Property and Casualty Practice Note December 2009 4.
If the actuary identified the data as being unreasonable or inconsistent to a significant degree (relative to the actuary’s opinion on the reserves), and the apparent data problem was not resolved satisfactorily, some possible alternatives are as follows: a.
Do not rely on the data in question: If, in the actuary’s judgment, this causes a significant increase in the uncertainty inherent in the actuary’s opinion on the reserves, then the situation would usually be described in the Statement of Actuarial Opinion and would usually be elaborated upon in the Actuarial Report, or
b.
Conclude that an actuarial opinion cannot be formed based on the available data.
“I also reconciled the data to Schedule P, Part 1 of the company’s current Annual Statement.” This sentence normally means the following: A.
Each of the following types of data, if relied upon significantly in forming the actuarial opinion (on a net or a direct plus assumed basis), were reconciled to Schedule P, Parts 1, 1A,..., 1R (referred to collectively as Schedule P below): paid losses, incurred (case basis) losses, paid defense and cost containment expenses, incurred (case basis) defense and cost containment expenses, paid adjusting and other expenses, salvage and subrogation received, and earned premiums,
B.
The reconciliation of paid data consisted of comparing either (a) cumulative paid amounts, or (b) current calendar-year paid amounts obtained from the actuarial data to the analogous data from Schedule P, Part 1; the reconciliation of case basis reserves consisted of comparing the current year-end case basis reserves from the actuarial analysis to Schedule P, Part 1; the comparisons were completed in detail by line of business and year in which losses were incurred, to the extent that such detail was relied upon significantly and is provided in Schedule P, and
C.
The differences, if any, were deemed by the actuary to be either insignificant or explainable by known causes that did not represent errors in the data relied upon by the actuary (e.g., the case basis reserves for loss adjustment expenses were based on formulas that differed between the two sources).
DISCUSSION: 1.
PN09
The actuary may also use types of data that are not included in the above reconciliation (e.g., numbers of units of exposure, numbers of claims, policy limits distributions, and loss data for older years adjusted to reflect subsequent years’ reinsurance retentions). Salvage and subrogation received would normally be reconciled if the losses are reviewed gross of salvage and subrogation and/or a separate analysis is performed for salvage and subrogation. Additionally, the actuary may consider reconciling claim 46