Spring 2015 Q24 #3

dbloom5674

The solution lists "Company’s state of domicile" separately from "Regulator of state of domicile." I think of these as the same thing from a filing perspective. Can someone explain the difference between these two in this context?

graham

The state of domicile for an insurance company refers to the state where it was incorporated and where its headquarters are located. The regulator’s state of domicile refers to the state where the insurance company is licensed to operate. The regulator’s state of domicile is responsible for regulating the insurance company and ensuring that it complies with all applicable laws and regulations

lkto22

• Hi, for #4, the solution includes IRIS 12 and 13 which includes 2-yr development if I'm not mistaken, but the question asked "...over a one- year period", is it possible that the solution is incorrect?

graham

I'm not sure if it was a mistake but it's probably not the best answer that could be given. Here is something more detailed than the exam question would require but that explains the differences more fully:

When it comes to commenting on adverse development in loss and Defense and Cost Containment (DCC) reserves over a one-year period, the Statement of Actuarial Opinion (SAO) and the Actuarial Opinion Summary (AOS) have distinct requirements and focuses:

SAO:

• General Assessment: The SAO typically provides a more qualitative discussion about the reasonableness of the reserves, sometimes highlighting unusual circumstances that may affect the reserve levels.
• Broad Overview: While the SAO may discuss key ratios, it generally doesn't mandate commenting on one-year adverse development unless there are exceptional circumstances that warrant such a discussion.
• Regulatory Focus: The SAO might include commentary aimed at regulators, addressing specific metrics that regulators care about, but it isn't usually required to specifically discuss one-year adverse development.

AOS:

• Year-Over-Year Analysis: The AOS is more prescriptive about commenting on year-to-year changes, including one-year adverse development.
• Specific Trigger Points: The AOS often requires an explanation if there is one-year development in excess of a certain percentage (e.g., 5% of surplus) in a given number of the previous years (e.g., three out of the last five years).
• Quantitative Detail: The AOS is likely to go into more detail on the quantitative aspects of reserve changes, specifically focusing on what has changed over a one-year period and why.

Given these differences, if you're asked to comment on adverse developments over a one-year period, the AOS would typically require a more detailed, quantitative explanation based on specified criteria, while the SAO would be more qualitative and broad, without a specific mandate to comment on one-year changes unless they are particularly noteworthy.