Proposed Revision of Actuarial Standard of Practice No. 36

Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves

STANDARD OF PRACTICE

TRANSMITTAL MEMORANDUM

March 2010

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 and Loss Adjustment Expense Reserves

FROM: Actuarial Standards Board (ASB)

SUBJ: Proposed Revision of Actuarial Standard of Practice (ASOP) No. 36

This document is a second exposure draft of a proposed revision of ASOP No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves.

Please review this second exposure draft and give the ASB the benefit of your comments and suggestions related to the proposed changes. Each written response and each response sent by e-mail to the address below will be acknowledged, and all responses will receive appropriate consideration by the drafting committee in preparing the final document for approval by the ASB.

The ASB accepts comments by either electronic or conventional mail. The preferred form is e-mail, as it eases the task of grouping comments by section. However, please feel free to use either form. If you wish to use e-mail, please send a message to comments@actuary.org. You may include your comments either in the body of the message or as an attachment prepared in any commonly used word processing format. Please do not password protect any attachments. Include the phrase “ASB COMMENTS” in the subject line of your message. Please note: Any message not containing this exact phrase in the subject line will be deleted by our system’s spam filter.

If you wish to use conventional mail, please send comments to the following address:

ASOP No. 36 Revision
Actuarial Standards Board
1850 M Street, Suite 300
Washington, DC 20036

The ASB posts all signed comments received to its website to encourage transparency and dialogue. Unsigned or anonymous comments will not be considered by the ASB nor posted to the website. The comments will not be edited, amended, or truncated in any way. Comments will be posted in the order that they are received. Comments will be removed when final action on a proposed standard is taken. The ASB website is a public website and all comments will be available to the general public. The ASB disclaims any responsibility for the content of the comments, which are solely the responsibility of those who submit them.

This standard uses the deviation language adopted by the ASB in September 2008. However the deviation language makes reference to ASOP No. 41, Actuarial Communications, which is currently being revised. This language will be finalized when the revised ASOP No. 41 is adopted.

Deadline for receipt of responses in the ASB office: June 30, 2010

Background

In March 2000, the Actuarial Standards Board adopted ASOP No. 36, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves. This standard provides guidance to actuaries when issuing specific types of Statements of Actuarial Opinion.

ASOP No. 43, Property/Casualty Unpaid Claim Estimates, was adopted by the Actuarial Standards Board in June 2007. This standard provides guidance to actuaries regarding the estimation of unpaid claims, both when such estimates are performed to support a Statement of Actuarial Opinion covered by ASOP No. 36 and in other circumstances.

Actuaries providing a Statement of Actuarial Opinion covered by the current version of ASOP No. 36 are guided by both ASOP Nos. 36 and 43. In some cases, the guidance is redundant. In other cases, the language in the two documents is unclear when viewed as a whole, as terms and concepts may not be covered in a consistent manner. In order to mitigate such redundant or unclear guidance, a subcommittee was formed to rewrite ASOP No. 36.

The primary goal of the subcommittee was to eliminate any redundant guidance and language that exists between ASOP Nos. 36 and 43. A further goal was to maintain consistency between ASOP Nos. 36 and 43 and, in order to maintain this consistency, to clarify and provide further guidance within ASOP No. 36, if necessary.

First Exposure Draft

The first exposure draft of this proposed ASOP was issued in March 2009 with a comment deadline of June 15, 2009. The Subcommittee on Reserving carefully considered the 11 comment letters received and made changes to the language in several sections in response. For a summary of the issues contained in these comment letters, please see Appendix 2.

The most significant modifications from the first exposure draft are as follows:

1. The term “intended measure,” which appeared in section 3.4 of the first exposure draft, was removed, as this term was the source of significant confusion. This was replaced with multiple references in sections 3.3 and 3.4 to items such as accounting basis, discounting, and explicit risk margins, among others.

