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Opinion Writers Opinion Writers SymposiumSymposium
Casualty Loss Reserve SeminarCasualty Loss Reserve SeminarSeptember 10-11, 2007September 10-11, 2007
Moderator: Mary D Miller, Ohio Dept of InsuranceModerator: Mary D Miller, Ohio Dept of InsurancePanelists: Nicole Elliott, Texas Insurance DeptPanelists: Nicole Elliott, Texas Insurance Dept
Melissa Greiner, Pennsylvania Insurance Melissa Greiner, Pennsylvania Insurance DeptDept
Session 4: 3:30-5:00 pmSession 4: 3:30-5:00 pm
Opinion Symposium 2007Opinion Symposium 2007
Who is signing opinions?Who is signing opinions? 480 actuaries signed 2735 opinions 480 actuaries signed 2735 opinions
(4,361 CAS members as of 11/13/06, (4,361 CAS members as of 11/13/06, about 11%)about 11%)
33% Company – 67% Consultants33% Company – 67% Consultants 35% from top 5 consulting firms (at 35% from top 5 consulting firms (at
least 100 opinions)least 100 opinions) 30% signed 1 opinion30% signed 1 opinion 21 actuaries signed 593 opinions = 23% 21 actuaries signed 593 opinions = 23%
of opinions submitted = 4% of signersof opinions submitted = 4% of signers
Opinion Symposium 2007Opinion Symposium 2007
Our Advice for This YearOur Advice for This Year
Use your resourcesUse your resources Focus on RMADFocus on RMAD Prepare a good Actuarial ReportPrepare a good Actuarial Report Meet with the Board annuallyMeet with the Board annually Provide better comments on adverse Provide better comments on adverse
developmentdevelopment
Opinion Symposium 2007Opinion Symposium 2007
Use Your ResourcesUse Your Resources
Annual Statement InstructionsAnnual Statement Instructions ASOP 36ASOP 36 COPLFR Practice NoteCOPLFR Practice Note Practice Note’s Regulatory GuidancePractice Note’s Regulatory Guidance Regulatory actuariesRegulatory actuaries Papers re: MAD, ranges, etc.Papers re: MAD, ranges, etc. AAA 1 day Opinion Seminar AAA 1 day Opinion Seminar
Opinion Symposium 2007Opinion Symposium 2007
Focus on RMADFocus on RMAD
Statutory A/S Instructions vs. ASOP 36Statutory A/S Instructions vs. ASOP 36 Use the COPLFR Practice Note Use the COPLFR Practice Note
Regulatory GuidanceRegulatory Guidance Consider your audience – focus on Consider your audience – focus on
solvency, capitalization, RBC level, and solvency, capitalization, RBC level, and IRIS ratios, but don’t forget income IRIS ratios, but don’t forget income
Don’t confuse RMAD with a range of Don’t confuse RMAD with a range of reasonable reserve estimatesreasonable reserve estimates
Opinion Symposium 2007Opinion Symposium 2007
RMAD: What standard should I RMAD: What standard should I use?use?
Consider specific company risks & Consider specific company risks & operationsoperations
62% use surplus, 13% use LLAE62% use surplus, 13% use LLAE 18% use a combination of surplus, 18% use a combination of surplus,
LLAE, and/or RBCLLAE, and/or RBC Net vs. gross standards (reinsurance Net vs. gross standards (reinsurance
considerations)considerations) Sample disclosuresSample disclosures
Opinion Symposium 2007Opinion Symposium 2007
What did you use?What did you use?
Data from Data from 886 886 companies companies domiciled in domiciled in CT, IL, NY, CT, IL, NY, OH, PA and OH, PA and TXTX 13%
18%
3% 4%
62%
Surplus
Reserves
Combo
Reinsurance
Other
Opinion Symposium 2007Opinion Symposium 2007
Is there RMAD?Is there RMAD? Consider specific company risksConsider specific company risks RMAD amount vs. the RangeRMAD amount vs. the Range Carried reserves vs. actuarial Carried reserves vs. actuarial
indicationsindications RMAD on a Gross basis, but not Net?RMAD on a Gross basis, but not Net? Explicitly state if risk exists; 36% said Explicitly state if risk exists; 36% said
YesYes ‘‘Attorney approved’ languageAttorney approved’ language Sample disclosuresSample disclosures
Opinion Symposium 2007Opinion Symposium 2007
What is your answer?What is your answer?
Data from Data from companies companies domiciled in CT, IL, domiciled in CT, IL, NY, OH, PA, and TXNY, OH, PA, and TX
Risk of Material Risk of Material Adverse DeviationAdverse Deviation Yes 36%Yes 36% No 64%No 64% Ambiguous <1%Ambiguous <1%
YesNoUnclear
Opinion Symposium 2007Opinion Symposium 2007
Actuarial ReportActuarial Report
Define report: ASOP 36, A/S Define report: ASOP 36, A/S Instructions, Regulatory GuidanceInstructions, Regulatory Guidance
Who is the audience for the Report?Who is the audience for the Report? Does the Report support the Does the Report support the
Actuarial Opinion and the Actuarial Actuarial Opinion and the Actuarial Opinion Summary?Opinion Summary? AOS range should match range in ReportAOS range should match range in Report
Does it support carried reserves?Does it support carried reserves?
