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Are Your Opinions and Actuarial Reports Meeting Expectations of Regulators and Others. Casualty Loss Reserve Seminar September 18 - 19 2008 Moderator: M. Wendy Germani, FCAS Panelists: Joseph A. Herbers, ACAS Richard Marcks, FCAS P. Sean O’Donnell. - PowerPoint PPT Presentation
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Are Your Opinions and Actuarial Reports Meeting Expectations of Regulators
and OthersCasualty Loss Reserve Seminar
September 18 - 19 2008
Moderator: M. Wendy Germani, FCAS
Panelists: Joseph A. Herbers, ACAS
Richard Marcks, FCAS
P. Sean O’Donnell
Meeting Expectations of Regulators
Casualty Loss Reserve Seminar
September 2008
By:
Richard Marcks
Property Casualty Actuary
Connecticut Insurance Department
Overview
Opinion History
Regulator Observations
Recommendations
Resources
3
Opinion History
Pre-2004
2004: From Boilerplate to Specific Characteristics of the Company
Current EmphasisOpinion SummarySupporting ReportAnnual Guidance
4
Regulator Observations
ASOP No. 9 vs. ASOP No. 41
ASOP No. 36 vs. ASOP No. 43
How many is too many?
Company vs. Consulting Actuary
Opinion vs. Report Quality
Caveats
5
ASOP No. 9 vs.. ASOP No. 41
“… sufficient for another actuary practicing in the same field to evaluate the work. The documentation should describe clearly the sources of data, material assumptions, and methods.”
“… ensuring that the parties addressed are aware of the significance of the actuary's opinion or findings.”
“Any material changes in sources of data, assumptions, or methods from the last analysis should be documented. The actuary should explain the reason(s) for and describe the impact of the changes.
6
ASOP No. 36 vs. ASOP No. 43
… relevant characteristics of the entity’s exposures to the extent that they are likely to have a material effect on the results of the actuary’s reserve analysis… influenced by the methods used to sell or provide coverages, the distribution channels from which the entity’s business is obtained, the general underwriting practices and pricing philosophy of the entity, and the marketing objectives and strategies of the entity.
The appropriate type and extent of reserve analysis will vary with the nature of the claims and exposures…
…likely to have a material impact on the estimate…
7
How Many Is Too Many?
2007 2500 SAOs by 526 actuaries
13% by actuaries who signed < __ ?
14% by actuaries who signed > __ ?
8
Caveats & Disclaimers
Is it consistent with the analysis?
Does it appear to be a denial of responsibility?
Does it provide meaningful context?
9
Recommendations
Address the Statutory Entity in the Report
Peer Review informed skepticismRead other opinionsHave your opinion and report scrutinized
Consistent with Other Information
Talk to the Regulator of Domicile
10
Resources
www.naic.org/committees_c_catf.htmRegulatory Guidance Links to State web sites
www.casact.orgStatement of PrinciplesPublications, Research, Professional Ed
www.actuary.orgCOPLFR Practice NoteBoot Camp
11
Q & A
Meeting Expectations
Casualty Loss Reserve Seminar
September 2008
By:
Joseph A. Herbers
Pinnacle Actuarial Resources, Inc.
