Transcript Download Handout 2

Proposed ASB Actuarial
Standard of Practice on
Statements of Actuarial Opinion
Regarding Property/Casualty
Loss and Loss Adjustment
Expense Reserves
Status of Exposure Draft
Robert Miccolis, Mary Frances Miller, Patricia Teufel
CLRS 9/98
Responses to Exposure Draft
• Exposure Draft Issued February, 1998
• Comment Deadline June 15, 1998
• 39 Comment Letters Received
• 53 Comment Postcards Received
Comment Postcard Responses
• 21 Responses with no comment
• 24 Responses concur with the proposed
standard
• 6 Responses concurred except for the
comments written on the postcard
• 2 Responses felt that significant changes
were needed and submitted comments
Comments on Specific Sections
• Comments on 9 sections were substantive and
received extensive discussion by the ASB
Reserving Subcommittee
• Comments on 34 sections were primarily
editorial in nature
• Comments on 13 sections requested
additional guidance regarding implementation
Substantive Change to Draft
3.3.1 Items Covered by the Opinion
• Actuary’s opinion applies in the aggregate
not to each separate reserve item listed
unless the opinion states otherwise
Explanatory Paragraph 3.3.7
Changes
• Eliminated the requirement to disclose the
range of reasonable estimates
• Reduced the required descriptions or
explanations regarding the nature or sources
of uncertainty, the specific recognized
contingencies, and the specific, major risk
factors
Revised Explanatory Paragraph 3.3.7
• The amount of adverse deviation that the
actuary judges to be material.
• A description of the particular circumstances
underlying the actuary’s evaluation that there is
a significant risk of material adverse deviation.
• The actuary is not required to include in the
explanatory paragraph general, broad
statements about uncertainties and risk due to
economic changes, judicial decisions, regulatory
actions, political or social forces, etc.
Opinion on Gross & Net (revised)
When the actuary’s opinion addresses both
gross and net reserves (3.8.1), the standard will
not require an evaluation of whether there is a
significant risk of a material adverse deviation
regarding the gross reserves, and the
explanatory paragraph (3.3.7), if needed, will
only address the net reserves.
Reinsurance Collectibility 3.8.2
• Only applies if the ceded reserves are
material.
• Requires the actuary to consider the
collectibility in evaluating net reserves.
• Does not require the actuary to obtain
collectibility information from sources
outside of the management of the entity.
Loss Sensitive Financial Items 3.10
• Several comments received that this would
be an unreasonable requirement.
• Regulatory trends indicate that the scope of
statutory opinions will continue to expand.
• Some of the examples given are probably not
appropriate (uncollectible/unrecoverable).
• Subcommittee still considering changes.
Expected Value Estimate
• Definition (2.7) clarified
• Using expected value estimates in
evaluating reserves (3.7.3) reworded from
“should include” to “should consider”
• Use of mode or median reworded to “may
not be appropriate . . . such as when the
expected value estimates are significantly
higher . . . “
Non-Statutory Opinions
• Of the 20 responses received, 6 indicated
that it is unclear when the ASOP should
apply and 6 others suggested modifications
• The ASOP is proposed to apply to
“statements of actuarial opinions” even
when such opinions are for a self-insured or
non-insurance entity.
Non-Statutory Opinions
The subcommittee felt that actuaries should
follow the same professional standard of
practice regarding the determination of their
reserve opinion even though the regulation
of an entity may specify the scope or
content of a statement of actuarial opinion,.
Non-Statutory Opinions
• An opinion subject to this ASOP would
have to be identified and entitled as a
“statement of actuarial opinion”. Thus, the
ASOP would not apply to rate filings,
internal or consultant reports, audit work
papers, pricing analyses, etc.
• An ASOP issued by the ASB would not
apply to actuaries working for companies
outside of the U.S.
Materiality 3.4
• An “Explanatory paragraph” is required if the
actuary believes that there is a “significant
risk of a material adverse deviation”.
• Material is not precisely defined nor is a
formula given.
• The actuarial literature provides little
research or discussion regarding this concept.
Materiality 3.4
• Disclosure of the amount considered material
is required in the explanatory paragraph.
• The actuary has considerable latitude in
selecting an appropriate amount based on the
specific situation.
• Some responses were concerned that actuaries
will have difficulty in deciding an amount.
Materiality 3.4
• Subcommittee felt that differences in
approach to determining an appropriate
amount would be acceptable.
• An explanatory paragraph may be included
because a relatively small amount is
considered material. The actuary would
describe why a small amount was
considered material.
Standards vs. Practice Notes
• Actuarial Standards of Practice are
developed by a fairly rigorous process of
exposure to affected practitioners for
comment, review by counsel, and approval
by the Actuarial Standards Board.
• Practice Notes are suggestions compiled by
a committee of actuaries.
Standards vs. Practice Notes
• Practice Notes are the appropriate form for
non-binding guidance, particularly
regarding some of the judgmental factors
such as materiality and evaluating whether
risk is significant.
• The development of Practice Notes will be
needed to supplement the proposed ASOP.
CAS Statement of Principles
• Pre-dates many ASB Actuarial Standards of
Practice
• Written by committee, exposed to CAS
membership, and approved by CAS Board
• Not intended to create standards of practice
• Contains “considerations” that are similar to
standards
• To be considered for update/change by CAS
Schedule for ASOP
• October - November, 1998
– Completion of 2nd Exposure Draft
• December, 1998 - January, 1999
– Approval by Actuarial Standards Board
• January - March, 1999
– Distributed for 60-90 day comment period
• April - July, 1999
– Review of comments received on 2nd draft
• December, 1999
– Tentative effective date of ASOP