1. Mary D. Miller FCAS, MAAA Ohio Department of Insurance March 23, 2004
S&P Criticism of Loss Reserve Estimates Midwestern Actuarial Forum 2004 Spring Meeting
Mary D. Miller FCAS, MAAA
Ohio Department of Insurance
March 23, 2004

2. Discussion Points What are regulators doing?
Impact of codification and ASOP 36
Judgment regarding Opinion disclosures
Data details

3. 2004 Opinion Changes -Risk of MAD
Requires explicit statement of whether or not actuary reasonably believes there are significant risks and uncertainties that could result in material adverse deviation and why.
Is there resistance to including it in Opinion?
Basis for establishing standard.

4. Actuarial Opinion Summary - 2005
Required to be Sent only to domiciliary state
Other states may request if they can demonstrate they can protect confidentiality
Contains
Net and Gross point estimate and/or range
Company’s Net and Gross Carried Reserve
Difference between the Company’s Net and Gross Carried reserves and the Appointed Actuary’s point estimate and/or range
Discussion of any persistent adverse development (Schedule P 1 year test adverse by 5% of surplus or more in 3 of the last 5 years)

5. Whose Best Estimate? Management’s vs. the Actuary’s
Why is there a difference?
What is a reasonable tolerance? What’s a material difference between management’s and the actuary’s evaluation?
What kind of documentation does management have for their estimate?

6. Qualified Opinions
ASOP 36 definition: “the reserves for certain items are in question because they can not be reasonably estimated”
When does risk of material adverse deviation produce a qualified opinion?
If the difference between the high end of a reasonable range and carried reserves is more than surplus, are those reserves reasonably estimable?
Is a qualified opinion necessarily bad?

7. Disclosures
Do I have to say that the company would be at the authorized control level if they had recorded my point estimate reserve?
Can a company writing med-mal at 210% RBC not have a risk of material adverse deviation?

8. 2002 Development 30 Companies had 80% of development & 20% of surplus
Industry surplus virtually unchanged