SAO Practice Answers 2018-Spring
Questions Similar to 2018-Spring
- Evaluate the completeness and compliance of the Actuarial Opinion Summary (AOS) in accordance with the National Association of Insurance Commissioners (NAIC) guidelines. Discuss the importance of including a detailed analysis of reserves, including both gross and net figures, and the implications of any discrepancies between these figures and the company's carried reserves.
- Explain how the materiality standard is established for evaluating the risk of material adverse deviation in an insurance company's reserves. Illustrate with an example how asbestos exposure could be considered a key risk factor in this analysis.
- Discuss the types of opinions an actuary might issue when data is insufficient for a portion of the reserves. Include how the materiality of the data affects the type of opinion and provide examples.
Answers
Answer 1: The AOS must comprehensively include both gross and net reserve figures, ensuring compliance with NAIC guidelines. A detailed analysis reveals the adequacy of the company's reserves, with discrepancies indicating potential under or overestimation. This impacts the financial health and regulatory compliance of the insurance company, requiring adjustments if discrepancies are significant.
Answer 2: The materiality standard is typically set at a percentage of net reserves or equity, such as 50%, to assess RMAD. Asbestos exposure is a key risk factor due to its long-tail nature, potentially leading to significant unforeseen liabilities. For example, a company with $7 million in net reserves might set a materiality standard of $3.5 million, where significant asbestos claims could materially impact reserves.
Answer 3: When data is insufficient, actuaries may issue a qualified opinion if the data's portion is material, indicating reservations about the reserves' accuracy. If immaterial, the actuary might still issue a reasonable opinion. For instance, missing data on a small, rarely claimed line of business might not warrant a qualified opinion, but significant uncertainties in major lines would.