2. The first exposure draft contained the section Reliance on Others (section 3.8 of the first exposure draft). The current ASOP No. 36 similarly allows actuaries to claim reliance on the work of others for supporting analysis as long as the actuary includes a disclosure in the opinion that describes the work of others and the extent to which such others’ work was used in forming the opinion. Furthermore, the current ASOP No. 36 allows actuaries to rely on the opinions of other actuaries for some portion of the subject reserves, so long as the actuary (i) ascertains that reliance on the other actuary’s opinion is consistent with the other actuary’s intended use and (ii) discloses the reliance on the other actuary’s opinion in the subject opinion along with (iii) a description of the relevant reserves or subject matter to which the reliance applies, and (iv) any limitation on the actuary’s recognition of significant risks and uncertainties concerning material adverse deviation relating to the subject reserves to which reliance applies.

After further consideration, the Subcommittee on Reserving believes additional steps should be taken when using the work of others. This second exposure draft contains language stating an actuary can make use of the supporting analyses or opinions of other actuaries only after evaluating whether it is reasonable to do so, as described in the revised section 3.7.2.

3. Several of the disclosures in section 4 have been removed, as the Subcommittee on Reserving deemed them unnecessary.

The ASB thanks everyone who took the time to contribute comments and suggestions on the first exposure draft.

Request for Comments

The ASB encourages comments on all sections of this second exposure draft, and is particularly interested in receiving comments on the following areas:

1. In regards to the changes concerning reliance on another actuary’s work (as described above), the new language states the opining actuary can make use of another’s work under certain circumstances, as described in 3.7.2. Is this language clear and appropriate?

2. In addition, feedback is encouraged on section 3.3(c), which states the actuary should identify the accounting standards applicable for the reserve (for example, US SAP, US GAAP, IFRS, etc.). This (along with other items) was added to the draft when the term “intended measure” was removed. The subcommittee believes it is appropriate for the actuary to be aware of the applicable accounting standards when providing a reserve opinion. The subcommittee does not intend for the actuary to opine on the accounting standards themselves or on whether reserves are booked in accordance with the accounting standards. Is this language clear and appropriate?

Subcommittee on Reserving of the Casualty Committee

Raji Bhagavatula, Chairperson

                      Ralph S. Blanchard                                              Mary Frances Miller

                      Daniel K. Lyons                                                   Chandrakant C. Patel

                      Richard J. Marcks                                                 David S. Powell

                      Kevin C. McAllister                                              Jason L. Russ

Casualty Committee of the ASB

Beth Fitzgerald, Chairperson

                      Shawna S. Ackerman                                           David J. Otto

                      Raji Bhagavatula                                                 Marc B. Pearl

                      Kenneth R. Kasner                                               Jonathan White

                      Dale F. Ogden

Actuarial Standards Board

Albert J. Beer, Chairperson

                      Alan D. Ford                                                        Patricia E. Matson

                      Patrick J. Grannan                                               Robert G. Meilander

                      Stephern G. Kellison                                           James J. Murphy

                      Thomas D. Levy                                                  James F. Verlautz

 

The ASB establishes and improves standards of actuarial practice. These ASOPs identify what the actuary should consider, document, and disclose when performing an actuarial assignment. The ASB’s goal is to set standards for appropriate practice for the U.S.

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 consider 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 and loss adjustment expense reserves rendered on or after four months after adoption by the Actuarial Standards Board.

Section 2. Definitions

The terms below are defined for use in this actuarial standard of practice. Note that any reference to “loss” or “claim” in this standard includes losses, loss adjustment expenses, or both.

2.1 Accounting Date

The stated cutoff date for reflecting events and recording amounts as paid in a financial statement or accounting system. The accounting date is sometimes referred to as the “as of date.”

2.2 Coverage

The terms and conditions of a plan or contract, or the requirements of applicable law, that create an obligation for claim payment associated with contingent events.

2.3 Event

The incident or activity that triggers potential for claim or claim adjustment expense payment.

2.4 Explicit Risk Margin

An explicit provision for uncertainty in a reserve or unpaid claim estimate.

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.”

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 Present Value

The value at a point in time of cash flows at other points in time, calculated at selected interest rates. It is also known as “discounted present value” or “discounted value.”

2.8 Reserve

An amount recorded in financial statements or accounting systems in order to reflect obligations.

2.9 Reserve Evaluation

The process of evaluating the reasonableness of a reserve.

2.10 Review Date

The cutoff date for including material information known to the actuary in the unpaid claim estimate analysis.

