Fall 2019 Q 22 + 4.11 in COPLFR
I noticed the 2022 revision to the COPLFR reading added a new section (4.11) that instructs us to disclose any aggregation or combination of items in Exhibit A. It seems like there are lots of questions (Fall 2019 Q 22 being one example) that combine loss reserves (item 1 in Exhibit A) and LAE reserves (item 2 in Exhibit A) into one carried reserve/point estimate/range. The same thing is done for gross loss and LAE reserves (items 3 and 4 in Exhibit A) in this question. With the new 4.11 section in COPLFR, would the correct answer for Fall 2019 Q 22 need to include the illustrative language from section 4.11 that discloses the fact loss and LAE reserves were combined for the net and gross carried reserves/point estimates/ranges?
Comments
It's impossible to know exactly how graders would (or wouldn't!) assign points, especially when source material changes. In my opinion, the answers in the Examiner's Report are still valid and would receive full credit. They do already disclose that they are giving a reasonable opinion for net loss + lae and a redundant opinion for gross loss + lae - this is exactly what section 4.11 asks, and what has always been best practice.
Let me know if I misunderstood what you were asking.
So in 4.11, one of the examples of illustrative language says:
In my opinion, the amounts carried in Exhibit A on account of the items
identified:
A. Meet the requirements of the insurance laws of (state of domicile)
B. Are consistent with reserves computed in accordance with accepted
actuarial standards.
C. Make a reasonable provision for all unpaid loss and loss adjustment
expense obligations of the Company under the terms of its contracts
and agreements.
My opinion with respect to the direct and assumed loss and loss
adjustment expense reserves of the Company relates to the aggregate
amounts reflected in items 3 and 4 of Exhibit A. Likewise, my opinion
with respect to the net loss and loss adjustment expense reserves of the
Company relates to the aggregate amounts reflected in items 1 and 2 of
Exhibit A.
So even though they are giving a reasonable opinion for "loss + lae", they are still required to disclose they came to the opinion by examining the loss and lae reserve amounts in aggregate. In Fall 2019 Q 22, the problem gives us loss and lae reserves in aggregate, not separate like in Exhibit A (items 1, 2, 3, 4), which makes me think this additional disclosure would now be required in the OPINION paragraph.
I agree with you it's impossible to know if the graders would notice this 4.11 addition to COPLFR, but to be cautious should we add this language in cases we are given loss and lae reserves combined in one number?
That would be technically correct, by COPLFR. However, I think this nuance is a bit in the weeds, and I would guess (and hope?) that the exam writers are aiming to test higher level comprehension around choosing an opinion rather than cherry picking little things from the practice note. Plus, even if you left such wording off and they were looking for it, you would likely only lose minimal points, assuming you got the rest of the question correct.
I personally wouldn't worry about this nuance for the exam, in favor of spending time and brain power on other things, but all power to you if you can be as exact as possible!