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Flashcards in D1. SAO Deck (36):
1

What does the insurer need to provide to the Commissioner within 5 days of the appointment of the actuary

-Name and title
-Manner of appointment of the actuary
-Statement that the person meets the requirements to be a qualified actuary

2

Requirements to be a "qualified actuary"

-member in good standing with the CAS; or
-a member in good standing with the AAA, and who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the AAA

3

4 exemptions from producing SAO

1. small companies
2. insurers under supervision or conservatorship
3. nature of the business
4. financial hardship

4

What does the insurer need to do if the actuary is replaced

-notify the Insurance Department within five days
-within ten days, provide an additional letter to the Commissioner stating whether in the 24months prior to the actuary being replaced, were there any disagreements with the actuary regarding the risk of material adverse deviation; required disclosures; scopes; procedures or data quality.
-request in writing to the former actuary whether he/she agrees with the statements in the aforementioned letter.
This letter from the actuary should be forwarded to the Commissioner together with the insurer's letter.

5

Requirement for the "financial hardship" exemption:

If the projected reasonable cost of the actuarial opinion would exceed the lesser of:
1% of the insurer's capital and surplus from the latest quarterly statement of the year for which the exemption is sought
3% of the direct and assumed premiums during the year for which the exemption is sought

6

Requirement for the "small company" exemption

Insurers with under $1M of total direct and assumed premiums in a CY, and under $1M total direct and assumed loss and LAE reserves at year end

7

5 types of Statement of Actuarial Opinion

1. Reasonable Provision
2. Deficient Provision
3. Redundant Provision
4. Qualified Opinion
5. No Opinion

8

Parts of the SAO

-Identification paragraph
-Scope
-Opinion
-Relevant Comments

9

Identification Paragraph mentions

-the Appointed Actuary
-the actuary's relationship to the company
-the actuary's qualifications for acting as the appointed actuary
-date of appointment

10

3 things that the actuary needs to disclose if he provides a Qualified Opinion:

-the item(s) to which the qualification relates
-the reason(s) for the qualification
-amount(s) for the above items, if disclosed by the insurer

11

Disclosures about the Risk of Material Adverse Deviation that the actuary should make

-the materiality standard
-how this standard was derived
-whether there are significant risks that could produce material adverse deviation
-if the risk exists, major factors that could result in material adverse deviation.
-major factors, combination of factors, or particular conditions underlying the risk and uncertainties that the actuary considers relevant

12

What is listed in the Loss Reserve section of Exhibit A:

-Reserve for Unpaid Losses
-Reserve for Unpaid LAE
-Reserve for Unpaid Losses - D and A
-Reserve for Unpaid LAE - D and A
-Retroactive Reinsurance Reserve D and A
-Other Loss Reserve items

13

3 sources to determine reinsurance collectability

1. management
2. reinsurer ratings
3. Schedule F (look for regulatory action or overdue paid losses)

14

Comments about reinsurance that the actuary should make

-retroactive reinsurance
-financial reinsurance
-reinsurance collectability

15

What must be included in the Actuarial Report:

-An exhibit that ties to the Annual Statement and compares
-the actuary's conclusions to the carried amounts
-Summary exhibit that contains the actuary's best estimate and/ or range
-Documentation of the data reconciliation to Schedule P
-More extensive comments on trends that indicate the presence/ absence of risks and uncertainties that may result in material adverse deviation
-More extensive comments on factors that caused unusual IRIS ratios, in addition to how these factors were addressed in the prior and current analyses

16

List the IRIS ratios that the actuary will have to discuss if the ratios have exceptional values:

-1yr development to surplus
-2yr development to surplus
-Estimated Current Reserve Deficiency to surplus

17

Factors that could be considered when choosing a materiality standard:

-percentage of surplus
-percentage of reserves
-amount of adverse deviation that would cause a drop in financial strength ratings
-amount of adverse deviation that would cause surplus to fall below minimum capital requirements
-amount of deviation that would cause RBC to fall to the next action level
-multiples of retained risk

