Fall 2018 #24
This question asks:
For each of the following items, identify whether it is among the required disclosures in the SAO, AOS, both, or neither
The third item is Appointed Actuary's point estimate of loss and loss adjustment reserves. It appears the CAS accepted "AOS only" or "neither" but I think the answer is "both*". If the reserves are deficient or redundant, then the AA must disclose the lowest or highest amount he/she would consider reasonable. Do you think they should've accepted that answer, or am I misunderstanding the SAO requirements?
Comments
You're right that the AA must (essentially) disclose their minimum (or maximum) amount if the opinion is deficient or redundant. The illustrative language from COPLFR is that the AA must say the booked reserves are $X less (or greater) than the AA's lower (or upper) amount. Technically, this does not reveal the point estimate but it does reveal the lower (or upper) end of the AA's acceptable range.
If the opinion is reasonable, then they AA doesn't have to provide even that much in the SAO. So I think strictly speaking the examiner's report is correct here. The SAO is a public document and therefore contains less information than the AOS that would be considered highly specific. If the AA says reserves of 300M are too low by 1M, the reader of the SAO wouldn't know if the AA's range was 301-305M with a point estimate of 303M or if it was 301-400M with a point estimate of 350M. Obviously those 2 situations are very different! The AA's point estimate and range potentially provide way more information than just saying the reserves a too low by $X and the company wouldn't want that kind of juicy gossip in the public SAO document!
But this is a good example of where it can be helpful to write an extra bullet point in your answer. There are cases where the official answer didn't anticipate a valid point and if you explain yourself, they may expand the range of what they consider an acceptable answer. Of course you always have keep your eye on the clock so it's a balancing act between giving a thorough answer to show you understand the material versus writing too much for no extra points and then maybe not finishing the exam.
where is policyholder's surplus disclosed in SAO? Thanks.
The surplus would already be available in the annual statement so there is no specific disclosure requirement for this in the SAO.
I am confused. In the examiner report, it says "(vi) Required in SAO only".
Sorry, I missed that. It's line 7 in Exhibit B. You can see it in the following excerpt from the Odomirok et al CAS Financial Reporting text, if you scroll down to page 7:
(Of course, the surplus is provided in the annual statement as well.)
Is this question specifically asking about items required in Exhibit B: Disclosures in the SAO, or could it be anything that has to be disclosed within the SAO?
It appears as if the disclosure items required in the SAO that are listed for this question are all from Exhibit B. There are other disclosures that may be required however such as reliance on the work of another that are not part of Exhibit B.
Part 7 of this question asks about the name of appointed actuary. I got this wrong because I thought the AOS only had parts A-E, none of which are the appointed actuary's name. Is there some where I could see a sample AOS so I could see everything in entails? The Fictitious Insurance Company in the text only has a sample SAO, not AOS. Or is the only addition information besides A-E is what is listed as an example under section 7.1.2 of COPLFR?
You can find a link to an example AOS right near the beginning of this section of the wiki.
for "i. Booked net loss and loss adjustment expense reserves" what if the AA is only opining on the Gross amounts?
I'm not 100% sure. I think the question assumed the actuary was opining on net reserves so in that case it would definitely have to be included. If they were opining only on gross reserves (and only had information on gross reserves) then the net booked amount might not even available to the actuary.
Generally, the actuary needs to disclose information relevant to their analysis and if only gross reserves were in scope then I would guess that only booked gross reserves need to be disclosed.
The question may not have been well stated since you were not specifically told what was in scope for the particular analysis.
my answer was both or neither - neither if they only opined on gross. both if net was opined on. I was just surprised that wasn't in the examiner's report
The examiners' reports often don't provide comprehensive answers so don't worry too much about that.