2.11 Unpaid Claim Estimate

The actuary’s estimate of the obligation for future payment resulting from claims due to past events.

2.12 Unpaid Claim Estimate Analysis

The process of developing an unpaid claim estimate.

2.13 Valuation Date

The date through which transactions are included in the data used in the unpaid claim estimate analysis.

Section 3. Analysis of Issues and Recommended Practices

3.1 Legal and Regulatory Requirements

When an actuary prepares a statement of actuarial opinion to satisfy the requirements of law or regulation, the actuary should have the necessary knowledge to comply with the specific requirements of that law or regulation. The actuary should be satisfied that the statement of actuarial opinion is consistent with relevant requirements of applicable laws and regulations.

3.2 Purpose of the Statement of Actuarial Opinion

The actuary should identify the intended purpose of the statement of actuarial opinion. For example, the intended purpose may be to satisfy the requirements for such an opinion under the NAIC Annual Statement Instructions.

3.3 Reserves Being Opined Upon

The actuary should identify the following regarding the reserves being opined upon:

a. the reserve amount(s);

b. the accounting date; and

c. the accounting standards applicable for the reserves (for example, US SAP, US GAAP, IFRS, etc.).

3.4 Stated Basis of Reserve Presentation

The actuary should identify the stated basis of reserve presentation, 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. It includes, as appropriate, the following:

a. whether reserves are stated as being 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%);

b. whether the reserves are stated to 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);

c. whether the reserves are gross or net of specified recoverables (for example, deductibles, ceded reinsurance, and salvage and subrogation);

d. whether the potential for uncollectable recoverables is considered in the reserves , when recoverables are involved and, if so, the categories of such uncollectable recoverable considered and whether those categories reflect currently known collectability concerns or potential ultimate collectability concerns. Possible categories of uncollectables include those related to disputes and those related to counterparties in financial difficulty (credit default);

e. the types of unpaid loss adjustment expenses covered by the reserve (for example, coverage dispute costs, defense costs, and adjusting costs);

f. when the opinion is only for a portion of a reserve, the claims exposure to be covered by the opinion (for example, type of loss, line of business, year, and state); and

g. any other items that, in the actuary’s professional judgment, are needed to describe the reserves sufficiently for the actuary’s evaluation of the reserves.

To the extent the actuary does not know the above items, the actuary should request this information from the principal. If unable to obtain these items from the principal, the actuary should identify what the actuary assumed to be the intended basis of reserve presentation for purposes of the reserve evaluation.

3.5 Scope of the Analysis Underlying the Statement of Actuarial Opinion

The actuary should identify the scope of the analysis upon which the opinion is based. This includes the following:

a. the valuation date of the data that underlies the actuary’s analysis;

b. the review date of the actuary’s analysis, if it differs from the date the opinion is signed;

c. if separate reserve amounts for different reserve items, such as losses and loss adjustment expenses, are disclosed in the statement of actuarial opinion, whether the actuary’s opinion applies to those items in the aggregate or individually; and

d. any other items that, in the actuary’s professional judgment, are needed to describe the scope of the actuary’s analysis sufficiently.

3.6 Materiality

The actuary should evaluate materiality based on the actuary’s professional judgment, any applicable materiality guidelines or standards, and the intended purpose for which the actuary is preparing the statement of actuarial opinion.

The actuary should understand which financial values are usually important to the intended users of the statement of actuarial opinion and how those financial values are likely to be affected by changes in the reserves and future payments for losses and loss adjustment expenses. For example, for a statement of actuarial opinion for an insurance company to be used for financial reporting to insurance regulators, materiality might be evaluated in terms of the company’s reported reserves or statutory surplus.

3.7 Reserve Evaluation

The actuary should consider a reserve to be reasonable if it is within a range of estimates that could be produced by an unpaid claim estimate analysis that is, in the actuary’s professional judgment, consistent with both ASOP No. 43, Property/Casualty Unpaid Claim Estimates, and the identified stated basis of reserve presentation.

The actuary should consider the relevant characteristics of the entity’s exposures to the extent that they are likely to have a material effect on the results of the actuary’s reserve evaluation. These characteristics may be influenced by the methods used to sell or provide coverages, the distribution channels from which the entity’s business is obtained, the general underwriting practices and pricing philosophy of the entity, and the marketing objectives and strategies of the entity.

