Opinion writers symposium casualty loss reserve seminar september 10 11 2007
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Opinion Writers Symposium Casualty Loss Reserve Seminar September 10-11, 2007. Moderator: Mary D Miller, Ohio Dept of Insurance Panelists: Nicole Elliott, Texas Insurance Dept Melissa Greiner, Pennsylvania Insurance Dept Session 4: 3:30-5:00 pm. Who is signing opinions?.

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Opinion writers symposium casualty loss reserve seminar september 10 11 2007

Opinion Writers SymposiumCasualty Loss Reserve SeminarSeptember 10-11, 2007

Moderator: Mary D Miller, Ohio Dept of Insurance

Panelists: Nicole Elliott, Texas Insurance Dept

Melissa Greiner, Pennsylvania Insurance Dept

Session 4: 3:30-5:00 pm


Who is signing opinions
Who is signing opinions?

  • 480 actuaries signed 2735 opinions (4,361 CAS members as of 11/13/06, about 11%)

  • 33% Company – 67% Consultants

  • 35% from top 5 consulting firms (at least 100 opinions)

  • 30% signed 1 opinion

  • 21 actuaries signed 593 opinions = 23% of opinions submitted = 4% of signers


Our advice for this year
Our Advice for This Year

  • Use your resources

  • Focus on RMAD

  • Prepare a good Actuarial Report

  • Meet with the Board annually

  • Provide better comments on adverse development


Use your resources
Use Your Resources

  • Annual Statement Instructions

  • ASOP 36

  • COPLFR Practice Note

  • Practice Note’s Regulatory Guidance

  • Regulatory actuaries

  • Papers re: MAD, ranges, etc.

  • AAA 1 day Opinion Seminar


Focus on rmad
Focus on RMAD

  • Statutory A/S Instructions vs. ASOP 36

  • Use the COPLFR Practice Note Regulatory Guidance

  • Consider your audience – focus on solvency, capitalization, RBC level, and IRIS ratios, but don’t forget income

  • Don’t confuse RMAD with a range of reasonable reserve estimates


Rmad what standard should i use
RMAD: What standard should I use?

  • Consider specific company risks & operations

  • 62% use surplus, 13% use LLAE

  • 18% use a combination of surplus, LLAE, and/or RBC

  • Net vs. gross standards (reinsurance considerations)

  • Sample disclosures


What did you use
What did you use?

  • Data from 886 companies domiciled in CT, IL, NY, OH, PA and TX


Is there rmad
Is there RMAD?

  • Consider specific company risks

  • RMAD amount vs. the Range

  • Carried reserves vs. actuarial indications

  • RMAD on a Gross basis, but not Net?

  • Explicitly state if risk exists; 36% said Yes

  • ‘Attorney approved’ language

  • Sample disclosures


What is your answer
What is your answer?

  • Data from companies domiciled in CT, IL, NY, OH, PA, and TX

  • Risk of Material Adverse Deviation

    • Yes 36%

    • No 64%

    • Ambiguous <1%


Actuarial report
Actuarial Report

  • Define report: ASOP 36, A/S Instructions, Regulatory Guidance

  • Who is the audience for the Report?

  • Does the Report support the Actuarial Opinion and the Actuarial Opinion Summary?

    • AOS range should match range in Report

  • Does it support carried reserves?


Actuarial report documentation
Actuarial Report Documentation

  • ASOP 9 RIP, now ASOP 41

  • Narrative and technical exhibits

  • Document changes in assumptions or methods

  • Document operational changes

  • Discuss reinsurance – support gross and net estimates

  • Relate the analysis to Schedule P lines of business


Actuarial report documentation1
Actuarial Report Documentation

  • Support needed for assumptions and methods

    • Loss ratios used in B-F methods

    • Loss development factors

    • Interpolated factors and roll forwards

    • Ultimate selections

    • Segmentation of data

  • Explain your thought process


Actuarial report documentation2
Actuarial Report Documentation

  • Reconciliation to Schedule P

    • Account for all the pieces

    • At least Paid LLAE and case reserves

    • Other elements if significant to your analysis

  • Inadequate reconciliations cost time and money


Meet with the board
Meet with the Board

  • Best to present your Report in person

  • When that is not possible, meet with them at some other time

  • Regulators expect the Board to understand the significance of your findings


When in doubt
When in Doubt…

  • Disclose, disclose, disclose

  • Talk with management

  • Seek help from a regulatory actuary


Actuarial opinion summary
Actuarial Opinion Summary

  • Why do regulators need this?

