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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