Statements of Actuarial Opinion Regarding Property/Casualty Loss,
Loss Adjustment Expense, or Other Reserves
Exposure Draft
TO: Members of Actuarial Organizations Governed by the Standards of Practice of the Actuarial Standards Board and Other Persons Interested in Statements of
Actuarial Opinion Regarding Property/Casualty Loss, Loss Adjustment Expense, or Other Reserves
FROM: Actuarial Standards Board (ASB)
SUBJ: Proposed Revision of Actuarial Standard of Practice (ASOP) No. 36
This document contains the exposure draft a proposed revision of ASOP No. 36, now titled, Statements of Actuarial Opinion Regarding Property/Casualty Loss, Loss Adjustment Expense, or Other Reserves. Please review this exposure draft and give the ASB the benefit of your comments and suggestions. Each written comment letter or email received by the comment deadline will receive consideration by the drafting committee and the ASB.
The ASB appreciates comments and suggestions on all areas of this proposed standard. The ASB requests comments be provided using the Comments Template that can be found here and submitted electronically to comments@actuary.org. Include the phrase “ASOP No. 36 COMMENTS” in the subject line of your message. Also, please indicate in the template whether your comments are being submitted on your own behalf or on behalf of a company or organization.
The ASB posts all signed comments received on its website to encourage transparency and dialogue. Comments received after the deadline may not be considered. Anonymous comments will not be considered by the ASB nor posted on the website. Comments will be posted in the order that they are received. The ASB disclaims any responsibility for the content of the comments, which are solely the responsibility of those who submit them.
For more information on the exposure process, please see the ASB Procedures Manual.
Deadline for receipt of comments: September 30, 2022
History of the Standard
In March 2000, the ASB adopted ASOP No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves to provide guidance to actuaries when issuing specific types of statements of actuarial opinion.
ASOP No. 43, Property/Casualty Unpaid Claim Estimates, was adopted in 2007 and provides guidance to actuaries on estimating unpaid claims, both when such estimates are performed to support a statement of actuarial opinion covered by ASOP No. 36 and in other circumstances. In 2010, the ASB revised ASOP No. 36 to eliminate guidance and language that was redundant with the newly adopted ASOP No. 43, to maintain consistency between ASOP Nos. 36 and 43, and to clarify and provide further guidance within ASOP No. 36.
When ASOP No. 36 was revised in 2010, the NAIC required the actuary to comment only if there was a significant risk of material adverse deviation (RMAD). Since 2010, the NAIC has expanded its requirements for property/casualty statements of actuarial opinion. For example, it now requires the actuary to always comment on the RMAD. The current revision of ASOP No. 36 incorporates and expands upon the disclosures required in the NAIC Property/Casualty Annual Statement Instructions.
Because ASOP No. 36 applies to all statements of actuarial opinion regarding property/casualty reserves, the additional disclosure requirements also apply to non-NAIC property/casualty statements of actuarial opinion.
Notable Changes from the Existing ASOP
Notable changes made in this exposure draft to the existing ASOP are summarized below. Notable changes do not include changes made to improve readability, clarity, or consistency.
- The purpose and scope have been expanded beyond “issuing” and “providing” to “performing actuarial services with respect to a written statement of actuarial opinion regarding property/casualty loss, loss adjustment expense, or other reserves” in sections 1.1 and 1.2.
- The scope was expanded to include other reserves and reserves of other property/casualty risk financing systems in section 1.2.
- The scope was expanded to include actuaries “reviewing a statement of actuarial opinion” in section 1.2.
- Definitions of counterparty, materiality standard, and recoverable were added in section 2, and definitions of event, present value, unpaid claim estimates, and unpaid claim estimate analysis were deleted from section 2.
- The stated basis of the reserve was revised to include characteristics of other reserves being opined upon in section 3.3.
- Section 3.4.1 clarifies the requirement to determine that the scope of the analysis is appropriate for the scope of the statement of actuarial opinion, including the accounting date and valuation date in addition to the review date.
- Guidance requiring the actuary to review work produced under the actuary’s direction was removed in section 3.4.2, as the requirement is covered in Precept 3 of the Code of Professional Conduct.
- Guidance related to making use of another’s work has been modified in section 3.4.3.