  • How do regulators use this document?

  • What are regulators’ expectations?


Actuarial opinion summary why
Actuarial Opinion Summary – WHY?

  • A bridge between the Actuarial Opinion and Actuarial Report


Actuarial opinion summary why1

Actuarial Opinion

Public document

Due March 1

Readily available

Actuarial Report

Confidential document

Available May 1

Provided at regulator request

Actuarial Opinion Summary – WHY?


Actuarial opinion summary uses
Actuarial Opinion Summary Uses

  • Provide a confidential forum for appointed actuary to present actuarial estimates earlier in the financial solvency process


Actuarial opinion summary uses1
Actuarial Opinion Summary Uses

  • Tool for deciding when to request Report

  • Used in conjunction with Opinion and Report when planning for financial examination process.

  • Quality and consistency of actuarial documents is a factor in the risk-focused approach currently underway at the NAIC.


In consistency clue
(In)Consistency Clue

  • Example: Inter-company Pool – 3 Companies – 50%, 30%, 20% - Difference between Actuary’s estimate and carried reserves -D&A

    • Company A = (-2,000)

    • Company B = (-1,200)

    • Company C = 1,000


Regulator expectations of aos
Regulator Expectations of AOS

  • All appointed actuaries would understand one-year development test

  • Management would communicate with appointed actuaries

  • Appointed actuaries would understand company risks

    • Existing clients – what changed?

    • New clients – review prior actuary’s work AND understand what changed in current year


Did you meet expectations one year development
Did You Meet Expectations?One-Year Development

  • Generally everyone understands the one-year development test – but some were confused??????

    • In both 2005 and 2006 handful of actuaries missed the calculation and did not comment as required

  • Calculation is already provided on A.S. Five-Year Historical page, line 71.


Did you meet expectations one year development1
Did You Meet Expectations?One-Year Development

Actuary required to comment when:

  • One-year development > 20% PY surplus in any single year (IRIS #11)

  • One-year development > 5% PY surplus in three of five years (AOS)

  • Do I have to comment otherwise?


One year dev last year s mad
One-Year Dev > Last Year’s MAD?

  • Does actuary comment?

  • How did actuarial estimates change?

  • Did management’s reserving practices or operational approach change?

  • Was this due to a catastrophe or single claim?

  • Regulator expects at least an acknowledgement


Did you meet expectations management communication
Did You Meet Expectations?Management Communication

  • Management communication is not always evident

    • Carried reserves didn’t always match AS

    • Surplus differences even more common

  • Size of error is usually less important than the breakdown in communication process


Did you meet expectations management communication1
Did You Meet Expectations?Management Communication

  • What does management say in MD&A - Management Discussion & Analysis?

    • Due April 1 to regulator

  • What does management say in Note 25?

    • Changes to Incurred Losses & LAE reserves

  • Regulator will look for consistency in Management statements and Actuarial documents


Did you meet expectations company risks
Did You Meet Expectations?Company Risks

  • Regulator always interested in trends

  • Some disclosure always better than none

  • Clear explanation or understanding of company risks


Other aos observations
Other AOS Observations

  • Reasons for adverse development could be single explanation or a lengthy list

  • Be specific with explanations!

    • Single explanation may affect several calendar years of development.

    • Development observed in one AY may not be same as development in another.

    • May need to address several LOB’s


What have we learned
What have we learned?

  • The majority of actuaries “get it”

  • Some actuaries better than others in level of disclosure; may be a matter of personal style.

  • Actuarial firms do NOT take the same approach in developing actuarial estimates (point, range or both)


What did you use1
What did you use?

  • Combined Net Data from Companies domiciled in CT, IL, NY, OH, PA and TX


How did you compare
How did you compare?

  • Net Data from Companies domiciled in CT, IL, NY, OH, PA and TX


How did you compare1
How did you compare?

  • Combined Net Data from Companies domiciled in CT, IL, NY, OH, PA and TX


When in doubt1
When in Doubt…

  • Disclose, disclose, disclose

  • Talk with management

  • Seek help from a regulatory actuary


Our advice for this year1
Our Advice for This Year

  • Use your resources

  • Focus on RMAD

  • Prepare a good Actuarial Report

  • Meet with the Board annually

  • Provide better comments on adverse development


Questions

Questions?

Comments?


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