Opinion Symposium 2007Opinion Symposium 2007
Actuarial Report Actuarial Report DocumentationDocumentation
ASOP 9 RIP, now ASOP 41ASOP 9 RIP, now ASOP 41 Narrative and technical exhibitsNarrative and technical exhibits Document changes in assumptions or Document changes in assumptions or
methodsmethods Document operational changesDocument operational changes Discuss reinsurance – support gross and net Discuss reinsurance – support gross and net
estimatesestimates Relate the analysis to Schedule P lines of Relate the analysis to Schedule P lines of
businessbusiness
Opinion Symposium 2007Opinion Symposium 2007
Actuarial Report Actuarial Report DocumentationDocumentation
Support needed for assumptions and Support needed for assumptions and methodsmethods Loss ratios used in B-F methodsLoss ratios used in B-F methods Loss development factorsLoss development factors Interpolated factors and roll forwardsInterpolated factors and roll forwards Ultimate selectionsUltimate selections Segmentation of dataSegmentation of data
Explain your thought processExplain your thought process
Opinion Symposium 2007Opinion Symposium 2007
Actuarial Report Actuarial Report DocumentationDocumentation
Reconciliation to Schedule PReconciliation to Schedule P Account for all the piecesAccount for all the pieces At least Paid LLAE and case reservesAt least Paid LLAE and case reserves Other elements if significant to your Other elements if significant to your
analysisanalysis
Inadequate reconciliations cost time Inadequate reconciliations cost time and moneyand money
Opinion Symposium 2007Opinion Symposium 2007
Meet with the BoardMeet with the Board
Best to present your Report in personBest to present your Report in person
When that is not possible, meet with When that is not possible, meet with them at some other timethem at some other time
Regulators expect the Board to Regulators expect the Board to understand the significance of your understand the significance of your findingsfindings
Opinion Symposium 2007Opinion Symposium 2007
When in Doubt…When in Doubt…
Disclose, disclose, discloseDisclose, disclose, disclose Talk with managementTalk with management Seek help from a regulatory actuarySeek help from a regulatory actuary
Opinion Symposium 2007Opinion Symposium 2007
Actuarial Opinion SummaryActuarial Opinion Summary
Why do regulators need this?Why do regulators need this? How do regulators use this How do regulators use this
document?document? What are regulators’ expectations?What are regulators’ expectations?
Opinion Symposium 2007Opinion Symposium 2007
Actuarial Opinion Summary – Actuarial Opinion Summary – WHY?WHY?
A bridge between the Actuarial Opinion A bridge between the Actuarial Opinion and Actuarial Reportand Actuarial Report
Opinion Symposium 2007Opinion Symposium 2007
Actuarial Opinion Summary – Actuarial Opinion Summary – WHY?WHY?
Actuarial OpinionActuarial Opinion Public documentPublic document Due March 1Due March 1 Readily availableReadily available
Actuarial ReportActuarial Report Confidential Confidential
documentdocument Available May 1Available May 1 Provided at Provided at
regulator requestregulator request
Opinion Symposium 2007Opinion Symposium 2007
Actuarial Opinion Summary Actuarial Opinion Summary UsesUses
Provide a Provide a confidentialconfidential forum for forum for appointed actuary to present appointed actuary to present actuarial estimates actuarial estimates earlierearlier in the in the financial solvency processfinancial solvency process
Opinion Symposium 2007Opinion Symposium 2007
Actuarial Opinion Summary Actuarial Opinion Summary UsesUses
Tool for deciding when to request ReportTool for deciding when to request Report
Used in conjunction with Opinion and Used in conjunction with Opinion and Report when planning for financial Report when planning for financial examination process.examination process.
Quality and consistency of actuarial Quality and consistency of actuarial documents is a factor in the risk-focused documents is a factor in the risk-focused approach currently underway at the NAIC.approach currently underway at the NAIC.
Opinion Symposium 2007Opinion Symposium 2007
(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
Opinion Symposium 2007Opinion Symposium 2007
Regulator Expectations of Regulator Expectations of AOSAOS
All appointed actuaries would All appointed actuaries would understand one-year development testunderstand one-year development test
Management would communicate with Management would communicate with appointed actuariesappointed actuaries
Appointed actuaries would understand Appointed actuaries would understand company riskscompany risks Existing clients – what changed?Existing clients – what changed? New clients – review prior actuary’s work New clients – review prior actuary’s work
AND understand what changed in current AND understand what changed in current yearyear
Opinion Symposium 2007Opinion Symposium 2007
Did You Meet Expectations?Did You Meet Expectations?One-Year DevelopmentOne-Year Development
Generally everyone understands the Generally everyone understands the one-year development test – but one-year development test – but some were confused??????some were confused?????? In both 2005 and 2006 handful of In both 2005 and 2006 handful of
actuaries missed the calculation and did actuaries missed the calculation and did not comment as requirednot comment as required
Calculation is already provided on Calculation is already provided on A.S. Five-Year Historical page, line 71.A.S. Five-Year Historical page, line 71.