- Guidance on uncollectable recoverables was expanded to include other recoverables in addition to reinsurance in section 3.6.
- Guidance on determining a materiality standard was added in section 3.9.
- Guidance on material adverse deviation was expanded in section 3.10.
- Guidance on reliance on data or other information supplied by others was added in section 3.12.
- The documentation section was updated in section 3.13.
- Section 4 was restructured and revised to align with the changes in section 3 and current ASOP format.
- The disclosure requirements in section 4.2 were expanded to require additional discussion related to the risk of material adverse deviation.
Request for Comments
The ASB appreciates comments and suggestions on all areas of this proposed standard submitted through the Comments Template. Rationale and recommended wording for any suggested changes would be helpful.
The ASB thanks the following members of the 2021 ASB Casualty Committee, who reviewed this exposure draft: Mary Frances Miller, Chair; Benjamin W. Clark, Heather D. Lake, Alan K. Putney, and Robert J. Walling.
The ASB voted in May 2022 to approve this exposure draft.
ASOP No. 36 Task Force | |
Margaret Tiller Sherwood, Chairperson | |
Caryn C. Carmean | Mary Frances Miller |
Michelle L. Iarkowski |
Casualty Committee of the ASB | |
Gordon K. Hay, Chairperson | |
Stacey C. Gotham | Norman Niami |
David E. Heppen | Margaret Tiller Sherwood |
Michelle L. Iarkowski | Jane C. Taylor |
Daniel A. Linton | Geoffrey T. Werner |
Actuarial Standards Board | |
Darrell D. Knapp, Chairperson | |
Elizabeth K. Brill | David E. Neve |
Robert M. Damler | Christopher F. Noble |
Kevin M. Dyke | Judy K. Stromback |
Laura A. Hanson | Patrick B. Woods |
The Actuarial Standards Board (ASB) sets standards for appropriate actuarial practice in the United States through the development and promulgation of Actuarial Standards of Practice (ASOPs). These ASOPs describe the procedures an actuary should follow when performing actuarial services and identify what the actuary should disclose when communicating the results of those services.
PROPOSED REVISION OF
ACTUARIAL STANDARD OF PRACTICE NO. 36
STATEMENTS OF ACTUARIAL OPINION
REGARDING PROPERTY/CASUALTY
LOSS, LOSS ADJUSTMENT EXPENSE, OR OTHER RESERVES
STANDARD OF PRACTICE
Section 1. Purpose, Scope, Cross References, and Effective Date
1.1 Purpose
This actuarial standard of practice (ASOP or standard) provides guidance to the actuary when performing actuarial services with respect to a written statement of actuarial opinion regarding property/casualty loss, loss adjustment expense, or other reserves.
1.2 Scope
This 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:
- the statement of actuarial opinion is prepared to comply with the NAIC Property/Casualty Annual Statement Instructions, or
- the statement of actuarial opinion is otherwise prescribed by applicable law (statutes, regulations, and other legally binding authority), or
- the statement of actuarial opinion is represented by the actuary as complying with this standard.
“Other reserves” include such items as retrospective reinsurance premium reserves, unearned premium reserves for property/casualty long duration contracts, unearned premium reserves for extended reporting endorsements, or other reserve items for which the actuary is providing a statement of actuarial opinion.
Examples of property/casualty risk financing systems include reinsurers, self-insurers, and government and other risk-sharing pools.
Throughout this standard, the phrase “statement of actuarial opinion” refers to the 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.
If the actuary is performing actuarial services that involve reviewing a statement of actuarial opinion, the actuary should use the guidance in section 3 to the extent practicable.
For actuaries issuing or reviewing statements of actuarial opinion that include both property/casualty insurance liabilities and non-property/casualty insurance liabilities, other standards may apply in addition to this standard, such as ASOP No. 22, Statements of Actuarial Opinion Based on Asset Adequacy Analysis for Life Insurance, Annuity, or Health Insurance Reserves and Other Liabilities; ASOP No. 28, Statements of Actuarial Opinion Regarding Health Insurance Liabilities and Assets; or Actuarial Compliance Guideline No. 4, Statutory Statements of Opinion Not Including an Asset Adequacy Analysis by Appointed Actuaries for Life or Health Insurers.
