Sec N ASOPs Flashcards
Statement the actuary must make in the Statement of Actuarial Opinion for the health annual statement
- The liabilities are in accordance with accepted actuarial standards
- The liabilities are based on appropriate actuarial assumptions
- The liabilities meet the requirements of the laws of the state of domicile
- The liabilities make good and sufficient provision for all unpaid claims and other actuarial liabilities
- Liabilities are computed based on assumptions that are consistent with the prior year’s assumptions
- Liabilities include appropriate provision for all actuarial items that ought to be established
ASOP considerations for estimating incurred claims
- Plan provisions and business practices - reflect practices that materially affect the cost, frequency or severity of claims
- Economic influences - such as unemployment levels, cost shifting, and catastrophic events
- Organizational claims administration - lag factors may vary due to staffing levels, computer system changes, or seasonal backlogs
- Risk characteristics and organizational practices by block of business - consider the effects of marketing and underwriting on the types of risks accepted
- Legislative requirements - consider how regulations mandating benefits, risk characteristics, rating, reserving, and underwriting practices can affect incurred claims
- Carve outs - consider the effect of carved-out benefits on incurred claim levels
- Special considerations for long-term products - such as cost of living adjustments and inflation effects
Types of statements of actuarial opinion
- Unqualified opinion
a) For NAIC Health Annual Statement, says the reserve amount makes good and sufficient provision for all unpaid claims and other actuarial liabilities, and that obligations are covered even under moderately adverse conditions
b) In other circumstances, says the liability and asset amounts are reasonable for the intended purpose - Adverse opinion
a) For NAIC Health Annual Statement, says the aggregate amount established is not sufficient for the actuary to provide an unqualified opinion
b) In other circumstances, says the liabilities fall outside a reasonable range for the specified purpose - Qualified opinion - issued when there are certain liabilities or assets that the actuary believes cannot be reasonably estimated or for which the actuary is unable to render an opinion
- Inconclusive opinion - issued when the actuary cannot reach a conclusion due to deficiencies or limitations in the data, analyses, assumptions, or related information
Information to include in a statement of actuarial opinion
- The words “statement of actuarial opinion” (or alternative required wording) in the title
- The intended users
- The intended purpose
- The liabilities being opined upon
- The stated basis of the amounts presented
- The scope of the analysis underlying the opinion and the review date if different from the date the opinion is signed
- The type of opinion
Approaches for signing the Statement of Actuarial Opinion when reserves are too high or too low
- Issue a qualified opinion - be straightforward in laying out the concerns, and then state the actuarial opinion with those exceptions noted
- Convince management to change the reserves to an appropriate level
- If other options fail, notify management that you must sign an opinion stating that reserves are inadequate - this decision cannot be taken lightly, since you will probably lose your job as a result
Duties of the actuary regarding quality of data
- These are from ASOP #23*
1. Seek out and use appropriate data and communicate any imperfections
2. Review data for reasonableness and consistency (not necessarily an audit)
3. Disclose reliance upon others for a review, reconciliation, or audit of the data
4. Disclose situations where it is impossible or impractical to perform a sufficient review of the data
5. Consider whether the use of inappropriate data might create a material bias in the work product
6. Maintain adequate documentation to support the use of specific data
7. Address reconciliation of paid claims to check registers or general ledgers
Considerations when selecting a risk adjustment model
- Intended use - consider the degree to which the model was designed to estimate what the actuary is trying to measure
- Impact on program - consider whether the risk adjustment system may cause changes in behavior because of underlying incentives
- Model version - if a new version of a previously utilized model is used, consider the materiality of changes to the model
- Population and program - consider if the population and program to which the model is being applied are consistent with those used to develop the model
- Timing of data collection, measurement, and estimation - consider the impact of timing differences between when the model is developed and when it is applied
- Transparency - consider whether the model provides an appropriate level of transparency for the intended use
- Predictive ability - consider the predictive ability of the model and the characteristics of the various common predictive performance measures
- Reliance on experts - consider whether the individuals incorporating their specialized knowledge into the model are experts in risk adjustment
- Practical considerations - consider practical limitations, such as the cost of the model, the actuary’s familiarity with the model, and its availability
ASOP procedures for analyzing incurred claims
1) Unpaid claims liability - use incurral and processing dates to estimate the liability for claims incurred as of the valuation data. In doing this, consider:
a) The intended purpose or use of the estimate
b) Plan provisions
c) The claim dating methods used
d) Provision for adverse deviation
e) Time value of money
f) The assumptions and methodology used - these should typically be consistent with those used for estimating related liabilities
2) Categories of incurred claims - consider separate estimation of claims for each category exhibiting different lag patterns, costs, or trends
3) Reinsurance arrangements - consider their effect on estimated claims
