Fall 2018_Q21

agnichatteragnichatter
in COPLFR.SAO

Can you point me to how the final values for the following are being calculated from the Excerpt from Schedule P offered in the problem?

Answer Key:
Unpaid Losses: 16,500
Unpaid Loss Adjustment Expense: 3680
Unpaid Losses, Direct & Assumed: 19,000
Unpaid Loss Adjustment Expense, Direct and Assumed: 4,200

I have attached a screenshot of the problem.

Comments

  • agnichatteragnichatter

    Additionally, how are the carried reserves of 20,180 (net) and 23,200 (gross) computed from the numbers attached in the screenshot?

    Thanks,

    Cj.

  • grahamgraham

    Unpaid Losses

    • = (14,000 - 2,000) + (5,000 - 500)
    • = 16,500

    Unpaid Loss Adjustment Expense

    • = (3,000 - 500) + (1,000 - 20) + (200 - 0)
    • = 2,500 + 980 + 200
    • = 3,680

    Unpaid Losses, Direct & Assumed

    • = 14,000 + 5,000
    • = 19,000

    Unpaid Loss Adjustment Expense, Direct and Assumed

    • = 3,000 + 1,000 + 200
    • = 4,200

    Carried Reserves (Net)

    • = Unpaid Losses + Unpaid Loss Adjustment Expense
    • = 16,500 + 3,680
    • = 20,180

    Carried Reserves (Gross)

    • = Unpaid Losses (Dir.+Assumed) + Unpaid Loss Adjustment Expense (Dir. + Assumed)
    • = 19,00 + 4,200
    • = 23,200
  • ulyssesulysses

    For part b, I stated my assumption that the actuary's point estimate is the average of the range. I don't see any indication in the examiners reports regarding if this would be acceptable or not. Do you think it may have been accepted?

  • grahamgraham

    If you look further down in the examiner's report, you'll see the comments below. Since they weren't expecting you to fill in the point estimate, I don't think they would add or subtract points on your score on that question regardless of what you did.

  • lkto22lkto22
    edited July 2023

    Hi for part c, does the AA only opine on "net unpaid L+LAE"? or both net and gross? If both, is it possible that net and gross yield different opinions which have to be stated separately? thank you.

  • grahamgraham

    The actuary's responsibility generally includes determining the reasonableness of the unpaid claim estimates for both gross and net amounts. This requirement however, to consider both net and gross reserves, can vary depending on regulatory standards, company policy.

    When opining on both gross and net reserves, the AA is expected to consider the recoverability of the reinsurance, including credit risk. If the reinsurance recoverable is believed to be at risk (for example, if a reinsurer's solvency is in question), the AA might opine differently on the gross and net reserves. If a difference is substantial and material, it may be necessary to state these opinions separately.

    Regarding "net unpaid L+LAE", it is not necessary to opine separately on these as the LAE is generally a relatively small percentage of the total loss and need not be considered separately.

  • lkto22lkto22

    Hi Graham, based on your reply above, for this question, so both net and gross should be opined on against the respective ranges to render the opinion, right?

  • grahamgraham

    As far as I can tell, the source text doesn't explicitly state that opining on both net and gross reserve estimates is a requirement. But if the goal of the AA report is a comprehensive understanding of the company's position, then yes, considering both net and gross would be advisable.

    Based on Section 3.1 and its sub-sections:

    • The Appointed Actuary has flexibility in determining the scope of the SAO. They are not required to opine on all reserve items listed but should identify which items will be included in the opinion.
    • So, if the question is whether you must include both net and gross reserve estimates, the text suggests it's your call. If you decide not to include one or the other, you should clearly state this in the SCOPE section. If those excluded items could be materially significant, then the SAO would be qualified as such.
    • In summary, the document gives you discretion but emphasizes transparency in what's included in the scope of your SAO.

    On the exam, it should clear from how they ask the question: If they give you both net and gross, it's a good idea to include both in your answer. If they don't, then you cannot do it.

  • bluewind1492bluewind1492

    Hi, may i ask the net/gross loss reserve in SAO or AOS should include the reserve for D&C? As in this question they don't include for calculation but in Spring 2019 #18, they included it in the examiner report.

  • grahamgraham

    As far as I can tell, it is included in 2018-Fall-Q21. (When you write D&C, do you mean Defense and Cost Containment?)

  • bluewind1492bluewind1492

    Ah i see, my mistake. Thank you

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