1. Proposed ASB Actuarial Standard of Practice on Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves Status of Exposure Draft Robert Miccolis, Mary Frances Miller, Patricia Teufel CLRS 9/98

2. Responses to Exposure Draft Exposure Draft Issued February, 1998 Comment Deadline June 15, 1998 39 Comment Letters Received 53 Comment Postcards Received

3. Comment Postcard Responses 21 Responses with no comment 24 Responses concur with the proposed standard 6 Responses concurred except for the comments written on the postcard 2 Responses felt that significant changes were needed and submitted comments

4. Comments on Specific Sections Comments on 9 sections were substantive and received extensive discussion by the ASB Reserving Subcommittee Comments on 34 sections were primarily editorial in nature Comments on 13 sections requested additional guidance regarding implementation

5. Substantive Change to Draft 3.3.1 Items Covered by the Opinion Actuary’s opinion applies in the aggregate not to each separate reserve item listed unless the opinion states otherwise

6. Explanatory Paragraph 3.3.7 Changes Eliminated the requirement to disclose the range of reasonable estimates Reduced the required descriptions or explanations regarding the nature or sources of uncertainty, the specific recognized contingencies, and the specific, major risk factors

7. Revised Explanatory Paragraph 3.3.7 The amount of adverse deviation that the actuary judges to be material. A description of the particular circumstances underlying the actuary’s evaluation that there is a significant risk of material adverse deviation. The actuary is not required to include in the explanatory paragraph general, broad statements about uncertainties and risk due to economic changes, judicial decisions, regulatory actions, political or social forces, etc.

8. Opinion on Gross & Net (revised) When the actuary’s opinion addresses both gross and net reserves (3.8.1), the standard will not require an evaluation of whether there is a significant risk of a material adverse deviation regarding the gross reserves, and the explanatory paragraph (3.3.7), if needed, will only address the net reserves.

9. Reinsurance Collectibility 3.8.2 Only applies if the ceded reserves are material. Requires the actuary to consider the collectibility in evaluating net reserves. Does not require the actuary to obtain collectibility information from sources outside of the management of the entity.

10. Loss Sensitive Financial Items 3.10 Several comments received that this would be an unreasonable requirement. Regulatory trends indicate that the scope of statutory opinions will continue to expand. Some of the examples given are probably not appropriate (uncollectible/unrecoverable). Subcommittee still considering changes.

11. Expected Value Estimate Definition (2.7) clarified Using expected value estimates in evaluating reserves (3.7.3) reworded from “should include” to “should consider” Use of mode or median reworded to “may not be appropriate... such as when the expected value estimates are significantly higher... “

12. Non-Statutory Opinions Of the 20 responses received, 6 indicated that it is unclear when the ASOP should apply and 6 others suggested modifications The ASOP is proposed to apply to “statements of actuarial opinions” even when such opinions are for a self-insured or non-insurance entity.

13. Non-Statutory Opinions The subcommittee felt that actuaries should follow the same professional standard of practice regarding the determination of their reserve opinion even though the regulation of an entity may specify the scope or content of a statement of actuarial opinion,.

14. Non-Statutory Opinions An opinion subject to this ASOP would have to be identified and entitled as a “statement of actuarial opinion”. Thus, the ASOP would not apply to rate filings, internal or consultant reports, audit work papers, pricing analyses, etc. An ASOP issued by the ASB would not apply to actuaries working for companies outside of the U.S.

15. Materiality 3.4 An “Explanatory paragraph” is required if the actuary believes that there is a “significant risk of a material adverse deviation”. Material is not precisely defined nor is a formula given. The actuarial literature provides little research or discussion regarding this concept.

16. Materiality 3.4 Disclosure of the amount considered material is required in the explanatory paragraph. The actuary has considerable latitude in selecting an appropriate amount based on the specific situation. Some responses were concerned that actuaries will have difficulty in deciding an amount.

17. Materiality 3.4 Subcommittee felt that differences in approach to determining an appropriate amount would be acceptable. An explanatory paragraph may be included because a relatively small amount is considered material. The actuary would describe why a small amount was considered material.

18. Standards vs. Practice Notes Actuarial Standards of Practice are developed by a fairly rigorous process of exposure to affected practitioners for comment, review by counsel, and approval by the Actuarial Standards Board. Practice Notes are suggestions compiled by a committee of actuaries.

19. Standards vs. Practice Notes Practice Notes are the appropriate form for non-binding guidance, particularly regarding some of the judgmental factors such as materiality and evaluating whether risk is significant. The development of Practice Notes will be needed to supplement the proposed ASOP.

20. CAS Statement of Principles Pre-dates many ASB Actuarial Standards of Practice Written by committee, exposed to CAS membership, and approved by CAS Board Not intended to create standards of practice Contains “considerations” that are similar to standards To be considered for update/change by CAS

21. Schedule for ASOP October - November, 1998 –Completion of 2nd Exposure Draft December, 1998 - January, 1999 –Approval by Actuarial Standards Board January - March, 1999 –Distributed for 60-90 day comment period April - July, 1999 –Review of comments received on 2nd draft December, 1999 –Tentative effective date of ASOP