TIA Section D - SAO

Question 1

Answer 1

Question 2

Answer 2

Question 3

Answer 3

Question 4

Answer 4

Question 5

Answer 5

Question 6

Answer 6

Question 7

Answer 7

Question 8

Answer 8

Question 9

Answer 9

Question 10

Answer 10

Question 11

Answer 11

Question 12

Answer 12

Question 13

Answer 13

Question 14

Answer 14

Question 15

Answer 15

Question 16

Answer 16

Question 17

Answer 17

Question 18

Answer 18

Question 19

Answer 19

Question 20

Answer 20

Question 21

Answer 21

Question 22

Answer 22

Question 23

Answer 23

Question 24

Answer 24

Question 25

Answer 25

Question 26

Answer 26

Question 27

SAO Example Data Source paragraph

Answer 27

In forming my opinion on the loss and loss adjustment expense reserves, I relied upon data prepared by (name, affiliation and relation to company). I evaluated that data for reasonableness and consistency. I also reconciled that data to Schedule P, Part 1 of the company’s current Annual Statement. In other respects, my examination included such review of the actuarial assumptions and methods used and such tests of the calculations as I considered necessary.

Question 28

SAO
Stated Basis of Reserves:
-Things to include

Answer 28

Are the Reserves:
* Discounted?
* Include a specific risk margin?
* Gross or net of recoverables?
* Accounting for potentially uncollectible receivables?
* Any unpaid LAE included in reserves?
* If opinion is only for portion of reserve, categories of loss that are incorporated by opinion.

Question 29

SAO Sample Opinion Wording
-Reasonable

Answer 29

In my opinion, the amounts carried in Exhibit A on account of the items identified:
A. Meet the requirements of the insurance laws of X (state of Domicile).
B. Are computed in accordance with accepted actuarial standards and principles.
C. Make a reasonable provision for all unpaid loss and loss adjustment expense obligations of the Company under the terms of its contracts and agreements.

Question 30

SAO Sample Opinion Wording
-Deficient
-Redundant

Answer 30

C. Make an inadequate [or excessive] provision for the unpaid loss and loss adjustment expense obligations of the Company under the terms of its contracts and agreements. The provision for unpaid losses and loss adjustment expenses is $X less [greater] than the minimum [maximum] amount I consider necessary to be within the range of reasonable estimates.

Question 31

SAO Sample Opinion Wording
-Qualified

Answer 31

In my opinion, with the qualification that it does not include the [the items to which the qualification relates] the amounts carried in Exhibit A on account of the items identified:
A. Meet the requirements of the insurance laws of X (state of Domicile).
B. Are computed in accordance with accepted actuarial standards and principles.
C. Make a reasonable provision for all unpaid loss and loss adjustment expense obligations of the Company under the terms of its contracts and agreements.
The Company’s management has informed me that the reserves listed in Exhibit A include $X(x%) on a Y basis, for [the items to which the qualification relates]. I did not include in my review an evaluation of the reserves relating to [the items to which the qualification relates] because there was not sufficient information available for me to assess the reasonableness of those reserves. Thus, this is a qualified statement of actuarial opinion.

Question 32

Parts of the SAO

Answer 32

Identification
Scope
Opinion
Relevant comments
Exhibit A: recorded amounts for items in scope (loss reserves, reinsurance…)
Exhibit B: disclosure items regarding NET reserves in scope

Question 33

Reasons for Exemption from SAO

Answer 33

Size: the insurer is small (less than $1m annual GWP) & (less than $1m gross reserves @ year-end)
LOB: certain lines of business are exempt
(u: doesn’t stand for anything, but I needed a vowel to make the memory trick SLuSH into a word. Actually, check out DB’s forum post!!)
Supervision: exempt if insurer is under supervision
Hardship: if insurer is under financial hardship (cost of SAO exceeds the lesser of: 1% of CY capital & surplus (from latest quarterly statement)
3% of GWP for year (projected from last quarterly statement) )

Question 34

Parts of the SAO Identification Section

Answer 34

• actuary’s name/title + WARD
  
  • Who made appointment
  • Affirmation of qualifications
  • Relationship to company
  • Date of appointment
• intended purpose/users (ASOP.36, section 3.2)

Question 35

Parts of the SAO Scope Section

Answer 35

must identify:
- reserve items in opinion
- accounting basis for reserves
- review date (also defined in ASOP 36)
- data source
- data reconciliation statement

Question 36

Opinion
-First sentence

Answer 36

In my opinion, the amounts carried in Exhibit A on account of the items identified

Question 37

Opinion
[A]

Answer 37

[A] Meet the requirements of the insurance laws in state X

Question 38

Opinion
[B]

Answer 38

[B] Are computed in accordance with accepted actuarial standards and principles

Question 39

Opinion
[C]

Answer 39

[C] Make a reasonable provision for all unpaid loss and loss adjustment expense obligations of the Company under the terms of its contracts and agreements.

Question 40

Opinion
[D]

Answer 40

[D] Make a reasonable provision for the unearned premium reserves for long duration contracts (and possibly Other Loss Reserve items on which the Appointed Actuary is expressing an Opinion of the Company under the terms of its contracts and agreements.)