Property and Casualty Practice Note December 2010
Appendix 1 Evaluation and Reconciliation of Data (Section 4 of Opinion Instructions) “I evaluated the data for reasonableness and consistency.” This sentence normally means that the actuary reviewed the data triangles, etc., used in the course of forming the actuarial opinion and found no data points that were either outside the range of reasonable possibilities or internally inconsistent to a significant degree (or that appropriate adjustments have been reflected in the actuary’s analysis). The objective of the evaluation for reasonableness and consistency is to identify significant data errors that would ordinarily be observed by the actuary in the course of analyzing the reserves.
NOTE: ASOP No. 23, Data Quality, also provides guidance on this issue; the actuary is to comply with ASOP No. 23 when evaluating data. For purposes of compliance with the NAIC Instructions, the following discussion is provided: 1.
The key question in reviewing a specific, unusual data point is normally whether the data point is so unusual as to indicate a likely data error of significance to the actuary’s opinion on the reserves. Data points that could reasonably result from random variations in claim experience or from normal coding errors (e.g., a small downward development in the number of claims reported for a particular accident year and line of business) generally need not be questioned. (Note: The actuary may well inquire about the causes of unusual data points for purposes of evaluating the reserves but is not required to do so solely as a test of data accuracy if the data are within the range of reasonable possibilities.)
2.
It is generally prudent to watch for inconsistencies in the data compilations used directly in the actuarial analysis. For example, if the actuary is using a paid-loss development method of estimating the outstanding losses, the actuary may choose to investigate any cumulative paidloss amount that significantly exceeds subsequent cumulative paid-loss amounts for the same accident year and coverage (unless the actuary is aware of a valid reason for downward developments under the circumstances). However, if the estimation methods used by the actuary for that line of business do not involve review of paid-loss developments, they need not be reviewed solely to check for unreasonable or inconsistent data, even though paid losses may have been compiled in the process of putting together other data compilations that were used directly in the analysis.
3.
If data initially appeared to be unreasonable or inconsistent, but were either explained or adjusted satisfactorily, the above sentence can be used without qualification in most instances. 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:
4.
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Appendix 1 Evaluation and Reconciliation of Data