If the actuary determines that the guidance in this standard conflicts with an applicable standard in another practice area, that ASOP governs. If the actuary determines that the guidance in this ASOP conflicts with a cross-practice ASOP (i.e., an ASOP that applies to all practice areas), this ASOP governs.
If a conflict exists between this standard and applicable law, the actuary should comply with applicable law. If the actuary departs from the guidance set forth in this standard in order to comply with applicable law or for any other reason the actuary deems appropriate, the actuary should refer to section 4.
1.3 Cross References
When this standard refers to the provisions of other documents, the reference includes the referenced documents as they may be amended or restated in the future, and any successor to them, by whatever name called. If any amended or restated document differs materially from the originally referenced document, the actuary should follow the guidance in this standard to the extent it is applicable and appropriate.
1.4 Effective Date
This standard is effective for all statements of actuarial opinion regarding loss, loss adjustment expense, or other reserves issued on or after four months after adoption by the Actuarial Standards Board.
Section 2. Definitions
The terms below are defined for use in this standard and appear in bold throughout the ASOP.
2.1 Accounting Date
The stated cutoff date for reflecting events and recording amounts in a financial statement or accounting system. The accounting date is sometimes known as the “as of date.”
2.2 Counterparty
Another entity involved in a financial transaction including, but not limited to, a ceding entity, an assuming entity, an insured, or a service provider.
2.3 Coverage
The terms and conditions of a plan or contract, or the requirements of applicable law, that create an obligation to pay benefits, expenses, or claims associated with contingent events.
2.4 Explicit Risk Margin
An explicit provision for uncertainty in a reserve.
2.5 Loss
The cost that is associated with an event that has taken place and that is subject to coverage. It is also known as “claim amount.” The term “loss” may include loss adjustment expense as appropriate.
2.6 Loss Adjustment Expense
The costs of administering, determining coverage for, settling, or defending claims even if it is ultimately determined that the claim is invalid. It is also known as “claim adjustment expense.”
2.7 Materiality Standard
The amount that the actuary judges to be material in determining if there is a significant risk of material adverse deviation with respect to the loss and loss adjustment expense reserves.
2.8 Recoverable
An amount (for example, deductibles, ceded reinsurance, salvage, or subrogation) that may be collected from a counterparty.
2.9 Reserve
An amount recorded in a financial statement or accounting system to reflect potential obligations.
2.10 Reserve Evaluation
The process of evaluating the reasonableness of a reserve.
2.11 Review Date
The date (after the valuation date) through which material information known to the actuary is included in forming the statement of actuarial opinion. This date is sometimes known as the “information date.”
2.12 Valuation Date
The date(s) through which transactions are included in the data used in the analysis.
Section 3. Analysis of Issues and Recommended Practices
3.1 Purpose and Users of the Statement of Actuarial Opinion
The actuary should identify the intended purpose and intended users of the statement of actuarial opinion. For example, the intended purpose may be to satisfy the requirements for such an opinion under the NAIC Property/Casualty Annual Statement Instructions, where the intended users include the company’s board of directors and its regulators.
3.2 Reserves Being Opined Upon
The actuary should take into account the following regarding the reserves being opined upon:
- the amount of the reserves;
- the accounting date; and
- the accounting standards applicable to the reserves (for example, U.S. SAP, U.S. GAAP, or IFRS).
3.3 Stated Basis of the Reserves
The actuary should identify the stated basis of the reserves, which is a description of the nature of the reserves, usually found in the financial statement and the associated footnotes and disclosures. The stated basis often depends upon regulatory or accounting requirements. When identifying the stated basis, the actuary should ascertain the following:
- whether the reserves are nominal or discounted for the time value of money and, if discounted, the items discounted (for example, tabular reserves only) and the stated basis for the interest rate (for example, risk-free rate, portfolio rate, or fixed rate of x%);
- whether the reserves include an explicit risk margin and, if so, the stated basis for the explicit risk margin (for example, stated percentile of distribution or stated percentage load above expected);
- whether the reserves are gross or net of specified recoverables;
- whether the reserves reflect a provision for uncollectable recoverables. If so, the actuary should identify the categories of such uncollectable recoverables and whether those categories reflect currently known or potential ultimate collectability concerns. Possible categories of uncollectable recoverables include those related to disputes and those related to counterparties in financial difficulty;
- the types of unpaid loss adjustment expense covered by the reserves, if any (for example, coverage dispute costs, defense costs, or adjusting costs);
- the characteristics of other reserves being opined upon, if any (for example, the nature of the contracts generating unearned premium reserves); and
- any other items that, in the actuary’s professional judgment, are needed to describe the reserves sufficiently for the reserve evaluation.
