Transcript Download Handout 1

S&P Criticism of Loss Reserve Estimates
Midwestern Actuarial Forum
2004 Spring Meeting
Mary D. Miller FCAS, MAAA
Ohio Department of Insurance
March 23, 2004
Discussion Points
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What are regulators doing?
Impact of codification and ASOP 36
Judgment regarding Opinion disclosures
Data details
2004 Opinion Changes -Risk of MAD
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Requires
explicit
statement
of
whether or not actuary reasonably
believes there are significant risks and
uncertainties that could result in material
adverse deviation and why.
Is there resistance to including it in
Opinion?
Actuarial Opinion Summary - 2005
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Required to be Sent only to domiciliary state
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Other states may request if they can demonstrate they can
protect confidentiality
Contains
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Net and Gross point estimate and/or range
Company’s Net and Gross Carried Reserve
Difference between the Company’s Net and Gross Carried
reserves and the Appointed Actuary’s point estimate and/or
range
Discussion of any persistent adverse development (Schedule
P 1 year test adverse by 5% of surplus or more in 3 of the
last 5 years)
Whose Best Estimate?
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Management’s vs. the Actuary’s
Why is there a difference?
What is a reasonable tolerance? What’s
a material difference between
management’s and the actuary’s
evaluation?
What kind of documentation does
management have for their estimate?
Qualified Opinions
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ASOP 36 definition: “the reserves for certain
items are in question because they can not
be reasonably estimated”
When does risk of material adverse deviation
produce a qualified opinion?
If the difference between the high end of a
reasonable range and carried reserves is
more than surplus, are those reserves
reasonably estimable?
Is a qualified opinion necessarily bad?
Disclosures
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Do I have to say that the company
would be at the authorized control level
if they had recorded my point estimate
reserve?
Can a company writing med-mal at
210% RBC not have a risk of material
adverse deviation?
2002 Development
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30 Companies had 80% of development
& 20% of surplus
Industry surplus virtually unchanged