Property and Casualty Practice Note December 2006 ability to preserve the confidentiality of the AOS. The AOS should not be included with the Company’s Annual Statement and other documents filed directly with the NAIC. The AOS is filed separately from the Statement of Actuarial Opinion, but the wording of the AOS may make reference to the Statement of Actuarial Opinion. 5.
The AOS should be signed and dated by the Appointed Actuary who signed the Statement of Actuarial Opinion and should include at least the following: A. The Appointed Actuary’s range of reasonable estimates for loss and loss adjustment expense reserves, net and gross of reinsurance; and/or B. The Appointed Actuary’s point estimates for loss and loss adjustment expense reserves, net and gross of reinsurance; and C. The Company’s recorded loss and loss adjustment expense reserves, net and gross of reinsurance; and D. The difference between the company’s carried reserves and the Appointed Actuary’s point estimate and/or range of reasonable estimates, net and gross of reinsurance; and E. Where there has been one-year adverse development in excess of 5% of surplus, as measured by Schedule P, Part 2 Summary, in at least three of the past five calendar years, include explicit description of the reserve elements or management decisions which were the major contributors.
DISCUSSION - ACTUARIAL OPINION SUMMARY: The AOS requires the actuary to disclose, on both a gross and net basis, the actuary’s point estimate and/or the actuary’s range, and compare this/these to the carried reserves. ASOP 36 states that a range of reasonable estimates is a range of estimates that could be produced by appropriate actuarial methods or alternative sets of assumptions that the actuary judges to be reasonable. The actuarial report normally includes detailed descriptions and calculations that support the point estimate and/or the range of estimates. If the actuary produces a range of estimates for a portion of total reserves and a point estimate for the remaining reserves, then the AOS usually includes both and shows how the point estimate and the range combine to form the actuary’s opinion as reasonable, deficient, redundant, qualified, or no opinion. If the one-year development has been adverse by at least 5% in at least three of the last five calendar years, the AOS also requires explicit discussion of reserve elements and/or management decisions that were the reasons for such adverse development. Each year’s one-year development, on a net basis, is compared to the prior period’s surplus, and a ratio is developed. The one-year development test is the same calculation as that which underlies the IRIS ratio regarding One-Year Reserve Development to Surplus. The calculation of the Company’s OneYear Reserve Development to Surplus for each of the prior five years is disclosed in the FiveYear Historical Exhibit of the Company’s Annual Statement.
PN06
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