Q23

zachboazzachboaz
in Practice Exam 1

Would an opinion of "None" for part a work?

and then making the same point for part b with the proper wording and then saying "they're deficient by $2M of what I believe to be a reasonable provision but because not calculated in accordance with actuarial standards & practices I am not able to issue an opinion".

I can understand why this wouldn't be the case, just wasn't sure if failure of conditions [A] or [B] meant it could receive "no opinion" as well.

Comments

  • grahamgraham
    edited April 2023

    I think you might be able to successfully argue for no opinion. My thinking when I created the question is that the company's booked reserves were lower than the actuary's estimates and the actuary's estimates didn't even include Unearned Premium Reserves for P&C Long Duration Contracts so they are very clearly deficient by probably much more than 2 million before considering anything else. I should maybe revise the wording of the question to explicitly state that the booked reserves of 79 million include everything but the actuary's estimates do not include the items that are out of scope.

    Anyway, here are some general guidelines:

    An appointed actuary may give a "no opinion" regarding an insurance company's reserves under certain circumstances. While this is not a comprehensive list, some possible reasons include:

    • Insufficient data: The actuary may not have access to complete or accurate data, making it difficult or impossible to provide a reliable opinion on the adequacy of reserves.
    • Scope limitations: The actuary's engagement may be limited in scope, preventing them from evaluating all aspects of the company's reserves. In such cases, they may provide a qualified opinion or "no opinion" on the areas they could not assess.
    • Non-compliance with actuarial standards: If the actuary finds that the company's reserve calculations do not comply with applicable actuarial standards, they may be unable to form an opinion on the adequacy of the reserves.
    • Unresolved issues: The actuary may have identified issues that need further investigation or resolution before they can form an opinion on the reserves.
    • Legal or regulatory restrictions: The actuary might be prohibited by law or regulation from providing an opinion on certain aspects of the company's reserves.
    • Conflict of interest: If the actuary has a potential conflict of interest that could compromise their objectivity, they may choose to provide "no opinion" to avoid any appearance of bias.
    • Inability to complete the assignment: If unforeseen circumstances prevent the actuary from completing their assignment in a timely manner, they may have to provide "no opinion" on the reserves.

    In any of these situations, the actuary should communicate the reasons for providing "no opinion" to the insurance company and any relevant regulatory bodies. It is essential for actuaries to maintain their professional integrity and ethical standards when providing opinions on the adequacy of insurance company reserves.

    For the practice exam problem, I think Scope Limitations and Non-compliance with actuarial standards:

  • jono1234jono1234
    edited October 2024

    There's a note saying that no comment on UEPR is necessary, but can a comment such as the following be acceptable?

    "I am unable to issue an opinion on the unearned premium reserves for P&C long duration contracts or other loss reserve items due to not having reviewed the unearned premium reserves."

  • grahamgraham

    The NAIC SAO Instructions indicate that if an actuary does not review a particular reserve item, such as unearned premium reserves (UEPR) for P&C long-duration contracts, the actuary is not required to comment on it as long as it is explicitly noted as outside the scope of the opinion.

    However, it is also acceptable for the actuary to explicitly state that they are unable to issue an opinion on those reserves because they were not reviewed. This kind of statement enhances transparency and provides clarity to the reader of the SAO, ensuring there is no ambiguity about the actuary’s scope of work.

    Thus, your proposed language would be acceptable as it clearly communicates the limitation in the scope of the actuary’s review, aligning with best practices outlined in the COPLFR guidance. This approach adheres to the principle of clarity in communication while staying within professional standards.

  • jono1234jono1234

    Great, thank you!

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