To the extent the actuary cannot ascertain all or a portion of the stated basis of the reserves, the actuary should request this information from the principal. If the actuary is unable to obtain this information from the principal, the actuary should determine an assumed basis of the reserves with regard to the missing information for purposes of the reserve evaluation.
If the statement of actuarial opinion is only for a portion of the reserves, the actuary should identify the exposure to be covered by the statement of actuarial opinion (for example, line of business, year, or state).
3.4 Reserve Evaluation
The actuary should evaluate the reasonableness of reserves consistent with the applicable ASOPs and the identified stated basis of the reserves.
3.4.1 Scope
The actuary should ensure that the scope of the reserve evaluation is consistent with the scope of the statement of actuarial opinion, taking into account the following:
- accounting date, valuation date, and the review date;
- if separate reserves for different reserve items, such as loss and loss adjustment expense, are disclosed in the statement of actuarial opinion, whether the statement of actuarial opinion applies to those items in the aggregate or individually; and
- any other items that, in the actuary’s professional judgment, are needed to ensure that the scope of the reserve evaluation is consistent with the scope of the statement of actuarial opinion.
3.4.2 Evaluation Based on the Actuary’s Estimates
When developing estimates to evaluate the reasonableness of reserves, the actuary may develop a point estimate, a range of estimates, or both. The actuary should be guided by applicable ASOPs for the development of these estimates. For example, when developing unpaid claim estimates to evaluate the reasonableness of unpaid claim reserves, the actuary should be guided by ASOP No. 43, Property/Casualty Unpaid Claim Estimates.
3.4.3 Using an Analysis or Opinion Not Produced Under the Actuary’s Direction
If the actuary uses an analysis or opinion not produced under the actuary’s direction to support the statement of actuarial opinion, the actuary should understand the intended purpose of the analysis or opinion and assess whether the analysis or opinion is consistent with the stated basis of the reserves. For purposes of this section, “another” refers to someone not under the actuary’s direction.
The actuary should use another’s analysis or opinion only when, in the actuary’s professional judgment, it is reasonable to do so. In making this determination, the actuary should take into account the following:
- the amount of the reserves covered by another’s analysis or opinion in comparison to the total reserves subject to the statement of actuarial opinion;
- the nature of the exposure and coverage;
- the way in which reasonably likely variations in estimates covered by another’s analysis or opinion may affect the statement of actuarial opinion on the total reserves subject to the statement of actuarial opinion; and
- the credentials or expertise of the individual(s) who prepared the analysis or opinion.
When using another actuary’s analysis or opinion, the actuary should be reasonably satisfied that the other actuary is qualified to perform the actuarial services and that the actuarial services were performed in accordance with applicable ASOPs.
When using a model developed by another, the actuary should refer to ASOP No. 56, Modeling, and ASOP No. 38, Catastrophe Modeling (for All Practice Areas).
When, in the professional judgment of the actuary, the analysis or opinion of another needs to be modified or expanded, the actuary should perform such analysis as necessary to issue the statement of actuarial opinion.
If the actuary reaches conclusions that are materially different from the other person’s conclusions, the actuary should, when practical, contact the appropriate parties to discuss the differences. Where material differences exist, the actuary should understand the issues underlying the material differences. In this situation, the actuary should measure material differences relative to the reserve evaluation underlying the statement of actuarial opinion, not relative to the conclusions of the other person.
3.5 Discounting
If the actuary is providing a statement of actuarial opinion for discounted loss and loss adjustment expense reserves, the actuary should follow the guidance in ASOP No. 20, Discounting of Property/Casualty Unpaid Claim Estimates.
