STATEMENT OF ACTUARIAL OPINION (SAO) Flashcards
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
PARTS OF THE SAO (7)
- IDENTIFICATION
- SCOPE
- OPINION
- RELEVANT COMMENTS
- SIGNATURE
- EXHIBIT A
- EXHIBIT B
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
SAO: IDENTIFICATION
IDENTIFICATION of appointed actuary
1. Linda Mai
2. Fellow, with qualifications requirements for P&C Annual Statements by AAA
3. Consultant
4. Appointed by Board of Directors of Company
5. On 9/1/2020
6. Intended users
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
SAO: SCOPE
SCOPE of subjects for opinion
1. Items and amounts subject to the opinion
2. Nominal; RMAD; S&S; collectability
3. Data relied upon
NAME & TITLE
REASONABILITY CHECKS
RECONCILATION TO SCHED P
REVIEW OF ACTUARIAL ASSUMPTIONS & METHODS
4. Review date for underlying
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
SAO: OPINION
PROVISIONS
1. Meet GA state insurance laws
2. In accordance with accepted actuarial standards and principles
3. Make a RIENQ provision for all unpaid L & LAE obligations
4. Make a RIENQ provision for the UPR for P&C Long Duration Contracts
IF Q:
I. ITEM
II. AMOUNT
III. REASON
IV. RIEN EX Q
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
SAO: POSSIBILE OPINIONS
• Possible opinions (RIENQ)
Reasonable
Inadequate – disclose min
Excessive – disclose max
No opinion – disclose reasons
Qualified opinion – disclose
1. Items
2. Reasons
3. Amounts
4. State whether the carried reserve amount makes a reasonable provision for the liabilities associated with the specified reserves, except for the items to which the qualification relates
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
SAO: RELEVANT COMMENTS
- Items in Exh B
- Company-specific risk factors
i. Covid
ii. Cats
iii. Reinsurance terms & conditions
iv. Sudden changes in frequency or severity
v. Changes in operations - IRIS 11, 12, 13
- Covid impact
• Direct: claims patterns, loss trends, collectability of reins and/or premiums
• Indirect: claims handling delays, procedural changes resulting from public health orders
• Treatment of premium refunds or rate reductions
• WC presumptive benefit – employee contracting CV while working outside of home is presumed to have acquired it related to employment so entitled to WC benefits - Reinsurance
i. Collectability
ii. Retroactive
iii. Financial – always always always
iv. With affiliates - Changes in methods & assumptions; newly appointed actuary
- Materiality standard & RMAD
- Extended reporting endorsements
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
SAO (AOS & ACTUARIAL REPORT): SIGNATURE
- Your signature
- Your printed name
- Employer’s name
- Your address
- Your telephone number
- Your email address
- Date SAO/AOS/Actuarial report was rendered
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
SAO: EXHIBIT A ITEMS
CHECK
I. L & LAE reserves
1. Unpaid L
2. Unpaid LAE
3. Unpaid L – Direct + Assumed
4. Unpaid LAE – Direct + Assumed
5. Write-in Vx, “Retroactive reins Vx assumed”
6. Other loss reserves (list separately)
CHECK IF FOR LONG DURATION ONLY
II. Premium reserves
7. UEP for long duration – Direct + Assumed
8. Net UEP for long duration
9. Other premium reserves
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
SAO: EXHIBIT B ITEMS
- Name of appointed actuary
- Relationship to the company
- Accepted actuarial designation
- Type of OPINION (RIENQ)
- Materiality standard
- Are there significant RMAD risks?
