Transcript Download Handout 2

2005 Opinions &
2006 Regulatory Guidance
Nicole Elliott, ACAS
Texas Department of Insurance
Topics To Be Covered
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Opinion statistics
Results from Year 1 of the AOS
Regulatory Guidance – 2006 Draft
Who is opining?
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32% of Opinions are done by a company
actuary
36% are done by the top five actuarial
consulting firms
Top actuary signed > 50 opinions (a large
pooled group)
In TX, 78% are Fellows
In TX, 125 of companies had a change in
Appointed Actuary
Material Adverse Deviation
Standards (TX)
Type
Percentage
MAD Possible Percentage
Surplus
61%
Loss & LAE
Reserves
10%
Reinsurance
6%
Other
No
81%
Yes*
18%
Undeterminable
1%
22%
*Nearly half of the ‘Yes’ companies
used standard language
Material Adverse Deviation
(TX) cont.
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Companies using Surplus as the MAD standard:
6%
8%
17%
17%
14%
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5%
10%
15%
20%
25%
Other
38%
Companies using ‘Other’ as the MAD standard: most used
some combination of the minimum of some percentage each
of surplus and LLAE reserves and the amount required to
change RBC level
AOS – Year 1 (TX)
Type
Percentage
Point
66%
Range
17%
Point and Range*
17%
*Most companies’ point estimate was within 5% of the
midpoint of the range
AOS – Year 1 (TX and a few
other states*)
Comparison of carried reserves to Actuary's point
estimate or mid-point of range
Net*
% of Tot
Cum %
Gross#
% of Tot
Cum %
More than 10% below
6
1%
1%
10
2%
2%
More than 5% but less than 10% below
13
2%
3%
18
4%
6%
Less than 5 % below
79
13%
16%
72
15%
21%
Equal to but other than zero reserve
80
13%
29%
90
19%
40%
Less than 5 % above
183
30%
60%
167
35%
75%
> than 5% above but < than 10% above
67
11%
71%
41
9%
84%
More than 10% above
50
8%
79%
46
10%
93%
Carried reserves are zero
128
21%
100%
31
7%
100%
606
*Represents nearly 25% of opinions submitted
#Represents < 20% of opinions submitted
475
Regulatory Guidance - History
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Developed by the CATF for inclusion in the COPLFR
Practice Note
First appeared in 2004 to coincide with the major
changes made to the SAO Instructions (type of
opinion issued and RMAD discussion)
Effort to convey regulatory issues in a timely
responsive manner
Substantially revised in 2005 based on review of
2004 opinions
Regulatory Guidance –
2005 Highlights
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Bright Line Indicator still maintained
Substantial discussion on “cookie cutter” opinions
Net zero companies and pooled companies
Explicit statement of whether or not RMAD exists
Reinsurance/Risk Transfer issues
Better discussion of adverse results (IRIS ratios)
Actuarial Report should contain a comparison of
actuary’s indicated amounts to carried reserves
AOS required for the first time – no real guidance
provided
Regulatory Guidance –
2006 Draft
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Currently presented to COPLFR for
discussion/open comment period to coincide
with CLRS
Will be included in 2006 Practice Note
Minor changes to the Opinion guidance
Includes a new document addressing the
AOS – based on comments & questions
compiled by COPLFR
Regulatory Guidance –
2006 Opinion Changes
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General clean-up
Current issues addressed in Scope section:
Coverage for Service Contracts and Prepaid LAE
Comment on risk factors encouraged even when no
RMAD is judged to exist
Removed the Bright Line Indicator
Consideration of RBC level when choosing MAD
standard
Recognized better discussion in 2005
Regulatory Guidance –
2006 New AOS Guidance
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Questions/comments from COPLFR
Many questions regarding how to file – chose
to focus more on substance
Wording is mostly unchanged from 2005
AOS instructions are now included in the
Supplement Filings section of the NAIC
Instructions
It is advised that the AOS not have the
Opinion attached to it
Regulatory Guidance –
2006 New AOS Guidance cont.
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Required for all companies that submit an Opinion,
even risk retention groups
AOS intended to be simple and concise –
straightforward examples provided in the Practice
Note
Loss & LAE exhibit presented at a minimum
Other items (UEP and retroactive reinsurance) can
be shown, but should be separate
Content should reflect the analysis performed by the
AA
Regulatory Guidance –
2006 New AOS Guidance cont.
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Other discussions (such as percentiles) can be
included as long as the basic exhibit is presented
separately
Comment required if AD > 5% of surplus in at least 3
of the past 5 years
Based on historical data, < 14% of companies meet
this criteria
Regulators’ view of “persistent adverse
development”
Newly Appointed Actuaries should research this as
part of their current reserve estimation