Reconciliation and the Opining Actuary Wendy Germani, FCAS MAAA Holmes Gwynn, ACAS MAAA Presented CLRS – Fall 2004

Why Reconciliations Schedule P Part 1 A/S Page 3 Liabilities Actuarial Data Base

Why Reconciliation-Opiners View I evaluated that data for reasonableness and consistency. I also reconciled that data to Schedule P, Part 1 of the company’s current Annual Statement.

Potential for Malpractice Companies can misinterpret actuarial data requests. Subsequent audits may show the actuary used bad data. Data omissions can be material. Companies can fraudulently feed actuaries bad data.

Relationship to Accounting In general the actuarial work product gets turned over to the accountant to complete financial reporting. Accountants must allocate at times. Sometimes they involve the actuary, sometimes not. The actuary needs to understand how his work is being put to use to develop Schedule P.

New This Year “The auditor is required to determine what historical data and methods have been used by management in developing the loss reserve estimate and whether the auditor will rely on the same data or different statistical data in evaluating the reasonableness of the loss reserve estimate…

New This Year cont. “ Through inquiry of the Appointed Actuary, the auditor should obtain an understanding of the data identified by the Appointed actuary as significant.” A complete and thorough reconciliation may be all the auditor needs.

Data Elements that May Need to be Reconciled Paid Losses Incurred (case basis) losses Paid defense and cost containment expenses (DCC) Incurred (case basis) DCC Paid adjusting and other expenses (AAO) Incurred and/or Paid Claim Counts Earned premium

Examples Situations reflect the actuaries need to: Combine sub-lines Incremental vrs Cumulative paid data Bifurcate data by line of business Account for losses not subject to actuarial review Combined (Pooled) Companies Splitting Loss adjustment Expenses Allocation of IBNR to LOB & Acc Year Cells.

Questions???