Opinion Writers Symposium Casualty Loss Reserve Seminar September 10-11, 2007

Opinion Writers Opinion Writers SymposiumSymposium

Casualty Loss Reserve SeminarCasualty Loss Reserve SeminarSeptember 10-11, 2007September 10-11, 2007

Moderator: Mary D Miller, Ohio Dept of InsuranceModerator: Mary D Miller, Ohio Dept of InsurancePanelists: Nicole Elliott, Texas Insurance DeptPanelists: Nicole Elliott, Texas Insurance Dept

Melissa Greiner, Pennsylvania Insurance Melissa Greiner, Pennsylvania Insurance DeptDept

Session 4: 3:30-5:00 pmSession 4: 3:30-5:00 pm

Opinion Symposium 2007Opinion Symposium 2007

Who is signing opinions?Who is signing opinions? 480 actuaries signed 2735 opinions 480 actuaries signed 2735 opinions

(4,361 CAS members as of 11/13/06, (4,361 CAS members as of 11/13/06, about 11%)about 11%)

33% Company – 67% Consultants33% Company – 67% Consultants 35% from top 5 consulting firms (at 35% from top 5 consulting firms (at

least 100 opinions)least 100 opinions) 30% signed 1 opinion30% signed 1 opinion 21 actuaries signed 593 opinions = 23% 21 actuaries signed 593 opinions = 23%

of opinions submitted = 4% of signersof opinions submitted = 4% of signers


Our Advice for This YearOur Advice for This Year

Use your resourcesUse your resources Focus on RMADFocus on RMAD Prepare a good Actuarial ReportPrepare a good Actuarial Report Meet with the Board annuallyMeet with the Board annually Provide better comments on adverse Provide better comments on adverse

developmentdevelopment


Use Your ResourcesUse Your Resources

Annual Statement InstructionsAnnual Statement Instructions ASOP 36ASOP 36 COPLFR Practice NoteCOPLFR Practice Note Practice Note’s Regulatory GuidancePractice Note’s Regulatory Guidance Regulatory actuariesRegulatory actuaries Papers re: MAD, ranges, etc.Papers re: MAD, ranges, etc. AAA 1 day Opinion Seminar AAA 1 day Opinion Seminar


Focus on RMADFocus on RMAD

Statutory A/S Instructions vs. ASOP 36Statutory A/S Instructions vs. ASOP 36 Use the COPLFR Practice Note Use the COPLFR Practice Note

Regulatory GuidanceRegulatory Guidance Consider your audience – focus on Consider your audience – focus on

solvency, capitalization, RBC level, and solvency, capitalization, RBC level, and IRIS ratios, but don’t forget income IRIS ratios, but don’t forget income

Don’t confuse RMAD with a range of Don’t confuse RMAD with a range of reasonable reserve estimatesreasonable reserve estimates


RMAD: What standard should I RMAD: What standard should I use?use?

Consider specific company risks & Consider specific company risks & operationsoperations

62% use surplus, 13% use LLAE62% use surplus, 13% use LLAE 18% use a combination of surplus, 18% use a combination of surplus,

LLAE, and/or RBCLLAE, and/or RBC Net vs. gross standards (reinsurance Net vs. gross standards (reinsurance

considerations)considerations) Sample disclosuresSample disclosures


What did you use?What did you use?

Data from Data from 886 886 companies companies domiciled in domiciled in CT, IL, NY, CT, IL, NY, OH, PA and OH, PA and TXTX 13%

18%

3% 4%

62%

Surplus

Reserves

Combo

Reinsurance

Other


Is there RMAD?Is there RMAD? Consider specific company risksConsider specific company risks RMAD amount vs. the RangeRMAD amount vs. the Range Carried reserves vs. actuarial Carried reserves vs. actuarial

indicationsindications RMAD on a Gross basis, but not Net?RMAD on a Gross basis, but not Net? Explicitly state if risk exists; 36% said Explicitly state if risk exists; 36% said

YesYes ‘‘Attorney approved’ languageAttorney approved’ language Sample disclosuresSample disclosures


What is your answer?What is your answer?

Data from Data from companies companies domiciled in CT, IL, domiciled in CT, IL, NY, OH, PA, and TXNY, OH, PA, and TX

Risk of Material Risk of Material Adverse DeviationAdverse Deviation Yes 36%Yes 36% No 64%No 64% Ambiguous <1%Ambiguous <1%

YesNoUnclear


Actuarial ReportActuarial Report

Define report: ASOP 36, A/S Define report: ASOP 36, A/S Instructions, Regulatory GuidanceInstructions, Regulatory Guidance

Who is the audience for the Report?Who is the audience for the Report? Does the Report support the Does the Report support the

Actuarial Opinion and the Actuarial Actuarial Opinion and the Actuarial Opinion Summary?Opinion Summary? AOS range should match range in ReportAOS range should match range in Report

Does it support carried reserves?Does it support carried reserves?