If the actuary makes use of other personnel within the actuary’s control to carry out assignments relative to analyses supporting the opinion, the actuary should review their contributions and be satisfied that those contributions are reasonable.

The actuary may develop estimates of the unpaid claims for all or a portion of the reserve or make use of another’s unpaid claims estimate analysis or opinion for all or a portion of the reserve.

3.7.1 Evaluation Based on Actuary’s Unpaid Claim Estimates

When developing unpaid claim estimates to evaluate the reasonableness of a reserve, the actuary may develop a point estimate, a range of estimates, or both. The actuary should be guided by ASOP No. 43 for the development of these unpaid claim estimates.

3.7.2 Evaluation Based on Actuary’s Use of Another’s Unpaid Claims Estimate Analysis or Opinion

In the course of conducting a reserve evaluation, the actuary may make use of another’s supporting analyses or opinions. The actuary should understand the intended purpose of the analyses or opinions, and assess whether the analyses or opinions are consistent with the stated basis of presentation of the reserves. The actuary should only make use of another’s analyses or opinions when, in the actuary’s professional judgment, it is reasonable to do so. In making this determination, the actuary should consider the amount of the reserves covered by the others’ analyses or opinions in comparison to the total reserves subject to the actuary’s opinion, the nature of the business, how reasonably likely deviations may affect the actuary’s opinion on the total reserves subject to the actuary’s opinion and the credentials of the other individuals that prepared the analyses or opinions. Where, in the opinion of the actuary, the others’ analyses or opinions need to be modified or expanded, the actuary should perform such analyses as necessary to render an opinion.

If in using the analyses performed by others the actuary reaches conclusions materially different from those in the others’ work, the actuary should, when practical, contact the producers of those analyses to discuss the differences. Where material differences exist, the issues underlying the differences should be understood by the actuary. (Note that materiality is measured relative to the actuary’s opinion, not relative to the others’ analyses.)

3.8 Prior Opinion

If the actuary prepared the most recent prior 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, or methods differ from those employed in providing the most recent prior opinion prepared in accordance with this standard. If the current assumptions, procedures or methods differ from those employed in the prior opinion, the actuary should consider whether the changes are likely to have had a material effect on the actuary’s unpaid claim estimate.

The use of assumptions, procedures, or methods for new reserve segments (for example, line of business or accident year) that differ from those used previously is not a change in assumptions, procedures, or methods within the meaning of this section. Similarly, when the determination of the reasonableness of reserves is based on the periodic updating of experience data, factors, or weights, such periodic up­dating is not a change in assumptions, procedures, or methods within the meaning of this section.

3.9 Adverse Deviation

The actuary should consider whether there are significant risks and uncertainties that could result in future paid amounts being materially greater than those provided for in the reserves. When the actuary’s analysis derives separate reserve estimates for various segments or claim groupings, the actuary should consider the combined risks and uncertainties associated with the reserves that are the subject of the opinion. (See section 4.1(h) and 4.2(e) for related disclosure requirements.)

3.10 Collectability of Ceded Reinsurance

If the scope of the statement of actuarial opinion includes reserves net of ceded reinsurance and the amount of ceded reinsurance is material, the actuary should consider the collectability of ceded reinsurance in evaluating net reserves. The actuary should solicit information from management regarding collectability problems, significant dis­putes with reinsurers, and practices regarding provisions for uncollect­able reinsurance. The actuary’s consideration of collectability does not imply an opinion on the financial condition of any reinsurer.

3.11 Statements of Actuarial Opinion

An actuary who is issuing a statement of actuarial opinion cannot claim reliance on another’s work or opinion except as described in section 3.7.2. The statement of actuarial opinion should be one of the following types:

a. Determination of Reasonable Provision—The actuary should opine that the reserve amount makes a reasonable provision for the liabilities associated with the specified reserve when the reserve is found to be reasonable. (See section 3.7).

b. Determination of Deficient or Inadequate Provision—The actuary should opine that the reserve amount does not make a reasonable provision for the liabilities associated with the specified reserves when the reserve amount is less than the minimum amount that the actuary believes is reasonable. Furthermore, the actuary should determine the minimum amount that the actuary believes is reasonable. (See section 4.2(b) for related disclosure requirements.)

