COPLFR Flashcards Preview

Exam 6 > COPLFR > Flashcards

Flashcards in COPLFR Deck (66)
1

SAO file date

3/1

2

Main purposes of SAO

States actuary's opinion about reasonableness of reserves
Notify stakeholders of significant risks and uncertainties that may impact reserves
Disclose potential for significant adverse deviation

3

Qualified Actuary

Member in good standing with CAS -- or AAA approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the AAA

4

Appointment date of Actuary

12/31 of calendar year for which opinion will be given

5

Insurance Commissioner, appointment of actuary

Within five days of appointment of actuary, notify commissioner of name, manner of appointment, and qualified statement

6

Replacing actuary

Notify insurance department within five days, figure out what went wrong

7

Exemptions from SAO

Small companies (less than $1M in premium and less than $1M in reserves), financial hardship (1% of surplus or 3% of reserves), in receivership or liquidation

8

SAO contents

ISOR:
Identification paragraph
Scope paragraph
Opinion paragraph
Relevant comments

9

Identification Paragraph, SAO

Appointed Actuary
Relationship to company
Qualifications
Date of appointment
State that Board made appointment

10

Scope Paragraph, SAO

Mentions reserve elements upon which the actuary is opining (and not); should include a paragraph about examination of assumptions and methodology that support booked reserves

11

Stated basis of the reserves

Discount, risk margin, recoverable gross/net, potential for uncollectible receivables, types of unpaid LAE

12

SAO Additional Disclosures

Review date
Data was reconciled to Schedule P by actuary, or
Actuary reviewed reconciliation prepared by insurer

13

Review date, SAO

Date through which the material information known to the actuary is included in forming the reserve opinion

14

Opinion Paragraph, SAO

Must list opinion of actuary regarding reserves (in aggregate); state whether for combined or separate loss andLAE

15

Reasonable Provision

Stated reserve is in the actuary's range of reasonable estimates

16

Deficient Provision

Stated reserve < minimum of range; actuary needs to disclose minimum

17

Redundant Provision

Stated reserve > maximum of range; actuary needs to disclose maximum

18

Qualified opinion

If certain items cannot be estimated or if the actuary is unable to provide an opinion on those items; all it means is there is a portion of the reserves not covered by SAO

19

Qualified opinion disclosures

Items to which qualification relates
Reason for qualification
Amount for above items, if possible
(If not deemed to be material, qualified opinion does not need to be made)

20

No opinion

Cannot reach conclusion due to limitations in the data, analyses, etc.; should provide description as to why

21

Relevant Comments, SAO

Provides context to regulators; considered most valuable section of SAO;

22

Relevant Comments sections

Risk of Material Adverse Deviation
Anticipated Salsub
Reinsurance
IRIS Ratios
Methods and Assumptions

23

Risk of Adverse Deviation

Amount of deviation actuary considers to be material (how)
Description of factors or conditions underlying significant risks
Statement about whether actuary believes there are significant risks that could result in RAD

24

Asbestos exposures

Any loss or potential loss related directly or indirectly to the manufacture, distribution... of asbestos, excluding policies specifically written for this

25

Environmental exposures

Loss or potential loss related directly or indirectly to the remediation of a site arising from past operations or waste disposal

26

AE exposures in SAO

Receive special attention in SAO because mass torts cause material adverse deviation, traditional methods not applicable

27

Financial reinsurance, SAO

Determination is from insurer, not actuary; must always comment on this in the SAO

28

Uncollectible reinsurance, SAO

Review reinsurer ratings, talk to management, discuss materiality of losses ceded to reinsurers in poor financial health

29

IRIS ratios, SAO

11, 12, and 13; paragraph required if there are exceptional values; if none, still include wording to indicate review of calculations

30

Changes in methods and assumptions, SAO (not considered)

Use of assumptions for new segments of business; updating of data, factors, or weights

31

Other disclosures

Intended users/purpose of SAO
Whether any material assumption was prescribed by law

32

Actuarial Report

Document or other presentation, prepared as a formal means of conveying to state regulatory authority;

33

Actuarial report must include

Actuary's relationship to company, exhibit that ties to annual statement, exhibit that reconciles and maps data, changes in estimates, comments on trends, IRIS ratios

34

CASTF most notable deficiencies in Actuarial Reports

"Actuarial judgment" not sufficient explanation; lack of incorporation of inflation, Schedule P reconciliation only in summary format

35

AOS

Supplement to SAO:
1) Range of estimates/point estimate
2) Carried reserve
3) Difference between two on net basis
4) Difference between two on gross basis
5) Whether insurer has experienced adverse development recently (more than 5% of surplus in 3 out of last 5 years)

36

Risk of material adverse deviation

If there is reasonable possibility company will experience deviation that will cause it to reach "adverse" condition; about 1/3 conclude this

37

Bright Line Test

If actuary does not address material adverse deviation, but 10% of net LLAE reserves exceed difference between TAC and CAL, comment should be sought.

