Transcript Download Handout 1

SAO Changes
Then and Now
Casualty Loss Reserve Seminar
September 2006
OUTLINE OF PRESENTATION
 Background on Herbers
 History Lesson
 Changes for 2006
 Qualification Standard (2nd Exposure Draft)
 Peculiar Issues
 Q&A
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BACKGROUND ON HERBERS
 COPLFR Member since 1998
 Faculty for AAA Seminar on Effective P/C
Loss Reserve Opinions
 Practice Note Subcommittee
 Appointed Actuary for 21 companies in
2005
 CAS Forum paper on Materiality and SAOs
(2004)
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History
1986
Mission, Transit Casualty, Integrity insolvencies
18 states require SAOs
1988
ASB Established
MN requires SAO by independent actuary
USA Today headline - Actuary is #1 Profession
1989
AAA Qualification Standards for Signing SAOs
ASOP 9 adopted (Documentation and Disclosure …)
Overhaul of Sch P reporting format
1990
Best's Insolvency Study / Dingell Report
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History (cont.)
1991
SAO required by NAIC of all P/C companies
1992
COPLFR prepares draft guidance and illustrative wording
ASOP 20 adopted (Discounting)
ABCD formed
1993
ASOP 21 adopted (Actuary's Responsibility to Auditor)
ASOP 23 adopted (Data Quality)
1994
A. M. Best Study of A&E ($2T, define survival ratio)
Tax Reform Act
RBC enacted
1995
New Footnote 24 Disclosures re A&E reserves
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History (cont.)
1996
Opine on reserves excluding Sch P penalty
Disclosures of discount split between tabular and non-tabular
1997
A&E Disclosures
Disclosures required re booking reserves for und. Pools/associations
Extended comments required on significant types of losses and major
risk factors that may materially affect reserves
1998
Changed definition of ALAE/ULAE to DCC/A&O
Scope expanded to include UPR for long duration contracts
1999
Y2K Disclosure
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History (cont.)
2000
ASOP 36 adopted
Issues: Range v Point Estimate
Materiality
RMAD Disclosure
Define 5 types of SAOs
Reliance on Others
Electronic filing of SAO
2001
Expand scope to include retroactive reinsurance reserves
Codification implemented (management must book best estimate, eliminate
Sch P penalty, premium deficiency reserves)
Notify Board that SAO and actuarial report are available
Disclose name of actuary if reliance is given to another's opinion
New disclosure regarding Impact of terrorist attacks
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History (cont.)
2002
Sarbanes-Oxley adopted
2003
S&P Article "Insurance Actuaries - Crisis of Credibility"
2004
RMAD disclosure required - yes or no
Disclosure of materiality standard required
Disclosure of name/affiliation of person relied upon for data
Disclosure of actuary's indicated reseves to company held
Disclosure of reconciliation to Sch P
Extended comments on unusual IRIS test ratios
New CATF Guidance - Bright Line Indicator
New Data Testing Requirement for Auditors
New SAO for CA WC
Extensive reformatting of SAO document itself (Exh A - Scope
and Exh B - Disclosures)
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History (cont.)
2005
New Actuarial Opinion Summary
Process for Changing Appointed Actuary
Attestation requirement for risk transfer in reinsurance contracts
New Regulatory Guidance
- Explicit statement re RMAD
- Identify basis for materiality standard
- Expectation AA has sufficient awareness re risk transfer
- Meaningful discussion regarding company factors leading to
unusual IRIS test ratios
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Changes for 2006
 Title Opinion Instructions
 Clarification that AOS is a separate document from
SAO
 New CATF Guidance
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Qualification Standards
 Qualifications Standards for Prescribed
Statements of Actuarial Opinion, including:
Specific Qualifications Standards for the
Statement of Opinion, NAIC Property Casualty
Annual Statement
 Code of Professional Conduct
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Qualification Standards for Prescribed
Statements of Actuarial Opinion
 Basic Education –
 Successful completion of applicable exams
 Alternative basic education
— Responsible program of work and study
— Supported by a written statement of an actuary qualified
to issue a PSAO
 Continuing Education – Enough to remain current. At a
minimum average of 12 hours/year relevant to the PSAO
 At least half in organized activities

Recordkeeping
 Experience Requirements – at least 3 years of experience
under the review of an actuary qualified to issue the PSAO
 Acknowledgment of Qualifications
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2nd Exposure Draft
Qualifications Standards for Actuaries Issuing
Statements of Actuarial Opinion in the U.S.
 Released January 2006 - comment deadline 7/1/06
 General Qualification Standard – Committee on
Qualifications recommends increasing the current
Continuing Education requirement of 24 hours over
2 years to an annual 30-hour requirement that is
“relevant to the subject of the SAOs that they
issue.”
 Specific Qualification Standards – Committee
recommends increase from 12 to 15 hours
annually. At least 6 of 15 hours must involve
interaction with outside actuaries or other
professionals.
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Peculiar Issues
 CA WC Schedule P (2004)
 Colorado (2006)
 RRG in District of Columbia
 Extended reporting reserves
 When to follow NAIC format?
 What’s coming next?
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Q&A