3.6 Uncollectable Recoverables
If the statement of actuarial opinion includes reserves net of recoverables and the amount of recoverables is material, the actuary should take into account the collectability of those recoverables in evaluating net reserves. The actuary should solicit information from management regarding collectability problems, significant disputes with counterparties, and practices regarding provisions for uncollectable recoverables. The actuary is not required to express an opinion on the financial condition of any counterparty.
3.7 Work Underlying the Prior Statement of Actuarial Opinion
If the actuary prepared the most recent prior statement of actuarial opinion, or if the actuary is able to review the prior opining actuary’s work, then the actuary should determine whether the current assumptions, procedures, methods, or models differ from those used in the most recent prior statement of actuarial opinion. If the current assumptions, procedures, methods, or models differ from those used in the most recent prior statement of actuarial opinion, the actuary should determine whether the changes are likely to have a material effect on the actuary’s estimate.
The use of assumptions, procedures, methods, or models for new exposures (for example, lines of business or accident years) that differ from those used previously is not a change in assumptions, procedures, methods, or models within the meaning of this section. Similarly, when the reserve evaluation is based on the periodic updating of experience data, factors, or weights, such periodic updating is not a change in assumptions, procedures, methods, or models within the meaning of this section.
3.8 Type of Statement of Actuarial Opinion
The actuary should issue a statement of actuarial opinion that is one of the following types:
3.8.1 Determination of Reasonable Provision
The reserves make a reasonable provision for the liabilities associated with the specified reserves when the reserves are within a range of estimates that could be produced and that the actuary considers reasonable, consistent with the applicable ASOPs, and consistent with the identified stated basis of the reserves.
3.8.2 Determination of Deficient or Inadequate Provision
The reserves do not make a reasonable provision for the liabilities associated with the specified reserves when the reserves are less than the minimum amount that the actuary believes is reasonable. The statement of actuarial opinion should include the minimum amount that the actuary believes is reasonable.
3.8.3. Determination of Redundant or Excessive Provision
The reserves do not make a reasonable provision for the liabilities associated with the specified reserves when the reserves are greater than the maximum amount that the actuary believes is reasonable. The statement of actuarial opinion should include the maximum amount that the actuary believes is reasonable.
3.8.4 Qualified Statement of Actuarial Opinion
The reserves for a certain item or items are in question because the actuary cannot determine a reasonable estimate, or the actuary is unable to render an opinion on the reserves for those items. The actuary should determine whether the reserves make a reasonable provision for the liabilities associated with the specified reserves, except for the item or items to which the qualification relates. The actuary is not required to issue a qualified statement of actuarial opinion if the actuary reasonably believes that the item or items in question are not likely to be material.
3.8.5 No Opinion
If the actuary cannot reach a conclusion due to deficiencies or limitations in the data, analyses, assumptions, or related information, then the actuary should either issue a statement of no opinion or choose not to issue any statement of actuarial opinion at all. The statement of actuarial opinion should include a description of the reasons no opinion could be given.
3.9 Determination of Materiality Standard
The actuary should determine a materiality standard that is appropriate for the intended purpose of the statement of actuarial opinion.
When determining the materiality standard, the actuary should take into account the financial metrics that are relevant to the intended users of the statement of actuarial opinion and how those financial metrics are likely to be affected by changes in reserves. For example, for a statutory statement of actuarial opinion for an insurance company to be used for financial reporting to insurance regulators, the materiality standard might be based on an amount that would trigger a regulatory action for the company. Other examples of materiality standards include percentage of surplus, percentage of reserves, and the amount of adverse deviation that would cause surplus to fall below minimum capital requirements.
The actuary should use this materiality standard to determine whether there is a significant risk of material adverse deviation. This materiality standard may not be appropriate for use in evaluating materiality in other contexts.
3.10 Material Adverse Deviation
The actuary should determine whether there are significant risks and uncertainties that could result in material adverse deviation. When making this determination, the actuary should take into account both quantitative and qualitative factors to assess whether the loss and loss adjustment expense reserves could be understated by more than the materiality standard.
The actuary should find that a risk of material adverse deviation exists when the sum of the materiality standard and the loss and loss adjustment expense reserves is within the actuary’s range of reasonable estimates. However, the actuary may find that a risk of material adverse deviation exists even when the sum of the materiality standard and the loss and loss adjustment expense reserves exceeds the actuary’s range of reasonable estimates.
