Course onCourse onProfessionalismProfessionalismASOP 43 – Property / Casualty ASOP 43 – Property / Casualty

Unpaid Claim EstimatesUnpaid Claim Estimates

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OverviewOverview

Background InformationBackground Information

Scope and Effective DateScope and Effective Date

DefinitionsDefinitions

Required DisclosuresRequired Disclosures

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Background Background InformationInformation

Prior to Implementation of ASOP 43, guidance Prior to Implementation of ASOP 43, guidance was limited to:was limited to:

Statement of Principles Regarding P&C Loss and LAE Statement of Principles Regarding P&C Loss and LAE ReservesReserves

ASOP No. 36 - Prescribed Statement of Actuarial OpinionASOP No. 36 - Prescribed Statement of Actuarial Opinion

No ASOP specifically related to developing unpaid claim No ASOP specifically related to developing unpaid claim estimates, despite the significant portion of the actuarial estimates, despite the significant portion of the actuarial work in this area.work in this area.

ASOP 43 was effective ASOP 43 was effective September 1, 2007September 1, 2007

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ScopeScope

Applicable when:Applicable when: Estimating unpaid P&C claim liabilities for all Estimating unpaid P&C claim liabilities for all

classes of entitiesclasses of entities Developing unpaid claim liabilities for events Developing unpaid claim liabilities for events

that have already occurredthat have already occurred Communicating actuarial findings in Communicating actuarial findings in written or written or

electronic form electronic form

Applies only to undiscounted value estimates. Applies only to undiscounted value estimates. See ASOP No. 20See ASOP No. 20

Applies to unpaid claim estimate portion for Applies to unpaid claim estimate portion for PSAO. See ASOP No. 36PSAO. See ASOP No. 36

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Scope Scope (contd.)(contd.)

Does not apply to:

Oral communicationOral communication

Ratemaking estimates (i.e. future events)Ratemaking estimates (i.e. future events)

Actions taken by the user based on results of analysisActions taken by the user based on results of analysis

Estimation of items that may be a function of unpaid Estimation of items that may be a function of unpaid claim estimates or claim outcomesclaim estimates or claim outcomes

Unpaid claims covered by ASOP No. 5 or ASOP No. 42 Unpaid claims covered by ASOP No. 5 or ASOP No. 42 standard standard doesdoes apply to health benefits associated with apply to health benefits associated with

state or federal WC statutes and liability policies.state or federal WC statutes and liability policies.

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Question #1Question #1

ASOP 43 applies to which of the following?ASOP 43 applies to which of the following?A. Oral communication of findingsA. Oral communication of findings

B. Ratemaking analysesB. Ratemaking analyses

C. E-mail communications of unpaid claim C. E-mail communications of unpaid claim estimatesestimates

D. Reinsurance contract profit sharing D. Reinsurance contract profit sharing liabilities or contra-liabilitiesliabilities or contra-liabilities

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DefinitionsFrom Section 2 of the ASOP:

Actuarial Central Actuarial Central Estimate (“ACE”)Estimate (“ACE”)

Claim Adjustment Claim Adjustment ExpenseExpense

Coverage Coverage Event Event Method Method ModelModel

Model RiskModel Risk Parameter Risk Parameter Risk PrincipalPrincipal Process Risk Process Risk Unpaid Claim Unpaid Claim

Estimate Estimate Unpaid Claim Unpaid Claim

Estimate Estimate AnalysisAnalysis

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Required Required DisclosuresDisclosures

Intended Purpose or Use:Intended Purpose or Use:

External financial reporting, internal management External financial reporting, internal management reporting, appraisals, etc.reporting, appraisals, etc.

If multiple uses, should consider conflicts between usesIf multiple uses, should consider conflicts between uses

Constraints/Limitations (e.g. limited data, staff, Constraints/Limitations (e.g. limited data, staff, time or other resources)time or other resources)

If a deeper analysis would produce a materially If a deeper analysis would produce a materially different result, notify Principal of risk & communicate different result, notify Principal of risk & communicate constraintsconstraints

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Required Disclosures Required Disclosures (contd.)(contd.)

Scope of the Unpaid Claim EstimateScope of the Unpaid Claim Estimate

Claims covered (e.g., line of business, accident year)Claims covered (e.g., line of business, accident year)

Intended measure of unpaid claim estimateIntended measure of unpaid claim estimate

Gross or net of specific recoverablesGross or net of specific recoverables

Collectability risk – to what extent consideredCollectability risk – to what extent considered

Specific types of unpaid claims adjustment expenses Specific types of unpaid claims adjustment expenses included included

Any amounts that are discountedAny amounts that are discounted

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Question #2Question #2

Which of the following is Which of the following is notnot a required a required disclosure under ASOP 43?disclosure under ASOP 43? A. Intended measure of unpaid claim A. Intended measure of unpaid claim

estimatesestimates

B. Estimates were made either gross or net B. Estimates were made either gross or net of recoveriesof recoveries

C. Whether discount is incorporated into C. Whether discount is incorporated into unpaid estimatesunpaid estimates

D. Range of reasonable estimates around the D. Range of reasonable estimates around the actuarial central estimateactuarial central estimate

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Required Disclosures Required Disclosures (contd.)(contd.)

Dates

Accounting dateAccounting date

Valuation dateValuation date

Review dateReview date

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Required Disclosures Required Disclosures (contd.)(contd.)

Significant events, assumptions, or reliances

Disclose those that have material impact on estimatesDisclose those that have material impact on estimates

Disclose assumptions provided by Principal or outside partyDisclose assumptions provided by Principal or outside party Additional disclosure if an actuary cannot determine Additional disclosure if an actuary cannot determine

reasonablenessreasonableness

Type of range (if applicable) ExamplesExamples

Range of estimates of the intended measure Range of estimates of the intended measure Confidence level - disclose risksConfidence level - disclose risks

Changes in assumptions, procedures, methods, or models if material Applicable if study is an update of prior analysisApplicable if study is an update of prior analysis

Discuss reasons for change (not required to quantify)Discuss reasons for change (not required to quantify)

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Question #3Question #3

Which of the following is false regarding Which of the following is false regarding required disclosure of a change in required disclosure of a change in assumptions or methods?assumptions or methods? A. The change must be materialA. The change must be material

B. The changes come about in the course of B. The changes come about in the course of your first analysis of the unpaid liabilityyour first analysis of the unpaid liability

C. The actuary does not need to quantify C. The actuary does not need to quantify the impact of the changethe impact of the change

D. None of the aboveD. None of the above

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Required Disclosures Required Disclosures (contd.)(contd.)

Reliance on Single Method

Disclose and discuss when not using multiple methods or models

Does not apply when multiple methods used but single method selected

Deviation from Standard

To comply with applicable laws or for other reasonsTo comply with applicable laws or for other reasons

Other deviation is permitted, but be prepared to justifyOther deviation is permitted, but be prepared to justify

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Question #4Question #4

Which of the following is true?Which of the following is true? A. Compliance with applicable laws is not A. Compliance with applicable laws is not

an acceptable reason for deviation from this an acceptable reason for deviation from this standard.standard.

B. Unexplained reliance on a single B. Unexplained reliance on a single method is not a violation of this standard.method is not a violation of this standard.

C. Deviations from the standard are C. Deviations from the standard are allowed if reasons can be justified.allowed if reasons can be justified.