Describe a scenario in which there is a change in assumptions, procedures, or methods for the unpaid claims analysis that would need to be disclosed in the SAO
- Change in methodology has a material impact on results
- New Modeling method added to reserve analysis, has material impact
- Replacement of method that was previously heavily relied on but no longer valid
- AA is unable to review prior AA work, must disclose prior assumptions, procedures, and method unknown
- AA was changed; Changes in assumptions, methods, and procedures likely resulted in a material change
Describe a scenario in which there is a change in assumptions, procedures, or methods for the unpaid claims analysis that would NOT need to be disclosed in the SAO
- Periodic updating of data, factors, or weights based on newly available information
- Actuary is reviewing new reserve segments that were not included in previous review
- New method is added but impact on results is immaterial
Why it might be difficult to reconcile the data used in the AA’s analysis to Schedule P?
- Different aggregation of data
- Different accounting for Salvage and Subrogation
- Schedule P part 1 may include tabular discounts not included in the data
- Some coverages are long tailed, Schedule P includes only 10 years
- AA might use different breakouts than Schedule P (LOB, states, etc…)
- Manual adjustments in Schedule P
- Date / timing differences in the data
How might a regulator use part E of the AOS?
- Use to see if development is excessive, see if company is adquately setting reserves. If excessive, monitor insurer’s health
- Under reserving, what is driving risks
What language should be used for materiality standard in Relevant Comments of SAO?
- Materiality Standard as an amount
- The basis of determining the standard
- The purpose of the standard (i.e. By this standard, there is/is not risk of material adverse deviation)
Briefly describe constraints a regulator could impose on a price optimized rating plan
- Ban Price Optimization
- Allow it only when it moves rate towards actuarial indication
- Cap
- Only allow it for discounts, not surcharges
- Require groups of sufficient size
- Ban from individual price optimization
Causes of Regulatory Forbearance
Two effects of regulatory forbearance
- Insurer may be big player in market, cause significant disruption
- Could ruin regulator’s reputation
- Costly if disputed by insurer
- Insurer could recover on its own
Insurers that would otherwise have a chance at corrective action would go insolvent
Insurers could be engaging in risky behavior because it knows that i’s not doing well, could end up hurting insurer and public
What was the NAIC Model Act issued in response to GLB, what GLB provision prompted its issuance?
Producer Model Act - Asking states to facilitate producers’ ability to sell insurance across state by offering reciprocal licensing system or similar (establishe uniformity among states to facilitate writing across state lines)
Why would financially strong insurer be for strong solvency regulation?
Discourages weak insurers from underpricing because they know there is a back up
So the company is not assessed in the case of an insolvency
Difficulties guaranty fund may experience if large multistate insurer goes insolvent
Because large, assessments may continue for years to recoup losses. Hard to generate enough
Assets wouldn’t be fully available to any one state fund