Actuarial Report Actuarial Report DocumentationDocumentation

ASOP 9 RIP, now ASOP 41ASOP 9 RIP, now ASOP 41 Narrative and technical exhibitsNarrative and technical exhibits Document changes in assumptions or Document changes in assumptions or

methodsmethods Document operational changesDocument operational changes Discuss reinsurance – support gross and net Discuss reinsurance – support gross and net

estimatesestimates Relate the analysis to Schedule P lines of Relate the analysis to Schedule P lines of

businessbusiness



Support needed for assumptions and Support needed for assumptions and methodsmethods Loss ratios used in B-F methodsLoss ratios used in B-F methods Loss development factorsLoss development factors Interpolated factors and roll forwardsInterpolated factors and roll forwards Ultimate selectionsUltimate selections Segmentation of dataSegmentation of data

Explain your thought processExplain your thought process



Reconciliation to Schedule PReconciliation to Schedule P Account for all the piecesAccount for all the pieces At least Paid LLAE and case reservesAt least Paid LLAE and case reserves Other elements if significant to your Other elements if significant to your

analysisanalysis

Inadequate reconciliations cost time Inadequate reconciliations cost time and moneyand money


Meet with the BoardMeet with the Board

Best to present your Report in personBest to present your Report in person

When that is not possible, meet with When that is not possible, meet with them at some other timethem at some other time

Regulators expect the Board to Regulators expect the Board to understand the significance of your understand the significance of your findingsfindings


When in Doubt…When in Doubt…

Disclose, disclose, discloseDisclose, disclose, disclose Talk with managementTalk with management Seek help from a regulatory actuarySeek help from a regulatory actuary


Actuarial Opinion SummaryActuarial Opinion Summary

Why do regulators need this?Why do regulators need this? How do regulators use this How do regulators use this

document?document? What are regulators’ expectations?What are regulators’ expectations?


Actuarial Opinion Summary – Actuarial Opinion Summary – WHY?WHY?

A bridge between the Actuarial Opinion A bridge between the Actuarial Opinion and Actuarial Reportand Actuarial Report


Actuarial Opinion Summary – Actuarial Opinion Summary – WHY?WHY?

Actuarial OpinionActuarial Opinion Public documentPublic document Due March 1Due March 1 Readily availableReadily available

Actuarial ReportActuarial Report Confidential Confidential

documentdocument Available May 1Available May 1 Provided at Provided at

regulator requestregulator request


Actuarial Opinion Summary Actuarial Opinion Summary UsesUses

Provide a Provide a confidentialconfidential forum for forum for appointed actuary to present appointed actuary to present actuarial estimates actuarial estimates earlierearlier in the in the financial solvency processfinancial solvency process


Actuarial Opinion Summary Actuarial Opinion Summary UsesUses

Tool for deciding when to request ReportTool for deciding when to request Report

Used in conjunction with Opinion and Used in conjunction with Opinion and Report when planning for financial Report when planning for financial examination process.examination process.

Quality and consistency of actuarial Quality and consistency of actuarial documents is a factor in the risk-focused documents is a factor in the risk-focused approach currently underway at the NAIC.approach currently underway at the NAIC.


(In)Consistency Clue(In)Consistency Clue

Example: Inter-company Pool – 3 Companies – 50%, 30%, 20% - Difference between Actuary’s estimate and carried reserves -D&A

•Company A = (-2,000)

•Company B = (-1,200)

•Company C = 1,000


Regulator Expectations of Regulator Expectations of AOSAOS

All appointed actuaries would All appointed actuaries would understand one-year development testunderstand one-year development test

Management would communicate with Management would communicate with appointed actuariesappointed actuaries

Appointed actuaries would understand Appointed actuaries would understand company riskscompany risks Existing clients – what changed?Existing clients – what changed? New clients – review prior actuary’s work New clients – review prior actuary’s work

AND understand what changed in current AND understand what changed in current yearyear


Did You Meet Expectations?Did You Meet Expectations?One-Year DevelopmentOne-Year Development

Generally everyone understands the Generally everyone understands the one-year development test – but one-year development test – but some were confused??????some were confused?????? In both 2005 and 2006 handful of In both 2005 and 2006 handful of

actuaries missed the calculation and did actuaries missed the calculation and did not comment as requirednot comment as required

Calculation is already provided on Calculation is already provided on A.S. Five-Year Historical page, line 71.A.S. Five-Year Historical page, line 71.