c. Determination of Redundant or Excessive Provision—The actuary should opine that the reserve amount does not make a reasonable provision for the liabilities associated with the specified reserves when the reserve amount is greater than the maximum amount that the actuary believes is reasonable. Furthermore, the actuary should determine the maximum amount that the actuary believes is reasonable. (See section 4.2(c) for related disclosure requirements.)

d. Qualified Opinion—The actuary should issue a qualified statement of actuarial opinion when, in the actuary’s opinion, the reserves for a certain item or items within the scope of the opinion are in question because they cannot be reasonably estimated or the actuary is unable to render an opinion on the reserves for those items. The actuary should determine whether the reserve amount makes 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 opinion if the actuary reasonably believes that the item or items in question are not likely to be material. (See section 4.2(d) for related disclosure requirements.)

e. No Opinion—The actuary’s ability to give an opinion is depend­ent upon data, analyses, assumptions, and related information that are sufficient to support a conclusion. 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 render any opinion at all. A statement of no opinion should include a description of the reasons no opinion could be given.

3.12 Adequacy of Assets Supporting Reserves

This standard does not obligate the actuary to undertake an evaluation of the adequacy of the assets supporting the stated reserve amount except as may be needed to comply with any applicable law, regulatory requirement, or other ASOP.

3.13 Documentation

The actuary should consider the intended purpose of the statement of actuarial opinion when documenting work, and should refer to ASOP No. 41, Actuarial Communications. When the statement is provided to meet regulatory requirements, the actuary should follow the detailed requirements specified by regulators as to the form and content of supporting reports and other documentation.

Section 4. Communications and Disclosures

4.1 Actuarial Communication

When issuing a statement of actuarial opinion subject to this standard, the actuary should consider the intended purpose of the statement of actuarial opinion and be guided by ASOP No. 41.

In addition, consistent with the intended purpose, the actuary should disclose the following in the statement of actuarial opinion:

a. the words “statement of actuarial opinion,” or alternative words with similar meaning if required by law or regulation governing the opinion, in the title of the written opinion;

b. the intended user(s) of the statement of actuarial opinion;

c. the intended purpose of the statement of actuarial opinion, as described in section 3.2;

d. the reserves being opined upon, as described in section 3.3;

e. the stated basis of reserve presentation, as described in section 3.4. In certain circumstances, referring to specific financial statement reserve figures and their specific source (for example, Statutory Annual Statement of Company ABC as filed with the Company’s state of domicile) would satisfy disclosures related to section 3.4;

f. the scope of the analysis underlying the statement of actuarial opinion, as described in sections 3.5(c) and 3.5(d), and the review date (see section 3.5(b)) if different from the date the opinion is signed;

g. the type of opinion, as described in section 3.11; and

h. whether or not the actuary reasonably believes that there are significant risks and uncertainties that could result in material adverse deviation, as described in section 3.9, and the amount of adverse deviation that the actuary judges to be material with respect to the statement of actuarial opinion.

4.2 Additional Disclosures

In certain cases, consistent with the intended purpose, the actuary may need to make the following disclosures in addition to those in section 4.1:

a. The actuary should disclose the nature of changes in assumptions, procedures, or methods from those employed in the most recent prior opinion prepared in accordance with this standard, unless the actuary concludes the changes are not likely to have a material effect on the actuary’s unpaid claim estimate. This standard does not require the actuary to quantify the impact of such changes. If the actuary cannot review the prior opining actuary’s work, then the actuary should disclose that the prior assumptions, procedures, and methods are unknown. (See section 3.8.)

b. If the actuary determines that the reserve amount is deficient or inadequate, the actuary should disclose the minimum amount that the actuary believes is reasonable.

c. If the actuary determines that the reserve amount is redundant or excessive, the actuary should disclose the maximum amount that the actuary believes is reasonable.

d. If the actuary issues a qualified opinion, the actuary should disclose in the 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 reserve. If the amounts for such items are not disclosed by the entity, the actuary should disclose that the reserve includes unknown amounts for such items. The actuary should also disclose whether the reserve amount makes a reasonable provision for the liabilities associated with the specified reserves, except for the item or items to which the qualification relates.

e. If the actuary reasonably believes that there are significant risks and uncertainties that could result in material adverse deviation, an explanatory paragraph should be included in the statement of actuarial opinion. (See sections 3.6 and 3.9 for guidance on evaluating materiality and adverse deviation.) The explanatory paragraph should contain a description of the major factors or particular conditions underlying risks and uncertainties that the actuary believes could result in material adverse deviation.

