Additional Considerations - Multiple Choice
Question: According to the document, what is expected if the response to Exhibit B item 6 is "Not Applicable"?
Answer: b) The company has 0 percent participation under an intercompany pooling agreement
From Odomirok's fictitious Exhibit B, Item 6 is "Are there significant risks that could result in Material Adverse Deviation?" Why would this have anything to do with pooling? I would have assumed that an N/A response for #6 would be due to a qualified opinion or no opinion.
Comments
This question comes from a little red FAQ box in COPLFR. See page 75 here: https://www.actuary.org/sites/default/files/2024-12/casualty-practice-note-saopclossreserves.pdf
When a company has 0% participation in intercompany pooling, that means that company cedes all the gross loss and LAE to the pool, and isn't allocated anything back (so on a net basis, that company's loss and LAE are 0). Since on a net basis there are no losses, RMAD isn't really applicable.
Say there was RMAD on this company on a gross basis (before considering any pooling arrangements) - after pooling, all that risk is assumed by the pool and RMAD is not applicable to the company anymore. It's a weird little nuance.
That makes sense, thank you!