When the reserve evaluation is based on separate estimates for different components of the loss and loss adjustment expense reserves, the actuary should take into account the combined risks and uncertainties associated with the loss and loss adjustment expense reserves to determine whether a risk of material adverse deviation could exist.
3.11 Adequacy of Assets Supporting Reserves
This standard does not obligate the actuary to evaluate the adequacy of the assets supporting the reserves except as may be needed to comply with any applicable law or other ASOP.
3.12 Reliance on Data or Other Information Supplied by Others
When relying on data or other information supplied by others, the actuary should refer to ASOP No. 23, Data Quality, and ASOP No. 41, Actuarial Communications, for guidance.
3.13 Documentation
The actuary should prepare and retain documentation to support compliance with the requirements of section 3 and the disclosure requirements of section 4. The actuary should prepare such documentation in a form such that another actuary qualified in the same practice area could assess the reasonableness of the actuary’s work. The degree of such documentation should be based on the professional judgment of the actuary and may vary with the complexity and intended purpose of the statement of actuarial opinion. When the statement of actuarial opinion is provided to meet applicable law, the actuary should follow the detailed requirements specified by regulators with regard to the form and content of supporting reports and other documentation. In addition, the actuary should refer to ASOP No. 41 for guidance related to the retention of file material other than that which is to be disclosed under section 4.
Section 4. Communications and Disclosures
4.1 Required Disclosures
When issuing a statement of actuarial opinion or an actuarial report supporting a statement of actuarial opinion to which this standard applies, the actuary should refer to ASOP Nos. 23, 41, 43, and 56.
4.2 Required Disclosures in a Statement of Actuarial Opinion
The actuary should disclose the following in the statement of actuarial opinion:
- the words “statement of actuarial opinion,” or alternative words with similar meaning if required by law or regulation governing the statement of actuarial opinion, in the title of the written statement of actuarial opinion;
- the intended purpose and intended users of the statement of actuarial opinion (see section 3.1);
- the reserves being opined upon (see section 3.2);
- the stated basis of the reserves (see section 3.3);
- the accounting date, the valuation date, and the review date (see section 3.4.1[a]);
- the scope of the reserve evaluation (see sections 3.4.1[b] and 3.4.1[c]);
- the type of statement of actuarial opinion (see section 3.8);
- the materiality standard and the basis for establishing it (see section 3.9);
- the quantitative and qualitative factors underlying risks and uncertainties that the actuary considered in assessing whether there are significant risks and uncertainties that could result in material adverse deviation (see section 3.10); and
- whether there are significant risks and uncertainties that could result in material adverse deviation (see section 3.10).
4.3 Additional Disclosures in the Statement of Actuarial Opinion
When applicable and consistent with the intended purpose of the statement of actuarial opinion, the actuary should make the following additional disclosures:
- the discounted values used in forming the opinion, the items discounted, and the stated basis for the discount rate, if the statement of actuarial opinion relies on discounted values and if the actuary believes that such reliance is likely to have a material effect on the results of the actuary’s reserve evaluation (see section 3.3[a]);
- the assumed basis of the reserves, if the actuary is unable to obtain the stated basis for all or a portion or the reserves (see paragraph following section 3.3[g]);
- the name, credentials, and affiliation of the individual who prepared the analysis or opinion, if the actuary uses an analysis or opinion of another not under the actuary’s direction for a material portion of the reserves (see section 3.4.3);
- any material exposure to uncollectable recoverables (see section 3.6);
- the changes in assumptions, procedures, methods, or models from those employed in the most recent prior statement of actuarial opinion, if the actuary concludes the changes are likely to have a material effect on the actuary’s estimate (see section 3.7);
- that the prior assumptions, procedures, methods, or models are unknown, if the actuary is not able to review the prior opining actuary’s work (see section 3.7);
- the minimum amount that the actuary believes is reasonable, if the actuary determines that the reserves are deficient or inadequate (see section 3.8.2);
- the maximum amount that the actuary believes is reasonable, if the actuary determines that the reserves are redundant or excessive (see section 3.8.3);
- if the actuary issues a qualified statement of actuarial opinion:
- the item or items to which the qualification relates, the reasons for the qualification, and the amounts for such items, if disclosed by the entity, that are included in the reserves;
- that the reserves include unknown amounts for such items, if the amounts for such items are not disclosed by the entity; and
- whether the reserves make a reasonable provision for the liabilities associated with the specified reserves, except for the item or items to which the qualification relates (see section 3.8.4); or
- the reasons no opinion could be given, if the actuary issues a statement of no opinion (see section 3.8.5).
