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Exam 6U > Lists > Flashcards

Lists Flashcards

1
Q

Purpose of SAO

A

Opinion on reserve amounts in scope
Inform readers/regulators of significant risk factors
Advise whether risk factors may lead to material adverse deviation

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2
Q

Organization of SAO

A

Identification
Scope
Opinion
Relevant Comments
Exhibit A
Exhibit B

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3
Q

Identification of SAO (5)

A

Actuary’s name, title
Who made the appointment
Relationship to company
Date of Appointment
Intended users

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4
Q

Scope of SAO (7 items, 4 disclosures)

A

Items:
Reserve items in opinion (Loss & LAE, retroactive reins assumed prem, UPR)
Accounting basis
Review date
Data source
Reconciliation to SchP
Reviewed methods and assumptions
Evaluation of data for reasonableness and consistency

Disclosures:
Discounting
Gross or net of recoverables
Uncollectibility of recoverables
Types of expenses included in LAE

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5
Q

Relevant comments of SAO (7)

A

Materiality standard
Risks that may result in MAD
Exhibit B significance
Reinsurance - uncollectible and retroactive
IRIS ratios 11, 12, 13
Changes in assumptions or methods since prior opinion
Unearned Premium for long-duration contracts

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6
Q

Exhibit A of SAO

A

recorded amounts for items mentioned in scope

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7
Q

Exhibit B of SAO

A

disclosure items regarding net reserves in scope

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8
Q

Exemptions from SAO filing (4)

A

Size: both GWP and gross reserves at year end less than $1M
LOB
Supervision
Hardship: cost of SAO exceeds lesser of 1% CY capital and surplus or 3% GWP for the year

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9
Q

Materiality standards (5)

A

Percent of loss and LAE reserves (10%)
Percent of surplus (10-20%)
Percent of net income
Reduction in surplus would trigger RBC action
Trigger an unusual IRIS ratio

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10
Q

Organization of AOS

A

Comparison
A: range of actuary’s reserves, net and gross
B: point estimate
C: carried reserves
D: difference (company-actuary)
Adverse Development
E: statement regarding whether there has been 1-yr adverse development relative to prior year surplus greater than 5% in 3 of the last 5 years (?)

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11
Q

Wording of AOS if there is adverse development (4)

A

State there has been
Summarize the reason
Explain more detail
Mitigate the effects

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12
Q

Types of SAO Opinion

A

Reasonable
Inadequate
Excessive
Qualified
None

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13
Q

SAO work of others disclosures (4) (P-NEC)

A

Proportion of reserves covered by others
Nature of coverage
Effect of variations in other’s estimate on AA’s opinion
Credentials of other person

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14
Q

SAO Relevant Comments Company-Specific Risk Factors (21)

A

Covid-19
Opioid epidemic
Asbestos & environmental
Emerging mass torts
Construction defects
Cats
Conflagration events
Mortgage defaults
Cyber liability
High excess layers
Soft market conditions
Large deductible WC claims
Medical professional liability legislative issues
New products/markets
Rapid growth in one or more LOB
Lack of data or unexpected, unexplained changes in data
Operational changes not objectively quantified
Sudden, unexplained freq/sev changes
Known case reserve adequacy change
Policy limit or attachment/deductible changes
Reins contract terms and conditions changes

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15
Q

Methods for selecting discount rate (3)

A

Risk-free rate
Portfolio yield
Selection by another party (must disclose)

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16
Q

Discounting disclosures (5)

A

Dates (accounting, valuation, review)
Data, Assumptions, Methods
Uncertainties around payment pattern
Difference between discounted & undiscounted reserves
Range (& basis)

17
Q

ASOP 41 Communications (8) (CRISIS-LQ)

A

Conflicts of interest
Risks
Intended user
Scope
Information used the actuary cannot take credit for
Subsequent events
Limitations on applicable findings
Qualifications of actuary

18
Q

ASOP 43 Unpaid Claim Estimate Identifications (4)

A

Claims covered (LOB, state, etc)
Reinsurance (net/gross, uncollectability risk)
Expenses (types of LAE, unpaid)
Discounting (if done and relevant disclosures)

