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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