Proposed Revision of ASOP No. 36 – Statements of Actuarial Opinion Regarding Property/Casualty Loss, Loss Adjustment Expense, or Other Reserves (Second Exposure Draft)

Statements of Actuarial Opinion Regarding Property/Casualty Loss, Loss Adjustment Expense, or Other Reserves

Second 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 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. 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: November 1, 2023

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.

First Exposure Draft

The first exposure draft was released in July 2022 with a comment deadline of September 30, 2022. Nine comment letters were received and considered in making changes that are reflected in this second exposure draft.

Notable Changes from the First Exposure Draft

Notable changes made to the first exposure draft are summarized below. Notable changes do not include changes made to improve readability, clarity, or consistency.

1. In section 1.2, the guidance for actuaries reviewing a statement of actuarial opinion was changed.
2. In section 1.2, the guidance to follow this ASOP if the actuary determines that the guidance in this standard conflicts with an applicable standard in another practice area was removed.
3. In section 2.7, the definition of materiality standard was deleted.
4. In section 3.3(a), the actuary is now required to determine the discount rate used, when a material portion of the reserves within the scope of a statement of actuarial opinion is discounted.
5. In section 3.4.4, when using an analysis or opinion not produced under the actuary’s direction, the guidance now directs the actuary to take into account “whether the work complies with applicable industry, regulatory, and actuarial standards.”
6. In sections 3.9, 3.10, and 3.11, guidance was added for situations when the scope of the statement of actuarial opinion includes both direct and assumed reserves and reserves net of recoverables.
7. In section 3.9, guidance was added for situations when an actuary opines on different reserve items individually and reaches different conclusions on those items.
8. In section 3.11, material adverse deviation now applies to the total reserves within the scope of the actuarial opinion.
9. The disclosure requirements in sections 4.2 and 4.3 were aligned with the changes in section 3.
10. Section 4.4(b) was deleted.

Notable Changes from the Existing Standard

A cumulative summary of the notable changes from the existing ASOP are summarized below. Notable changes do not include changes made to improve readability, clarity, or consistency.

1. In sections 1.1 and 1.2, 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.”
2. In section 1.2, the scope was expanded to include other reserves and clarifies that this ASOP applies to the Statements of Actuarial Opinion on reserves of other property/casualty risk financing systems.
3. In section 1.2, the scope was expanded to include actuaries “reviewing a statement of actuarial opinion.”
4. In section 2, definitions of counterparty and recoverable were added, and definitions of event, present value, unpaid claim estimates, and unpaid claim estimate analysis were deleted.
5. In section 3.3, the stated basis of the reserve was revised to include characteristics of other reserves being opined upon.
6. In sections 3.3(a) and 4.3(a), what the actuary is required to determine and disclose regarding discounting has been clarified.
7. 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.
8. In section 3.4.2, guidance requiring the actuary to review work produced under the actuary’s direction was removed, as the requirement is covered in Precept 3 of the Code of Professional Conduct.
9. In section 3.4.4, guidance related to using another party’s work has been modified.
10. In section 3.6, guidance on uncollectable recoverables was expanded to include other recoverables in addition to reinsurance.
11. In section 3.9, 3.10, and 3.11, guidance was added for situations when the scope of the statement of actuarial opinion includes both direct and assumed reserves and reserves net of recoverables.
12. In section 3.9, guidance was added for situations when an actuary opines on different reserve items individually and reaches different conclusions on those items.
13. In section 3.10, guidance on determining a materiality standard was added.
14. In section 3.11, guidance on material adverse deviation was expanded.
15. In section 3.13, guidance on reliance on data or other information supplied by others was added.
16. In section 3.14, the documentation section was updated.
17. Section 4 was restructured and revised to align with the changes in section 3 and current ASOP format.
18. The disclosure requirements in section 4.2 were expanded to require additional discussion related to the risk of material adverse deviation.
19. Section 4.4(b) was deleted.

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 voted in June 2023 to approve this draft for exposure.

 

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
Robert M. Damler, Chairperson
Elizabeth K. Brill	David E. Neve
Kevin M. Dyke	Christopher F. Noble
Laura A. Hanson	Judy K. Stromback
Richard A. Lassow	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:

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.

“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, premium deficiency reserves, contingent commission reserves, 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 reviewing actuary should follow the guidance in section 3 to the extent practicable within the scope of the actuary’s assignment.

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 ASOP No. 57, Statements of Actuarial Opinion Not Based on an Asset Adequacy Analysis for Life Insurance, Annuity, or Health Insurance Reserves and Related Actuarial Items.

