Property and Casualty Practice Note December 2011 In situations in which there is a lack of historical data (e.g., new companies, change in book of business for mature companies, or general lack of data), the actuary may find it useful to consider the following: 1. 2.
Whether there are adequate data to evaluate the reserves If industry data or another company’s data were used, whether there is reason to believe that these data are likely to be reasonably similar to the data patterns of the company for which the actuary is rendering an opinion
3.
Whether to provide disclosures concerning the data used
4.
Whether to provide disclosures concerning the resulting variability and uncertainty.
The actuary may choose to use wording similar to the following: 1.
New company—opinion formed The ABC Insurance Co. commenced operations in 20XX. Certain critical assumptions on which the company relied to estimate reserves were based on external industry data sources. In my opinion, these data are relevant to the operations of the company. However, the uncertainty of projections is increased by the use of these external data.
2.
New company—no opinion formed The ABC Insurance Co. commenced operations in 20XX. Therefore, the company has only been in business for Y years and, as a result, does not, in my opinion, have sufficient historical experience upon which to base a reliable actuarial estimate of the loss and loss adjustment expense reserves as of Dec. 31, 20XX. I am not aware of appropriate external data upon which to base an estimate.
72 © 2011 American Academy of Actuaries
Appendix 5 Miscellaneous Illustrative Wordings in Common Use