19
Q

ASOP 43 Unpaid Claim Estimate Method Selection (4) (PaNDA)

A

Purpose of analysis (internal/external)
Nature of claims
Data availability
Assumptions

20
Q

ASOP 43 Unpaid Claim Estimate Disclosures (3)

A

Purpose and scope of analysis
Accounting, valuation, and review dates
RMAD: sources of risk, significant events

21
Q

Considerations for setting materiality level (6) (F-STARS)

A

Financial strength
Size of entity
Type of business
Access to capital
Retention (net)
Stage of org’s life cycle

22
Q

General considerations around disclosures (3)

A

Sophistication of user
Importance of concept to user
Complexity of concept

23
Q

Tests for RMAD (6)

A

Bright Line Indicator
10% of net L+LAE > TAC - CAL
If materiality standard falls within range
Long-tailed or volatile lines
Cats late in the year
Excess claims not reported to reinsurer until retention is breached

24
Q

Reasons for nuclear verdicts (6)

A

Plaintiff profile (young, seriously injured, high income)
“Reptile tactics” used by plaintiff counsel to appeal to highest possible safety standards
Stealth jurors (hide bias)
State court
Defendant’s actions are egregious
Defense attorneys prioritize perfect record for appeal over convincing jury

25
Q

Impacts of nuclear verdicts (5)

A

Bankruptcy
Increased cost of insurance
Decreased availability of insurance
Decreased innovation and product development
Shadow effect: larger pre-trial settlements

26
Q

Defense against nuclear verdicts (5)

A

Pre-Trial:
Defense uses supplemental questionnaire to identify stealth jurors
Defendant offers to confess
During Trial:
Comparative fault defense (pro-rated compensation)
Limit “reptile tactic” questions
After trial:
Appeal verdict

27
Q

State and federal legislative activity around nuclear verdicts (5)

A

State Tort Reform
Caps on punitive damages
Unique state limits (KS, MS, MT base punitive caps on income or net worth of defendant)
Specialized rules (CT about product liability, RI about wrongful death)
Federal legislation: Stop Underrides Act (reduce accidents involving cars under trucks)

28
Q

Self-supporting FHCF characteristics

A

Premiums calculated by actuarial methods
Assessment-backed bonds if cash balance insufficient
Engage in finance and risk-transfer activities to improve liquidity and minimize assessments

29
Q

Operational responsibilities of FHCF (5)

A

Maintain Staff: admin, finance, audit prep, claims examiners, debt financing, legal
Manage in-house operations
Oversee outside service providers
Rely on State Board Admin for investment and IT
FHCF Advisory Council provides advice on implementation

30
Q

Strengths of Schedule F for Solvency Monitoring (3)

A

Reinsurance Provision (RP) is formulaic and easy to compare across companies and years while being hard to manipulate
RP accounts for reinsurer credit risk by penalizing unauthorized/foreign reinsurers or slow-paying reinsurers
SchF shows impact to surplus of reins

31
Q

Weaknesses of Schedule F for Solvency Monitoring (5)

A

Reinsurance Provision (RP) is formulaic and masks actuarial insight with no statistical basis for its formula
Penalized unauthorized reinsurers and slow payers regardless of financial strength
Slow payment threshold is arbitrary
SchF only measures collectability, not overall solvency
Doesn’t measure quality of insurer’s reinsurance management

32
Q

What does a regulator consider for unauthorized reinsurers applying for certification? (5)

A

Jurisdiction
Rating (from agency)
Regulatory history
Financial position
Capital and surplus

33
Q

Motivations for reins commutation

A

Solvency (both sides)
Exit a market or LOB
Disputes over contract provisions
Reserves - disagree over valuation

34
Q

Methods for assessing existence of risk transfer (4)

A

Self-evident (qualitative)
If significant loss is not reasonably possible BUT a reinsurer assumes “Substantially All” of the risk then risk transfer may still exist (quota share, risky individual risk contracts) (qualitative)
Expected Reinsurer Deficit = prob(NPV reins loss)*(NPV reins loss)/(reins prem) if ERD > 1% then yes to risk transfer
10-10 rule: if reinsurer has >=10% chance of >=10% UW loss then yes to risk transfer

Exam 6U (4 decks)

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