Part 21 (ASOP20)

Question 1

Does an actuary provide a range or a point estimate

Answer 1

Can do both, but if doing a range should recognize the uncertainty associated with the estimate may be different to the uncertainty associated with undiscounted reserves

Question 2

In order to discount the reserves, the actuary has to what

Answer 2

project the timing and magnitude of future payments

Question 3

For magnitude what is important in discounting reserves

Answer 3

the sum of the future payments reconcile with the unpaid loss reserves

Question 4

The assumptions and considerations used to determine the payment timing estimates should be the same as what

Answer 4

those used to determine the full value reserves

Question 5

What might an actuary also have to consider when

Answer 5

the timing of recoveries

Question 6

Discounting Rate

Answer 6

• Risk free (rate close to the risk free rate)
• Portfolio
• Discount rates requested by another party

Question 7

How can Risk Free rate be determined

Answer 7

From fixed income assets with low investment risk and similar timing characteristics to the unpaid losses

Question 8

How does the portfolio approach work

Answer 8

anticipated return on a selected asset portfolio

Question 9

Discount rates requested by another party

Answer 9

Actuary needs to disclose that the actuary is not responsible for these rates

Question 10

Disclosures for discounts

Answer 10

• Assumptions behind selected discount rate and support
• Difference between undiscounted and discounted reserves
• If discounted reserves include a risk margin, and what margin is
• Significant limitations that may have material impact
• Accounting, valuation and review dates
• Significant risks & uncertainties associated with timing of future payemnts
• material assumptions that were prescribed by law
• If deviated materially from ASOP 20
• If reliance on another source
• If range, the basis for the range
• if an update to unpaid loss estimate, disclose the change and reason for change