Opinion Symposium 2007Opinion Symposium 2007
Did You Meet Expectations?Did You Meet Expectations?One-Year DevelopmentOne-Year Development
Actuary required to comment when:Actuary required to comment when: One-year development > 20% PY One-year development > 20% PY
surplus in any single year (IRIS #11)surplus in any single year (IRIS #11) One-year development > 5% PY One-year development > 5% PY
surplus in three of five years (AOS)surplus in three of five years (AOS) Do I have to comment otherwise?Do I have to comment otherwise?
Opinion Symposium 2007Opinion Symposium 2007
One-Year Dev > Last Year’s One-Year Dev > Last Year’s MAD?MAD?
Does actuary comment?Does actuary comment? How did actuarial estimates change?How did actuarial estimates change? Did management’s reserving practices Did management’s reserving practices
or operational approach change?or operational approach change? Was this due to a catastrophe or single Was this due to a catastrophe or single
claim?claim? Regulator expects at least an Regulator expects at least an
acknowledgementacknowledgement
Opinion Symposium 2007Opinion Symposium 2007
Did You Meet Expectations?Did You Meet Expectations?Management CommunicationManagement Communication
Management communication is not Management communication is not always evidentalways evident Carried reserves didn’t always match ASCarried reserves didn’t always match AS Surplus differences even more commonSurplus differences even more common
Size of error is usually less important Size of error is usually less important than the breakdown in than the breakdown in communication processcommunication process
Opinion Symposium 2007Opinion Symposium 2007
Did You Meet Expectations?Did You Meet Expectations?Management CommunicationManagement Communication
What does management say in MD&A - What does management say in MD&A - Management Discussion & Analysis?Management Discussion & Analysis? Due April 1 to regulatorDue April 1 to regulator
What does management say in Note What does management say in Note 25?25? Changes to Incurred Losses & LAE reservesChanges to Incurred Losses & LAE reserves
Regulator will look for consistency in Regulator will look for consistency in Management statements and Actuarial Management statements and Actuarial documentsdocuments
Opinion Symposium 2007Opinion Symposium 2007
Did You Meet Expectations?Did You Meet Expectations?Company RisksCompany Risks
Regulator always interested in trendsRegulator always interested in trends Some disclosure always better than Some disclosure always better than
nonenone Clear explanation or understanding Clear explanation or understanding
of company risksof company risks
Opinion Symposium 2007Opinion Symposium 2007
Other AOS ObservationsOther AOS Observations
Reasons for adverse development could Reasons for adverse development could be single explanation or a lengthy listbe single explanation or a lengthy list
Be specific with explanations!Be specific with explanations! Single explanation may affect several Single explanation may affect several
calendar years of development.calendar years of development. Development observed in one AY may not Development observed in one AY may not
be same as development in another.be same as development in another. May need to address several LOB’sMay need to address several LOB’s
Opinion Symposium 2007Opinion Symposium 2007
What have we learned?What have we learned?
The majority of actuaries “get it”The majority of actuaries “get it” Some actuaries better than others in Some actuaries better than others in
level of disclosure; may be a matter level of disclosure; may be a matter of personal style.of personal style.
Actuarial firms do NOT take the same Actuarial firms do NOT take the same approach in developing actuarial approach in developing actuarial estimates (point, range or both)estimates (point, range or both)
Opinion Symposium 2007Opinion Symposium 2007
What did you use?What did you use?
Combined Combined Net Data Net Data from from Companies Companies domiciled in domiciled in CT, IL, NY, CT, IL, NY, OH, PA and OH, PA and TXTX 17%
28%
55%
PointRangeBoth
Opinion Symposium 2007Opinion Symposium 2007
How did you compare?How did you compare?
Net Data Net Data from from CompanieCompanies s domiciled domiciled in CT, IL, in CT, IL, NY, OH, NY, OH, PA and TXPA and TX
0
10
20
30
40
50
60
70
CT IL NY OH PA TX
<-10-10 to -5-5 to 000 to 55 to 10>10
Opinion Symposium 2007Opinion Symposium 2007
How did you compare?How did you compare?
Combined Combined Net Data Net Data from from Companies Companies domiciled in domiciled in CT, IL, NY, CT, IL, NY, OH, PA and OH, PA and TXTX
9%
28%
11%
21%
2% 2%
27%
<-10-10 to -5-5 to 000 to 55 to 10>10
Opinion Symposium 2007Opinion Symposium 2007
When in Doubt…When in Doubt…
Disclose, disclose, discloseDisclose, disclose, disclose Talk with managementTalk with management Seek help from a regulatory actuarySeek help from a regulatory actuary
Opinion Symposium 2007Opinion Symposium 2007
Our Advice for This YearOur Advice for This Year
Use your resourcesUse your resources Focus on RMADFocus on RMAD Prepare a good Actuarial ReportPrepare a good Actuarial Report Meet with the Board annuallyMeet with the Board annually Provide better comments on adverse Provide better comments on adverse
developmentdevelopment
Questions?Questions?
Comments?Comments?