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 Reference

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. The actuary should also refer to ASOP No. 1, Introductory Actuarial Standard of Practice, for definitions and discussions of common terms, which do not appear in bold in this standard.

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 Recoverable

An amount (for example, deductibles, ceded reinsurance, salvage, or subrogation) that may be collected from a counterparty.

2.8 Reserve

An amount recorded in a financial statement or accounting system to reflect potential obligations.

2.9 Reserve Evaluation

The process of evaluating the reasonableness of a reserve.

2.10 Review Date

The date (on or 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.”

2.11 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:

1. the amount of the reserves;
2. the accounting date; and
3. 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 determine 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 determining the stated basis, the actuary should identify the following:

1. whether the reserves are nominal or discounted for the time value of money and, if discounted, the items discounted (for example, tabular reserves only), the basis for the discount rate(s) (for example, risk-free rate or portfolio rate), and the discount rate(s) used;
2. 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 the reserve without the explicit risk margin);
3. whether the reserves are gross or net of specified recoverables;
4. 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;
5. the types of unpaid loss adjustment expense covered by the reserves, if any (for example, coverage dispute costs, defense costs, or adjusting costs);
6. the characteristics of other reserves being opined upon, if any (for example, the nature of the contracts generating unearned premium reserves); and
7. 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 determine 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 select 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 portion of the reserves within the scope of 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:

1. accounting date, valuation date, and the review date;
2. 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
3. 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 a Model Developed by Another Party

When using a model developed by another party, the actuary should refer to ASOP No. 56, Modeling, and ASOP No. 38, Catastrophe Modeling (for All Practice Areas).

3.4.4 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 party” refers to someone not under the actuary’s direction.

The actuary should use another party’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:

1. 1. the amount of the reserves covered by another party’s analysis or opinion in comparison to the total reserves within the scope of the statement of actuarial opinion;
   2. the nature of the exposure and coverage;
   3. the way in which reasonably likely variations in estimates covered by another party’s analysis or opinion may affect the statement of actuarial opinion on the total reserves within the scope of the statement of actuarial opinion;
   4. the credentials or expertise of the individual(s) who prepared the analysis or opinion; and
   5. whether the work complies with applicable industry, regulatory, and actuarial standards.

When, in the professional judgment of the actuary, the analysis or opinion of another party 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 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 obtain information 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 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 prior statement of actuarial opinion. If the current assumptions, procedures, methods, or models differ from those used in the 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 Types of Opinions

When issuing a statement of actuarial opinion, the actuary should issue one or more opinions 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 actuary 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 actuary should include the maximum amount that the actuary believes is reasonable.

3.8.4 Qualified 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 exclusive of the item or items to which the qualification relates. The actuary is not required to issue a qualified 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 state that no opinion could be rendered or choose not to render an opinion. The actuary should include a description of the reasons no opinion could be given.

3.9 Issuing Multiple Opinions within the Statement of Actuarial Opinion

The actuary may issue multiple opinions within a statement of actuarial opinion.

3.9.1 Direct and Assumed Reserves and Reserves Net of Recoverables

If the scope of the statement of actuarial opinion includes both direct and assumed reserves and reserves net of recoverables, the actuary should issue an opinion on a direct and assumed basis and an opinion on a net of recoverables basis.

3.9.2 Opinion on Total Reserves

When the actuary issues different types of opinions on different reserve items, such as (1) loss and loss adjustment expense reserves and (2) unearned premium reserves, the actuary should issue an opinion on the total reserves within the scope of the statement of actuarial opinion.

When issuing different types of opinions within a statement of actuarial opinion, the actuary should include narrative comments to describe each conclusion.

3.10 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 the actuary believes 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 the total reserves within the scope of the statement of actuarial opinion. 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.

If the actuary chooses to comment on the risk of material adverse deviation on a direct and assumed basis, the actuary may select different materiality standards on a direct and assumed basis and on a net of recoverables basis.

The actuary should use the selected 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 the reserve evaluation or in other contexts.

3.11 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 there are significant risks that could result in future outcomes being greater than what is provided for in the total reserves within the scope of the statement of actuarial opinion by more than the materiality standard. The actuary should take into account the scope of the statement of actuarial opinion, the intended purpose and intended users of the statement of actuarial opinion, and the requirements of applicable law.

If the scope of the statement of actuarial opinion includes both direct and assumed reserves and reserves net of recoverables, the actuary should assess the risk of material adverse deviation on a net of recoverables basis. The actuary may choose to comment on the risk of material adverse deviation on a direct and assumed basis. The actuary’s conclusion on the risk of material adverse deviation may differ between direct and assumed reserves and reserves net of recoverables.