OUTLINE OF PRESENTATION
Background on Herbers
General Observations & NAIC CATF Guidance
Others’ Review of My Work
My Review of Others’ Work
General Comments
14
Background on Herbers
COPLFR Member since 1998 Faculty for AAA Seminar on Effective P/C
Loss Reserve Opinions Practice Note Subcommittee
Appointed Actuary for 24 domestic P/C companies / RRG’s in 2007
Loss Reserve Specialist / AA for dozens of captives
CAS paper on Materiality and SAOs (2004)
15
Background on Herbers
23 years consulting experience
SAOs, feasibility studies
Funding/reserve studies commonly reviewed by regulators, auditors, reinsurers, fronting carriers, competitors
Audit Support experience
Financial Examination feedback
16
General Observations
Focus of my comments are on actuarial reports – not on SAOs or AOS
NAIC CATF – Regulatory Guidance Memo on Actuarial Report noted three notable weaknesses in documentation of many actuarial reports:
- Expected Loss Ratio
- Actuarial Judgment
- Entity
17
General Observations
Report should contain exhibit summarizing changes in estimates from prior analysis, with extended discussion of significant factors underlying the changes – in order to improve transparency of disclosures
Exhibit comparing held reserve amounts with actuarial indications
Reconciliation exhibit between financial statement and data provided to actuary
Added disclosures for “roll forward” type analyses
18
Others’ Review of My Work
Document judgments underlying important assumptions – “What are the soft spots”
- annual trend rates
- benchmark loss development patterns – source and reasonableness given situation at hand
- implied loss ratios
- ratios of ceded to direct
- changes from prior years
Schedule P Reconciliation
19
Benchmark Loss Development Patterns
by Line / Subline [GL – OL&T/M&C/Products versus Prof. Liability]
Primary v Excess
by Sector (trucking, contractors, staffing, manufacturers)
specialty lines (garage, D&O, warranty, professional liability)
Sources
20
Schedule P Reconciliation
paid amounts gross/net of salvage/subrogation
loss v DCC
reconcile A&O expenses by calendar year
A&O as % of gross v net
reconcile to held IBNR?
by line v by program
21
My Review of Other’s Work
Document judgments underlying important assumptions
- preponderance of optimistic v pessimistic assumptions
- client confidential “benchmarks”
- selected values compared with actuarial indications
- perpetuation of “prior year” values when data shows movement
- changes since prior year?
22
My Review of Other’s Work
Independent Review- Use same structure but use my own assumptions- Truly independent review- May impact only a portion of overall reserves
Peer Review- ASOP 41 (Actuarial Communications) states
23
“(A)n actuarial report should identify the data, assumptions, and methods used by the actuary with sufficient clarity that another actuary qualified in the same practice area could make an objective appraisal of the reasonableness of the actuary’s work as presented in the actuary’s report.”
Review Template
Form
Is the client requesting the performance of the actuarial analysis clearly identified?
Is the actuary or actuaries responsible for the actuarial report clearly identified?
Is the project scope clearly defined?
Is the work product clear?
24
ASOP 41, section 3.1.2 states that “(t)he actuary should take appropriate steps to ensure that the form and content (emphasis added) of the actuarial communication are clear and appropriate to the particular circumstance, taking into account the intended audience.”
Review Template
Content
Are all assumptions and methods specified?
Are the assumptions and methods reasonable for this assignment?
Are the data sources identified and appropriate for their use in the analysis?
Are the resulting calculations correct?
Are the results, findings and recommendations reasonable and adequately supported by the analysis?
Does the work product meet actuarial standards of practice or other professional standards?
Are any reliances and limitations appropriate and clearly delineated?
Is the potential variability of results adequately discussed?
25
General Comments
Documentation of assumptions is often sparse - Background section of report with info on retentions,
deductibles, unique program features is invaluable- Are LAE included in losses? Was A&O LAE
considered?
Footnotes to exhibits leave something to be desired
Data limitations are often significant and need discussion
Tables, charts and graphs can add immeasurably to understanding of report
26
Annual Trend Rates
-2.5% WC loss cost trend?
0% severity trend for nonstandard auto?
+20% trend for nursing home professional liability?
Were exposure trends contemplated?
Sources
- Masterson Indices
- Rate Filings
- Special Studies
- Fast Track
27
Q & A
Risk Retention Groups
Casualty Loss Reserve Seminar
September 2008
By:
Sean O’Donnell
Director of Financial Examination
Risk Finance Bureau
D.C. Department of Insurance, Securities and Banking
Actuarial Requirements for Risk Retention Groups
30
D. C. Domestic Risk Retention Groups
Overview
31
D. C. Experience with Risk Retention Groups
Statement of Actuarial Opinions
32
Suggested Areas for Improvement
Risk Retentions Groups
Actuarial Opinions
33
Q & A