4.4 Additional Disclosures in an Actuarial Report
The actuary also should include disclosures in an actuarial report in accordance with ASOP No. 41 for the following circumstances:
- if any material assumption or method was prescribed by applicable law;
- if the actuary states reliance on other sources and thereby disclaims responsibility for any material assumption or method selected by a party other than the actuary; and
- if in the actuary’s professional judgment, the actuary has deviated materially from the guidance of this ASOP.
Appendix
Background and Current Practices
Note: This appendix is provided for informational purposes and is not part of the standard of practice.
Background
Property/casualty statements of actuarial opinion were initially introduced by the NAIC in the mid-1970s in response to a number of property/casualty insurance insolvencies. Initially, the opinions were required to be signed by a qualified loss reserve specialist, which was defined as a member in good standing of the American Academy of Actuaries or someone whose qualifications otherwise satisfied the domiciliary commissioner. In response to the new requirements, the American Academy of Actuaries adopted Financial Reporting Recommendation 8, Statement of Actuarial Opinion for Fire and Casualty Insurance Company Statutory Annual Statements, along with Interpretations 8-A, 8-B, and 8-C.
By 1990, the NAIC had changed the NAIC Property/Casualty Instructions for the Annual Statement to require a statement of opinion by a qualified actuary. Over the years, the statement of opinion evolved to become a statement of actuarial opinion, and the number of specific aspects upon which the signer was instructed to comment has continually grown. Such aspects currently include anticipated salvage and subrogation; discount for time value of money; under-writing pools and associations; retroactive reinsurance; financial reinsurance; reinsurance collectability; NAIC IRIS Tests 9, 10, and 11; company-specific risk factors; risk of material adverse deviation; and any additional relevant topics.
In addition to the required statements of actuarial opinion for insurance companies, actuaries were being asked to issue statements of actuarial opinion for other types of entities, including self-insureds, self-insured pools, residual market mechanisms, voluntary pools, and funds or other risk-pooling entities created by legislation or regulation.
With the increasing requirements for NAIC statements of actuarial opinion and the increasing demand for actuaries to issue non-NAIC opinions, the Actuarial Standards Board (ASB) determined that an actuarial standard of practice should be developed to replace the Financial Reporting Recommendation and Interpretations and be broad enough in scope to include other statements of actuarial opinion on property/casualty reserves. The ASB adopted ASOP No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves, in 2000.
In 2007, the ASB issued ASOP No. 43, Property/Casualty Unpaid Claim Estimates, to provide guidance to actuaries performing evaluations of the reserves underlying the statements of actuarial opinion. Previously, actuaries were guided by the Statement of Principles Regarding Property and Casualty Loss and Loss Adjustment Expense Reserves adopted by the Board of Directors of the Casualty Actuarial Society (CAS) in May 1988. In 2020, the CAS rescinded this document.
The issuance of ASOP No. 43, combined with increased requirements for issuing NAIC statements of actuarial opinion, have led the ASB to revise ASOP No. 36 in 2010 and again in 2022.
Current Practices
Actuaries are guided by ASOP No. 43 and other applicable ASOPs. In addition, since 1993, the Casualty Practice Council of the American Academy of Actuaries has published practice notes addressing current NAIC requirements for the statement of actuarial opinion required for the Property/Casualty Annual Statement. The practice notes describe some current practices and provide illustrative wording for handling issues and problems. While these practice notes are updated annually, they are not binding, and they have not gone through the exposure and adoption process of the standards of practice promulgated by the ASB.
Numerous educational papers in the public domain are relevant to the topic of reserves and reserve evaluations, including those published by the CAS. While these may provide useful educational guidance to practicing actuaries, they are not actuarial standards of practice and are not binding.
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Last Revised: May 2022
Document Status: Past Exposure Draft