The actuary should compare the sum of (1) the total reserves within the scope of the statement of actuarial opinion and (2) the materiality standard to the high end of the 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. If the sum is less than or equal to the high end of the range, the actuary should find that there is a risk of material adverse deviation. If the sum is greater than the high end of the range, the actuary may find that a risk of material adverse deviation exists.

When the reserve evaluation is based on separate estimates for different reserve items, such as loss, loss adjustment expense, and other reserves, the actuary should take into account the combined risks and uncertainties of the total reserves within the scope of the statement of actuarial opinion to determine whether a risk of material adverse deviation exists. The actuary also may comment on the risk of material adverse deviation related to different reserve items.

3.12 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.

3.13 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.

3.14 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 in an Actuarial Report

When issuing an actuarial report supporting a statement of actuarial opinion to which this standard applies, the actuary should refer to ASOP Nos. 20, 23, 38, 41, 43, and 56.

4.2 Required Disclosures in the Statement of Actuarial Opinion

The actuary should include the words “statement of actuarial opinion,” or alternative words with similar meaning, in the title of the written statement of actuarial opinion. In addition, the actuary should disclose the following in the statement of actuarial opinion:

1. the intended purpose and intended users of the statement of actuarial opinion (see section 3.1)
2. the reserves being opined upon (see section 3.2);
3. the stated basis of the reserves (see section 3.3) or 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]);
4. the accounting date, the valuation date, and the review date (see section 3.4.1[a]);
5. the scope of the reserve evaluation (see sections 3.4.1[b] and 3.4.1[c]);
6. the type(s) of opinion(s) (see section 3.8);
7. the materiality standard and its basis (see section 3.10);
8. 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 3.11); and
9. whether there are significant risks and uncertainties that could result in material adverse deviation (see section 3.11).

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:

1. the amount of the discount included in the reserves within the scope of the statement of actuarial opinion, the items discounted, and the basis for the discount rate(s) used, if the statement of actuarial opinion relies on discounted values, and whether 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]);
2. the name, credentials, and affiliation of the individual who prepared the analysis or opinion, if the actuary uses an analysis or opinion of another party not under the actuary’s direction for a material portion of the reserves (see section 3.4.4);
3. any material exposure to uncollectable recoverables (see section 3.6);
4. the changes in assumptions, procedures, methods, or models from those used in the 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);
5. 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);
6. 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);
7. 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);
8. if the actuary issues a qualified opinion:
   1. 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;

   2. that the reserves include unknown amounts for such items, if the amounts for such items are not disclosed by the entity; and
   3. whether the reserves make a reasonable provision for the liabilities associated with the specified reserves exclusive of the item or items to which the qualification relates (see section 3.8.4); or
9. the reasons no opinion could be rendered, if the actuary does not render an opinion (see section 3.8.5); and
10. narrative comments describing each conclusion, if the actuary issues different types of opinions (see section 3.9).

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:

1. if any material assumption or method was prescribed by applicable law;
2. if, in the actuary’s professional judgment, the actuary has deviated materially from the guidance of this ASOP.

Appendix 1

Background and Current Practices

Note: This appendix is provided for informational purposes and is not part of the standard of practice.

BackgroundProperty/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; under­writing pools and associ­ations; retroactive reinsurance; financial reinsurance; reinsurance collectability; other reserves such as unearned premium reserves for property/casualty long-duration contracts; 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, captives, 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 (ASOP) 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 PracticesActuaries 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.

Appendix 2

Comments on the First Exposure Draft and Responses

The first exposure draft of the proposed revision of ASOP No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss, Loss Adjustment Expense, or Other Reserves, was issued in July 2022 with a comment deadline of September 30, 2022. Nine comment letters were received, some of which were submitted on behalf of multiple commentators, such as by firms or committees. For purposes of this appendix, the term “commentator” may refer to more than one person associated with a particular comment letter. The ASOP No. 36 Task Force and the Casualty Committee of the Actuarial Standards Board (ASB) carefully considered all comments received, and the ASB reviewed (and modified, where appropriate) the changes proposed by the Casualty Committee.

Summarized here are the significant issues and questions contained in the comment letters and the responses. Minor wording or punctuation changes that were suggested but not significant are not reflected in the appendix, although they may have been adopted.

The term “reviewers” in appendix 2 includes the ASOP No. 36 Task Force, the Casualty Committee, and the ASB. The section numbers and titles used in appendix 2 refer to those in the first exposure draft, which are then cross referenced with those in the new exposure draft.