Property and Casualty Practice Note December 2009 of the Instructions follows. Finally, illustrative wording is presented in italics if applicable. The illustrative wording is meant to cover a variety of common situations but does not cover all possible circumstances and may be altered as the actuary deems necessary or appropriate. The actuary is not expected to make unaltered use of the illustrative language. On the contrary, the individual actuary is responsible for assuring that the language used in the SAO accurately represents the actuary’s opinion of the given situation. The actuary should not use the illustrative wording provided herein as a substitute for language that is more appropriate in a given situation.
Changes from the 2008 Practice Note Substantive changes from the 2008 note are indicated by gray or colored highlighting of the changed text. 1. Section 1C of the Instructions applies only to situations in which, under an intercompany pooling agreement, the lead company retains 100 percent of the pooled reserves, and the other pool participants each retain 0 percent. In these situations, the actuary is directed to prepare an SAO on the pool. This SAO is to be filed with the Annual Statements of each of the pooled companies. Exhibits A and B of the individual company reflect values specific to that company, and Exhibits A and B of the pool are to be filed as an addendum to the SAOs of the 0 percent companies. This special requirement does not appear to apply to any other intercompany pooling arrangements. Note the distinction between pooling to a 100 percent lead company with no retrocession and ceding 100 percent via a quota share reinsurance agreement. Any reinsurance agreement with affiliates must be approved by the regulator as either an intercompany pooling arrangement or a quota share reinsurance agreement. The financial reporting of such arrangements depends on the approved filing, regardless of how a company views the contract. 2. Additional guidance and discussion is provided in Appendix 5 regarding SAOs for Title Insurance Companies. 3. The Casualty Actuarial and Statistical Task Force (CASTF) of the NAIC has provided updated regulatory guidance for 2009 Statements of Actuarial Opinion (Appendix 9a). The guidance continues to call attention to two items of interest to regulators that pertain to the scope of the SAO. a. Exposure -- The regulator expects the SAO to include Relevant Comment on the insurer’s new or unusual exposures, such as the following, which may or may not be reflected in the company’s loss history: • Coverage for Service Contracts: Due to variation in state laws, this type of product may or may not be regulated and may or may not even be treated as insurance. If claims under those service contracts are covered by insurance, that insurance is frequently provided as excess coverage for contractual liability. When losses under those policies exceed policyholder retention amounts, they may be substantial. PN09
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