Statements of Actuarial Opinion at Year-End 2016
Aaron Hillebrandt

Statements of Actuarial Opinion at Year-End 2016

Aaron Hillebrandt February 02, 2017 Posted in: Blog Posts, Apex Webinar

On January 27, 2017, Pinnacle’s Managing Principal Joe Herbers and I co-presented January’s APEX webinar, “Statements of Actuarial Opinion at Year-End 2016.” We discussed topics ranging from Statement of Actuarial Opinion (SAO) best practices to what is changing for year-end 2016 SAOs. Required changes for SAOs that are under the regulation of the National Association of Insurance Commissioners (NAIC), may be found in the Official NAIC Annual Statement Instructions. For year-end 2016, the changes are not significant and focus on clarification of reporting requirements.

Among the modifications this year is the stipulation that the Minutes of the Board of Directors meeting must specify the manner of the presentation by the Appointed Actuary -- whether it was in person, via webinar, etc. The “Board of Directors” was redefined to include a committee of the Board. For example, a presentation to the Audit Committee of the Board by the Appointed Actuary would meet the requirement.

Another change this year relates to reliance on another. In particular, if the Appointed Actuary relies on the work of a non-actuary for a material portion of the reserves, that individual must be identified by name and affiliation along with a description of the type of analysis performed. A statistical modeler estimating the reserves for a book of catastrophe reinsurance could, for example, fall under this new requirement.

The Actuarial Report (Report) supporting the SAO must now include an explanation of any material differences identified by the Appointed Actuary’s reconciliation to Schedule P of the Annual Statement. If relevant, the Report should illustrate the changes from the prior Report on a gross (i.e., Direct and Assumed) basis, in addition to a net basis. We note just a few of the changes for year-end 2016 herein;  this discussion is not meant to be comprehensive. Please review the Official NAIC Annual Statement Instructions for additional information.

We had the opportunity to poll our attendees during the webinar. Our experience has been that speaking directly with regulators regarding SAO issues can be a valuable way to learn what the reviewers will be looking for in a given situation. We learned through our poll that the majority of webinar attendees who sign SAOs have spoken with state regulators once or twice regarding SAO issues, and significantly fewer have done so more frequently.

Many of our APEX webinar attendees have issued Reasonable SAOs, while the other four NAIC Types of Opinion and the Adequate Provision used in Bermuda and some other domiciles are much less common.

While the required changes to NAIC SAOs at year-end 2016 are not major and are focused on clarifying some requirements, we encourage all Appointed Actuaries to review the many resources available for further information. A fairly comprehensive listing of such resources was presented during the webinar. For a look at our webinar slides providing that and much more information, please click here.

Aaron Hillebrandt, FCAS, MAAA, CPCU, FFSI, FLMI, LPCS, AINS, is a Consulting Actuary with Pinnacle Actuarial Resources, Inc. in the Bloomington, Illinois office. He holds a Bachelor’s Degree in Mathematics from Illinois State University, where he is now involved as a mathematics lecturer. Aaron is an honorably discharged Sergeant and combat veteran of the United States Marine Corps. He has over nine years of actuarial experience in the property/casualty insurance industry, including considerable experience in assignments involving loss reserving, funding studies, loss cost projections, captive feasibility studies, and personal and commercial lines ratemaking.

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