The actuary is not required to include in the explanatory paragraph general, broad statements about risks and uncertainties due to economic changes, judicial decisions, regulatory actions, political or social forces, etc., nor is the actuary required to include an exhaustive list of all potential sources of risks and uncertainties.

f. If the statement of actuarial opinion relies on present 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, the actuary should disclose that present values were used in forming the opinion, the interest rate(s) used by the actuary, and the monetary amount of discount that was reflected in the reserve amount.

g. If the reserves being opined upon are net of ceded reinsurance and the amount of ceded reinsurance is material, the actuary should comment on the collectability of that reinsurance. This standard does not require the actuary to quantify the collectability. (See section 3.10.)

h. When the statement is provided to meet regulatory requirements, the actuary should follow the detailed requirements specified by regulators as to the form and content of the required disclosures, to the extent not addressed above.

4.3 Deviation from Standard

If the actuary departs from the guidance set forth in this standard, the actuary should include the following where applicable:

4.3.1

the disclosure in ASOP No. 41, section 4.2 if any material assumption or method was prescribed by applicable law (statutes, regulations, and other legally binding authority);

4.3.2

the disclosure in ASOP No. 41, section 4.3 if the actuary disclaims responsibility for any material assumption or method in any situation not covered under section 4.3.1 above; and

4.3.3

the disclosure in ASOP No. 41, section 4.4 if the actuary otherwise deviated from the guidance of this ASOP.

Appendix 1 – Background and Current Practices

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

Background

In 2000, the ASB issued ASOP No. 36, Statements of Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves. At that time, there was no standard of practice concerning the underlying actuarial analyses. Guidance was provided in 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 in May 1988.

Since the issuance of ASOP No. 36, the ASB has issued ASOP No. 43, Property/Casualty Unpaid Claim Estimates in 2007. ASOP No. 43 provides guidance to actuaries concerning the actuarial analyses typically underlying the opinions subject to ASOP No. 36. Certain material is duplicated in these two ASOPs. This revision eliminates the duplications and brings consistency in language with ASOP No. 43.

Current Practices

Actuaries are guided by ASOP No. 43, Property/Casualty Unpaid Claim Estimates. Other ASOPs issued by the Actuarial Standards Board pertaining to unpaid loss and loss adjustment expense estimates include ASOP No. 20, Discounting of Property and Casualty Loss and Loss Adjustment Expense Reserves; ASOP No. 23, Data Quality; and ASOP No. 41, Actuarial Communications. Guidance is also provided by the Statement of Principles Regarding Property and Casualty Loss and Loss Adjustment Expense Reserves of the Casualty Actuarial Society, which is currently under review.

In addition, since 1993, the Casualty Practice Council of the American Academy of Actuaries has published practice notes addressing current National Association of Insurance Commissioners’ requirements for the statement of actuarial opinion required for the Statutory Annual Statement. The practice notes describe some current practices and show illustrative wording for handling issues and problems. While these practice notes (and future practice notes issued after the effective date of this standard) can be updated to react in a timely manner to new concerns or requirements, they are not binding, and they have not gone through the exposure and adoption process of the standards of practice promulgated by the Actuarial Standards Board.

Numerous educational papers are in the public domain that are relevant to the topic of reserves and reserve evaluations, including those published by the Casualty Actuarial Society. While these may provide useful educational guidance to practicing actuaries, these are not actuarial standards and are not binding.

Appendix 2 – Comments on the Exposure Draft and Responses

The exposure draft of this ASOP, Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves, was issued in March 2009 with a comment deadline of June 15, 2009. Eleven 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 Subcommittee on Reserving carefully considered all comments received, and the Casualty Committee and ASB reviewed (and modified, where appropriate) the proposed changes.

Click here to view Appendix 2 in its entirety.