Property and Casualty Practice Note December 2009 the disclosure of a significant risk of material adverse deviation generally can be viewed as a disclosure and not as a qualification.
QUESTION 8: The NAIC Instructions for the annual audited financial report regarding the auditor’s review of data used by the appointed actuary, require the auditor to “… obtain an understanding of the data identified by the appointed actuary as significant …” to the decision regarding the reasonableness of reserves. Within this context, how would the actuary define the term “significant?”
DISCUSSION 8: Although the term “significant” is not defined within the data testing requirement, COPLFR suggests the following as an example of a definition for use in this instance: A data item or attribute would normally be considered to be “significant” to an analysis of loss reserves if, in the appointed actuary’s professional judgment, the correctness of the data item or attribute in the loss reserve analysis is likely to have a material effect on the opinion. Examples of a “material effect” might include a change in the type of opinion rendered (reasonable, qualified, redundant, deficient, or no opinion) or the presence or absence of a risk of material adverse deviation. [Note: Actuaries are not required to use or practice consistent with this definition. It has not been adopted by the ASB and is not binding on any actuary.]
QUESTION 9: What constitutes pre-paid loss adjustment expense as discussed in Interpretation 02-21, Appendix B of the NAIC Accounting Practices and Procedures Manual, and why does a company still need to record a liability for unpaid loss adjustment expenses if it has “pre-paid” such expenses?
DISCUSSION 9: Pre-paid loss adjustment expenses include amounts paid by an insurance company to another affiliated or unaffiliated party, such as a third party administrator (TPA), management company, or other entity, for future claim servicing costs on losses that have already occurred. According to INT 02-21 in Appendix B of the NAIC Accounting Practices and Procedures Manual, the liability for unpaid loss adjustment expenses should be established regardless of any such pre-payments.
QUESTION 10: The reserves disclosed in the Schedule P Interrogatory 1 as yet-to-be issued ERE arising from DDR provisions in Medical Professional Liability Claims Made insurance policies, and disclosed in Exhibit B, item 12 as “extended loss and expense reserves,” are to be included in the SAO. PN09
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