- Statutory surplus
- Anticipated net salvage & subrogation
- Discounted included as a reduction to L&LAE Vx
i. Nontabular
ii. Tabular - Net L&LAE Vx for Company’s share of pools
- Net L&LAE VX that Company carries for:
i. Asbestos
ii. Environmental - Total claims-made extended L&LAE and UPR
- Net L&LAE Vx for A&H Long duration contracts
i. L
ii. LAE
iii. UEP
iv. Write-in (list separately) - Other items for relevant comment
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
RISK OF MATERIAL ADVERSE DEVIATION
- Identify the materiality standard
- Identify the basis for establishing this standard
- Disclose the materiality standard in USD in Exh B
- Explicitly state whether you reasonably believe that there are significant risks and uncertainties that could result in material adverse deviation -> disclose this in Exh B as well
• Bright Line Indicator Test (for RMAD subject to RBC reporting requirements)
o 10% of company’s net loss reserves is greater than the difference between the Total Adjusted Capital and the Company Action Level Capital
o Company Action Level Capital = 2 * Authorized Control Level Risk Based Capital
• RMAD should likely exist when [material standard + carried reserves] ϵ [reasonable estimates]
• Materiality standard and RMAD answers to Exh B Items 5 & 6 should pertain to the net reserves
o Regulators understand that a net vs direct + assumed RMAD will have different meanings, and potentially different materiality standards
o If you reach a different conclusion on the RMAD in the net vs direct + assumed reserves, address this in Relevant Comments
o Potential considerations of an RMAD on a direct + assumed reserves vs net basis may be the carried reserve in relation to your range of estimates or varying magnitude of reinsurance
• Materiality standard for direct + assumed reserves should be focused more on the total amount of these reserves, rather than standards that are based on PHS or RBC
• For intercompany pooling with shares > 0%
o Each statutory entity is required to have a separate SAO with its own materiality standard
o May be acceptable to determine a standard for the entire pool and assign each member its proportionate share (if there are no unusual circumstances to consider)
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
REPORTING REQUIREMENTS FOR INTERCOMPANY POOLING
• For each Company in the pool, regardless of the Company’s participation %, you are required to
i. Include a description of the pool
ii. Identify the lead company
iii. List all companies in the pool, their state of domicile and their respective pooling %
• Exh A & B represents the Company’s share of the pool and should reconcile to the financial statement for that company
• For companies with 0% share of pool (no reported Sched P data):
o SAO reads similar to that provided for the lead company (IRIS ratios, RMAD discussions, relevant comments)
o Exh B #5 = 0; Exh B #6 = NA
o Attach Exh A & B of lead company as an addendum
• Comment on any material changes during the current year in the composition of the pool or a company’s share of the pool
• A change in pooling % can cause a company to fail IRIS tests, particularly Estimated Current Reserve Deficiency to PHS
D: STATEMENT OF ACTUARIAL OPINION (SAO)
SCENARIOS FOR INTERCOMPANY POOLING
A. Intercompany pooling agreement applies, the lead company retains 100% – lead company will contain the total gross and net reserves for the pool; gross and net Sched P for the other companies will be 0
B. Intercompany pooling agreement applies, with more than 1 participant > 0% – non-zero participants will show their share of the gross & net reserves; gross & net reserves in Sched P for the other companies will be 0; NAIC SAO Section 1C and NAIC AOS Section 6 apply
C. Reinsurance agreement applies, the company/companies cede(s) 100% of its reserves under a QS agreement – ceding companies show gross reserves but net reserves are 0; NAIC SAO Section 1C and NAIC AOS Section 6 do not apply
o Note the distinction between pooling to a 100% lead company with no retrocession and ceding 100% via a QS agreement
Proportional reinsurance agreements with affiliates must be approved by the regulator as either an intercompany pooling arrangement or a QS reinsurance agreement
Financial reporting depends on the approved filing, regardless of how a company views the contract
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
DEFINITON: P&C LONG DURATION CONTRACTS
• Contracts fulfilling both
1. Contract term > 13 months
2. Insurer can neither cancel the contract nor increase the premium during the contract term
• Excl financial guaranty contracts, mortgage guaranty contracts and surety contracts
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
DEFINITON: A&H LONG DURATION CONTRACTS
- Contract term > 13 months
- Contract terms are required
(ie long-term care, disability income insurance)
SECT D: STATEMENT OF ACTUARIAL OPINION (SAO)
DEFINITON: REINSURANCE
transaction whereby one company (the reinsurer), for a consideration, agrees to indemnify the other (the ceding company) against all/part of the loss that the ceding company may sustain under the policies that the ceding company has issued