Did You Meet Expectations?Did You Meet Expectations?One-Year DevelopmentOne-Year Development

Actuary required to comment when:Actuary required to comment when: One-year development > 20% PY One-year development > 20% PY

surplus in any single year (IRIS #11)surplus in any single year (IRIS #11) One-year development > 5% PY One-year development > 5% PY

surplus in three of five years (AOS)surplus in three of five years (AOS) Do I have to comment otherwise?Do I have to comment otherwise?


One-Year Dev > Last Year’s One-Year Dev > Last Year’s MAD?MAD?

Does actuary comment?Does actuary comment? How did actuarial estimates change?How did actuarial estimates change? Did management’s reserving practices Did management’s reserving practices

or operational approach change?or operational approach change? Was this due to a catastrophe or single Was this due to a catastrophe or single

claim?claim? Regulator expects at least an Regulator expects at least an

acknowledgementacknowledgement


Did You Meet Expectations?Did You Meet Expectations?Management CommunicationManagement Communication

Management communication is not Management communication is not always evidentalways evident Carried reserves didn’t always match ASCarried reserves didn’t always match AS Surplus differences even more commonSurplus differences even more common

Size of error is usually less important Size of error is usually less important than the breakdown in than the breakdown in communication processcommunication process


Did You Meet Expectations?Did You Meet Expectations?Management CommunicationManagement Communication

What does management say in MD&A - What does management say in MD&A - Management Discussion & Analysis?Management Discussion & Analysis? Due April 1 to regulatorDue April 1 to regulator

What does management say in Note What does management say in Note 25?25? Changes to Incurred Losses & LAE reservesChanges to Incurred Losses & LAE reserves

Regulator will look for consistency in Regulator will look for consistency in Management statements and Actuarial Management statements and Actuarial documentsdocuments


Did You Meet Expectations?Did You Meet Expectations?Company RisksCompany Risks

Regulator always interested in trendsRegulator always interested in trends Some disclosure always better than Some disclosure always better than

nonenone Clear explanation or understanding Clear explanation or understanding

of company risksof company risks


Other AOS ObservationsOther AOS Observations

Reasons for adverse development could Reasons for adverse development could be single explanation or a lengthy listbe single explanation or a lengthy list

Be specific with explanations!Be specific with explanations! Single explanation may affect several Single explanation may affect several

calendar years of development.calendar years of development. Development observed in one AY may not Development observed in one AY may not

be same as development in another.be same as development in another. May need to address several LOB’sMay need to address several LOB’s


What have we learned?What have we learned?

The majority of actuaries “get it”The majority of actuaries “get it” Some actuaries better than others in Some actuaries better than others in

level of disclosure; may be a matter level of disclosure; may be a matter of personal style.of personal style.

Actuarial firms do NOT take the same Actuarial firms do NOT take the same approach in developing actuarial approach in developing actuarial estimates (point, range or both)estimates (point, range or both)


What did you use?What did you use?

Combined Combined Net Data Net Data from from Companies Companies domiciled in domiciled in CT, IL, NY, CT, IL, NY, OH, PA and OH, PA and TXTX 17%

28%

55%

PointRangeBoth


How did you compare?How did you compare?

Net Data Net Data from from CompanieCompanies s domiciled domiciled in CT, IL, in CT, IL, NY, OH, NY, OH, PA and TXPA and TX

0

10

20

30

40

50

60

70

CT IL NY OH PA TX

<-10-10 to -5-5 to 000 to 55 to 10>10


How did you compare?How did you compare?

Combined Combined Net Data Net Data from from Companies Companies domiciled in domiciled in CT, IL, NY, CT, IL, NY, OH, PA and OH, PA and TXTX

9%

28%

11%

21%

2% 2%

27%

<-10-10 to -5-5 to 000 to 55 to 10>10


When in Doubt…When in Doubt…

Disclose, disclose, discloseDisclose, disclose, disclose Talk with managementTalk with management Seek help from a regulatory actuarySeek help from a regulatory actuary


Our Advice for This YearOur Advice for This Year

Use your resourcesUse your resources Focus on RMADFocus on RMAD Prepare a good Actuarial ReportPrepare a good Actuarial Report Meet with the Board annuallyMeet with the Board annually Provide better comments on adverse Provide better comments on adverse

developmentdevelopment

Questions?Questions?

Comments?Comments?

Opinion Writers Symposium Casualty Loss Reserve Seminar September 10-11, 2007

Documents

Transcript of Opinion Writers Symposium Casualty Loss Reserve Seminar September 10-11, 2007