Property and Casualty Practice Note December 2009 SAO. That paragraph typically would describe the major factors or conditions underlying the risks or uncertainties that the actuary reasonably believes could contribute to material adverse deviation. The regulators further expect the actuarial report to address the risk factors identified in the SAO, with descriptions of alternate outcomes that could result in adverse development in excess of the materiality threshold. Note that, in the Regulatory Guidance document (Appendix 9a), the actuary is encouraged to comment on the risks and other factors considered, even when no risk of material adverse deviation is judged to exist. If there is a significant risk which may or may not rise to the level of materiality, it may be prudent to comment.
DISCUSSION – ADDITIONAL RELEVANT COMMENTS: The actuary typically would also describe the significance of each remaining disclosure item in Exhibit B. Further, the Annual Statement Instructions require that RELEVANT COMMENT paragraphs address retroactive reinsurance/financial reinsurance and reinsurance collectibility, regardless of its effect or lack of effect on the subject company. Commentary is also required to explain any exceptional values using the IRIS Tests for OneYear Reserve Development to Surplus, Two-Year Reserve Development to Surplus, and/or Estimated Current Reserve Deficiency to Surplus. If there have been any significant changes in actuarial assumptions and/or methods from those previously employed, those are normally described in a RELEVANT COMMENT paragraph.
DISCUSSION: CHANGE IN METHODS AND ASSUMPTIONS: The NAIC requirement is similar to the ASOP No. 3614 required disclosure of changes in the opining actuary’s assumptions, procedures, or methods if the actuary believes that such changes are likely to have a material effect on reserves. The actuary is only obliged to comment on changes that are, in the actuary’s professional judgment, material. Pursuant to ASOP No. 3615, neither the use of assumptions, procedures, or methods for new reserve segments that differ from those used previously, nor periodic updating of experience data, factors, or weights appear to constitute a change in assumptions, procedures, or methods for these purposes. When an opining actuary is changing assumptions and/or methods from the prior year, and the impact of the change is not known, the conservative approach is to disclose the change. It is advisable in most instances to describe briefly the change itself and the reason for it.
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ASOP No. 36 is currently undergoing revisions. Ibid.
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