with the applicable Actuarial Standards of Practice.
- Actuarial methods, considerations, and analyses used in forming my opinion conform to the relevant Standards of Practice as promulgated from time to time by the Actuarial Standards Board, which standards form the basis of this statement of opinion.”
f. Relevant Comments
- E.g. Describe any material changes to methods or assumptions
- If opinion is not qualified, adverse or inconclusive, then it should be issued as unqualified
- Conclusion
a. Signature, printed name, address, telephone number, date opinion was rendered
Appendix B - Actuarial Standards of Practice Relevant to the Health Opinion
ASOP 5 – Incurred Health and Disability Claims
o Preparing or reviewing financial reports, claims studies, rates, etc
ASOP 7 – Analysis of Life, Health, or Property/Casualty Insurers Cash Flows
ASOP 11 – Financial Statement Treatment of Reinsurance for Life and Health
o When containing material reinsurance transactions
ASOP 22 – Statements of Opinion of Asset Adequacy Analysis for Life and Health
ASOP 23 – Data Quality
o Selecting underlying data, relying on data from others, reviewing and using data
ASOP 28 – Actuarial Opinion Requirements for Health
o Responsibilities for actuaries signing statement of opinion
ASOP 41 – Actuarial Communications
o Written, electronic or oral communications
ASOP 42 – Determining Health and Disability Liabilities Other Than for Incurred Claims
o Contract reserves, premium deficiency reserves, provider-related liabilities, claim adjustment expense liabilities, etc