18

Items to be included in an AOS

-Range of reasonable estimates for loss and LAE reserves, net and gross of reinsurance (if calculated)
-Point estimate for loss and LAE reserves, net and gross of reinsurance (if calculated)
-The company's recorded loss and LAE reserves, net and gross of reinsurance.
-The difference between the carried reserves, and point estimate and/or range, net and gross of reinsurance.
-If there is adverse development in excess of 5% of surplus in at least 3 of the 5 past years, a description of the reserve elements and/ or management decisions that were major contributors to this adverse development

19

If there is an error in the AOS, the revised AOS should:

-be submitted to the regulator within 10 business days
-clearly state that it is an amended document
-contain or accompany an explanation for the change
-include the revised date

20

Actions that the actuary should take if they realize between submitting the opinion, and the date of the balance sheet for which the next opinion shall be issued, that there is an error in the data that would have materially impacted the opinion

-alert the audit committee within five business days
-this notification needs to include an amended opinion.
-the insurer needs to forward this amended opinion to the insurance Commissioner within the next five days, and also copy the actuary
-If the actuary does not receive this copy, he should notify the Commissioner

21

Actions that the actuary can take if the data cannot be reconciled to Schedule P:

-Confirm that the person responsible for the data is aware of the differences
-Recommend that the company inform the auditors about the difference
-Discuss the issue in the SAO, and elaborate on it in the AOS

22

Factors that the actuary should consider when trying to determine whether to rely on the work of others:

-The amount of the reserves covered by the other actuary's analysis in comparison to the total reserves
-The nature of the exposure and coverage
-How reasonably likely variations in the other actuary's analysis may impact the total reserves on which the actuary is opining.
-Credentials of the other actuary

23

What should the actuary comment on if mass tort exposure exists

-Whether there is material exposure
-The aggregate amount of money held
-The significant variability and uncertainty inherent in the estimate
-Whether the actuary believes the liability is actuarially estimable
-The difficulties involved in providing an actuarial estimate of these liabilities
-Whether the liabilities are being handled by a dedicated and experienced claims/ legal unit

24

Factors that the actuary should consider when there is insufficient historical data

-Whether there is adequate data to evaluate the reserves
-If industry data or another company's date were used, is this data reasonably similar to the company for which the actuary is providing an opinion
-Whether to provide disclosures about the data used
-Whether to provide disclosures about the resulting variability and uncertainty

25

List 3 exclusions from the definition of long duration contracts:

1. Financial guaranty
2. Mortgage guaranty
3. Surety

26

Define "long duration contracts":

Contracts with terms greater than 13 months where the insurer can not cancel or increased the premium

27

Signs of undue management influence that may be apparent during an executive session:

-The actuary is not provided with comprehensive information on emerging problem areas
-Information is provided late to the actuary, leaving inadequate time for the analysis
-The actuary is denied access to certain employees
-Management makes it clear to the actuary that his continued employment is contingent on agreement with managements reserves
-The opining actuary is replaced, and the new actuary immediately agrees with managements position

28

Scope Paragraph with respect to data used

-Name of person that provided data and position
-Evaluation date of data used
-Whether it has been reconciled to Schedule P

29

Continuing LOBs Reconciliation

-Paid Loss
-Paid DCC
-Case Incurred loss reserves
-Case Incurred DCC reserves
-Sal and Sub recoveries
-Earned Premiums

30

Discontinued LOBs reconciliaton

-Calendar Year payments
-Ending Case reserves

31

Other Data to reconcile

-Paid losses for all lines combined
-A and O payments

32

Data testing requirements roles of insurer, Appointed Actuary and auditor

insurer: Select AA and provide them data
AA: Request appropriate data. Identify data to auditor believed to be significant to SAO
Auditor: determine scope of work & design testing procedures. Obtain understanding of data seen as appropriate.

33

Opinion paragraph

In my opinion, the amounts carried in exhibit A on account of the items identified:

-make a reasonable provision for all unpaid losses and lae, gross and net as to reinsurance ceded, under the company's contracts and agreements

-are computed in accordance with accepted standards and principles

-meet the requirements of the insurance laws of Florida

34

When is the AOS due?

3/15

35

Actuarial report due date

5/1

36

Scope needs

-reserve elements opining on
-exhibit A
-list review date
-who provided the data and reconciled to schedule P
-member of intercompany pool say who data was reconciled to schedule p and pooling percentage
-qualification