4) Large claims - consider the effect on large claims, which includes distortions in payment patterns
5) Coordination of benefits, subrogation, and government programs - understand these items and how they are reflected in the data
6) Provider contractual arrangements - consider how these affect trends, claim cost levels, and claims processing, and consider any changes in these arrangements
Items to include in an actuarial communication subject to ASOP #5
1) Important dates used in the analysis, such as the incurral, processing, and valuation dates
2) Significant limitations that constrained the actuary’s analysis
3) Specific significant risks and uncertainties that could cause actual results to vary from the incurred claim estimate
4) Any explicit provision for adverse deviation
5) The risk that provider insolvency may have a material effect on the liability
6) Any follow-up studies the actuary may have utilized in developing the incurred claim estimate
7) When updating a previous estimate, changes in assumptions, procedures, methods, or models that the actuary believes to have material impact on the incurred claim estimate, as well as the reasons for such changes
Actuarial standards for the use of data
1) Data that is completely accurate, appropriate, and comprehensive is frequency not available, so the actuary should use available data that allows the actuary to perform the analysis
2) Considerations in selection data
3) Review of data - the actuary should review the data for reasonableness, unless such a review is not necessary or practical
4) The actuary should use appropriate data
5) Reliance on data and other information supplied by others - the accuracy of this information is the responsibility of those who supply it. The actuary may rely on this information, but should disclose this reliance
6) Confidentiality - the actuary should handle data containing confidential information consistent with Precept 9 of the Code of Professional Conduct
7) Limitation of the actuary’s responsibility - the actuary is not required to audit the data or determine whether the data supplied by others is intentionally misleading
Considerations in selecting data to use in an actuarial analysis
1) The scope of the assignment and the intended use of the analysis
2) The desired data elements and possible alternative data elements
3) Whether the data is appropriate and sufficiently current
4) Whether the data is internally consistent
5) Whether the data is reasonable given relevant external information that is readily available
6) The degree to which the data is sufficient for the analysis
7) Any known significant limitations of the data
8) The availability of alternative data, and the benefit and practicality of obtaining this data
9) Sampling methods that were used to collect the data
Categories of appropriateness of data used in an actuarial analysis
1) The data is of acceptable quality to perform the analysis
2) The data requires enhancement before the analysis can be performed, and it is practical to obtain additional or corrected data
3) Judgmental adjustments or assumptions can be applied to the data, or the analysis results, to allow the actuary to perform the analysis
4) The data is liekly to have signficant defects
5) The data is so inadequate that it cannot be used to satisfy the purpose of the assignment
Required documentation related to data quality
1) The source of the data
2) Any limitations on the use of the actuarial work product due to uncertainty about data quality
3) Whether the actuary reviewed the data, and any limitations due to data that was not reviewed
4) A summary of unresolved concerns the actuary may have about questionable data values
5) A summary of any significant steps the actuary has taken to improve the data
6) A summary of significant judmental adjustments or assumptions the actuary applied to the data or to the results
7) The existence of results that are highly uncertain or potentially biased due to the quality of the data
8) The extent of the actuary’s reliance on data and other information supplied by others
9) Disclosures in accordance with ASOP #41 if:
a) Any material assumption or method was prescribed by law
b) The actuary relies on other sources and thereby disclaims responsibility for any material assumption or method
c) The actuary has otherwise deviated materially from the guidance of this ASOP
Disclosures required in an actuarial report
This report states the actuarial findings and identifies the methods, procedures, assumptions and data used
1) The intended users of the report
2) The scope and intended purpose of the assignment
3) The acknowledgement of qualification as specified in the Qualification Standards
4) Any cautions about risk and uncertainty
5) Any limitations or constraints on the use or applicability of the findings
6) Any conflict of interest
7) Any information on which the actuary relied that has a material impact on the findings and for which the actuary does not assume responsibility
8) The information date (date through which data and other information has been considered)
9) Subsequent events (may have a material effect on the actuarial findings)
10) If appropriate, the documents comprising the actuarial report
Disclosure requirements for assumptions and methods used in an actuarial report
1) The communication should identify the party responsible for each material assumption and method
2) If the assumption or method is prescribed by law, disclose the applicable law, the assumptions or methods affected, and that the report was prepared in accordance with the law
3) If a material assumption or method is selected by another party, the actuary has 3 choices:
a) If it does not conflict with the actuary’s professional judgment, no disclosure is needed
b) If it significantly conflicts with the actuary’s professional judgment, then disclose this fact
c) If the actuary is unable to or not qualified to judge its reasonableness, then disclose this fact
* in case b or c, also disclose the affected assumption or method, the party who set it, and the reason it was set by this party, rather than by the actuary*
