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Actuarial Standards Board News

ASB Releases 2023 Annual Report

Category: ASB News

The Actuarial Standards Board (ASB) released its 2023 Annual Report, which highlights the board’s accomplishments throughout the year. In 2023, the ASB adopted three revised actuarial standards of practice (ASOPs), approved four exposure drafts for comment, and introduced its 57th ASOP. In addition, the ASB continued development on 10 other new or revised ASOPs.

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ASB Adopts ASOP No. 29 Revision

Category: ASB News

The Actuarial Standards Board (ASB) of the American Academy of Actuaries adopted a revision of Actuarial Standard of Practice (ASOP) No. 29, now titled Expense Provisions for Prospective Property/Casualty Risk Transfer and Risk Retention. The standard applies to actuaries when performing actuarial services with respect to developing or reviewing expense provisions for prospective property/casualty risk transfer or risk retention. This includes expense provisions developed or reviewed for insurance, reinsurance, self-insurance, loss portfolio transfers, or other mechanisms for prospective property/casualty risk transfer or risk retention. If the actuary’s actuarial services involve reviewing expense provisions developed by another party, the actuary should use the guidance in the ASOP to the extent practicable within the scope of the actuary’s assignment. 

The revision, which was exposed for comment twice, received 13 comment letters. Notable changes made to the standard include:

  • The expansion of scope and new guidance on loss adjustment expense categories, intended measure, the timing of residual market expenses, the timing of statutory assessments, and documentation;

  • Definitions for “coverage,” “expense provision,” “risk retention,” and “risk transfer” were added; and

  • The list of required disclosures was expanded.

This standard is effective for work performed on or after July 1, 2024.

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ASB Approves Exposure Draft of Proposed Revision of ASOP No. 12

Category: ASB News

The Actuarial Standards Board (ASB) of the American Academy of Actuaries recently approved an exposure draft of a proposed revision of Actuarial Standard of Practice (ASOP) No. 12, Risk Classification (for All Practice Areas). The ASOP applies to actuaries when performing actuarial services with respect to designing, developing, selecting, modifying, reviewing, evaluating, or opining on any elements of a risk classification framework in connection with financial or personal security systems. The standard also applies to actuaries when performing actuarial services with respect to using any elements of a risk classification framework in connection with financial or personal security systems, to the extent practical and consistent with the scope of the actuary’s assignment. 

The original ASOP No. 12, adopted in 1989, was developed as the need for more formal guidance on risk classification increased as the selection process became more complex and more subject to public scrutiny. The ASOP was updated in 2005 to reflect ongoing changes in actuarial work related to risk classification at that time. In light of the evolution in practice since 2005, the ASB believes it is appropriate to revise the standard in order to reflect current generally accepted actuarial practice.

Notable changes include the removal of several existing definitions and the addition of new definitions such as “risk measure” and “unintended bias”; the addition of several new sections such as 3.2.4, Multivariate Effects, and 3.4, Potential for Unintended Bias; and revising the scope to expand the list of activities to which the standard applies.

The comment deadline is May 1, 2024. Information on how to submit comments can be found in the draft.

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ASB Approves Exposure Draft of Proposed Revision of ASOP No. 7

Category: ASB News

The Actuarial Standards Board (ASB) of the American Academy of Actuaries recently approved an exposure draft of a proposed revision of Actuarial Standard of Practice (ASOP) No. 7, Life, Health, or Property/Casualty Insurance Cash Flow Risk. The proposed revision would apply to actuaries when performing actuarial services involving life or health cash flow risks, and also to actuaries when performing actuarial services involving property/casualty cash flow risks specific to investments. 

Notable changes to ASOP No. 7 include broadening section 1.2, Scope, to include cash flow analysis an actuary performs for a noninsurance entity that insures or self-insures risk. The scope was also changed to apply to actuaries when performing actuarial services involving P/C investment cash flow risk. In addition, guidance was adjusted to include all types of cash flow analysis and to address when to perform a cash flow analysis. 

As this standard applies to three practice areas, the ASB is asking for specific input from each practice area (see the Request for Comments section in the Transmittal Memo). In particular, the ASB asks three questions about how the standard applies to P/C actuaries, and one each for the life and health areas. Your input is important, so please take the time to review the draft and submit comments.

The comment deadline is June 1, 2024. Information on how to submit comments can be found in the draft.

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ASB Adopts ASOP No. 20 Revision; Approves Second Exposure Draft of ASOP No. 36 Revision

Category: ASB News

ASOP No. 20

The Actuarial Standards Board (ASB) of the American Academy of Actuaries adopted a revision of Actuarial Standard of Practice (ASOP) No. 20, now titled Discounting of Property/Casualty Claim Estimates. The standard applies to actuaries when performing actuarial services that involve the discounting of claim estimates for property/casualty coverages to a present value. 

Claim estimates include unpaid claim estimates and future claim estimates and represent an estimate of the obligation for future loss and loss adjustment expense payments resulting from claims due to past events. Future claim estimates represent an estimate of loss and loss adjustment expenses associated with prospective property/casualty risk transfer or risk retention. 

The exposure draft released in June 2022 received five comment letters that were considered in making changes that are reflected in the revised standard. Notable changes from the existing ASOP included expanding the scope to incorporate the discounting of future claim estimates for prospective risk transfer or risk retention, as addressed by ASOP No. 53, Estimating Future Costs for Prospective Property/Casualty Risk Transfer and Risk Retention, and modifying guidance to allow the actuary to consider the loss and loss adjustment expense elements separately in a claim estimate. 

The ASOP is effective for any actuarial work product covered by the standard’s scope issued on or after December 1, 2023. 

ASOP No. 36

The ASB also approved a second exposure draft of a proposed revision of ASOP No. 36, now titled Statements of Actuarial Opinion Regarding Property/Casualty Loss, Loss Adjustment Expense, or Other Reserves

The standard applies to actuaries when performing actuarial services with respect to a written statement of actuarial opinion regarding property/casualty loss, loss adjustment expense, or other reserves of an insurance company or other property/casualty risk financing system, under one or more of the following circumstances: 

  1. the statement of actuarial opinion is prepared to comply with the NAIC Property/Casualty Annual Statement Instructions;
  2. the statement of actuarial opinion is otherwise prescribed by applicable law (statutes, regulations, and other legally binding authority); or
  3. the statement of actuarial opinion is represented by the actuary as complying with this standard.

The first exposure draft was released in July 2022 and received nine comment letters. Notable changes made to the exposure draft include revising guidance for actuaries reviewing a statement of actuarial opinion, requiring the actuary to determine the discount rate used when a material portion of the reserves within the scope of a statement of actuarial opinion is discounted, and applying material adverse deviation to the total reserves within the scope of the actuarial opinion.

The comment deadline is November 1, 2023. Information on how to submit comments can be found in the draft. 

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