AOS Point Estimate
in COPLFR.SAO
If an actuary only provides a point estimate instead of a range, does the company's carried LLAE reserves have to equal that exact number? Fall 2012 Q 26 implies that a range should be constructed based on the point estimate, but I don't see that mentioned elsewhere.
Comments
That was a strange question because you had to make up a range and then draw a conclusion based on your made-up range. The question was basically asking you to think through whether there's any way a carried reserve of $500 million could be reasonable given a point estimate of $650 million, and the answer is no. Those numbers are just too far apart even given a wide percentage range.
The appointed actuary is not required to produce a range. Also, if the actuary produces only a point-estimate, it does not have to equal the carried reserves.
If the actuary produces only a point-estimate, how can he ever issue a 'reasonable' opinion? Wouldn't the carried reserves always be higher or lower than the point-estimate?
Technically, this is the statement in COPLFR:
It just says the estimate must be within a reasonable range for a reasonable opinion. It doesn't say that the actuary has to actually report a range. In practice however, I believe the actuary would always calculate a range even if it isn't stated in the AA report.