38

Actuarial Report Retention

7 years

39

ASOP 36

Statements of Actuarial Opinion

40

Materiality

Material omission or misstatement is defined as one where the judgment of a reasonable person would be influenced

41

Contracts not long term

Mortgage guaranty, financial guaranty, surety

42

Internal controls

Segregation of duties (reserving/pricing)
Reserve committees
Internal audit
Actuarial peer review
Report from Appointed Actuary

43

External controls

External audit
Attestations
Financial Examinations
Replacement of Appointed Actuary

44

Undue Management Influence

Actuary not given comprehensive info
Late info leading to inadequate time
Actuary denied access to certain employees
Employment contingent on agreement of reserves
Actuary replaced with a yes-man

45

Description of adverse reserve development requirement

If ratio of reserve development to prior year PHS is greater than 5% in 3 or more of last 5 years

46

Long duration contracts

>= 13 months
Insurer cannot cancel or increase premium during term
Actuary must opine on UEPR

47

Topics that must be addressed in SAO

Retro reinsurance
Collectibility
A/E reserves
Recoverables from voluntary/involuntary market pools

48

Topics that must be included in Actuarial Report

Reconciliation to Schedule P
Risk of material adverse deviation
IRIS 11-13

49

Significant parts to Exhibit B, SAO

SPADDE
Salsub
Pools
A/E
Discounting
long Duration
EREs

50

Relevant Comments section, SAO

RAMBLR
Reinsurance
Assumptions/Methods
Materiality standard
exhibit B parts
Long-term contracts
Ratios (IRIS)

51

Significant parts to Exhibit A, SAO

GNOR
Gross Loss and LAE reserves (separately)
Net Loss and LAE reserves (separately)
Other reserves
Retro reinsurance reserves

52

Common materiality standards

10% of carried reserve (decision change)
10% of PHS (solvency/triggers IRIS)
Change in RBC (regulation)
Change in rating

53

Pooling disclosures, RELEVANT COMMENTS

If there is a lag, how is it accrued
If pool reserves are material to total reserves
Collectability of assessments
Whether actuary reviewed other actuary's review
Nature of member's liability as part of pool

54

Scope paragraph disclosures

Date of review
Source of data (name, affiliation)
Evaluation date
Reconciliation to Schedule P
Disclosure Items Exhibit B
Reviewed data for reasonableness / consistency
Reviewed method / assumptions used in determining reserves listed in Exhibit A

55

Disclosures when using another actuary's analysis

Name of other actuary
Affiliation of other actuary
That the actuary reviewed the other actuary's work
Extent of that review

56

Disclosures, qualified opinion

Portion to which qualification applies
Reason for qualification
Amount of carried reserves (if disclosed by company)
Other reserves are reasonable

57

SAO reconciliation to Schedule P

Net paid losses reconciled to Part 1
By AY and LOB
Should disclose whether s/he relied on reconciliation performed by someone else

58

Financial hardship exemption

Cost of opinion > 1% PHS or 3% GWP

59

SAO, Lack of historical data (considerations)

Whether there is enough data for an evaluation
If using industry data, be sure it is comparable
Whether to provide disclosure about variability and uncertainty of results

60

Actuary obligations to board of directors

Report on items in Scope annually
Notify the board within five days if there is a material error (in data)

61

RMAD example

In order to establish my materiality standard, I examined three amounts... My materiality standard is X. I have identified the major risk factors for this company's reserves as ___, ___, and ___. The existence of these factors leads me to conclude that a risk of material adverse deviation exists.

62

Replacing actuary, steps

1. Notify commissioner within 5 days
2. Notify commissioner of disagreements related to substantive wording of SAO
3. Request letter from former actuary stating agreement/disagreement
4. Replace by end of year that reserves are opined

63

ASOP 20

Discounting of PC Unpaid Claim Estimates

64

ASOP 41

Actuarial Communications

65

ASOP 43

PC Claim Estimates

66

Steps if there is an error

Actuary notifies company (5 days)
Notification includes summary of reason for error and amended SAO
Insurer notifies commissioner (5 days -- should copy actuary)