Reconciliation and the Opining Actuary

1
Reconciliation and the Opining Actuary

• Wendy Germani, FCAS MAAA
• Holmes Gwynn, ACAS MAAA
• Presented
• CLRS Fall 2004

2
Why Reconciliations
3
Why Reconciliation-Opiners View

• I evaluated that data for reasonableness and
  consistency. I also reconciled that data to
  Schedule P, Part 1 of the companys current
  Annual Statement.

4
Potential for Malpractice

• Companies can misinterpret actuarial data
  requests.
• Subsequent audits may show the actuary used bad
  data.
• Data omissions can be material.
• Companies can fraudulently feed actuaries bad
  data.

5
Relationship to Accounting

• In general the actuarial work product gets turned
  over to the accountant to complete financial
  reporting.
• Accountants must allocate at times.
• Sometimes they involve the actuary, sometimes
  not.
• The actuary needs to understand how his work is
  being put to use to develop Schedule P.

6
New This Year

• The auditor is required to determine what
  historical data and methods have been used by
  management in developing the loss reserve
  estimate and whether the auditor will rely on the
  same data or different statistical data in
  evaluating the reasonableness of the loss reserve
  estimate

7
New This Year cont.

• Through inquiry of the Appointed Actuary, the
  auditor should obtain an understanding of the
  data identified by the Appointed actuary as
  significant.
• A complete and thorough reconciliation may be all
  the auditor needs.

8
Data Elements that May Need to be Reconciled

• Paid Losses
• Incurred (case basis) losses
• Paid defense and cost containment expenses (DCC)
• Incurred (case basis) DCC
• Paid adjusting and other expenses (AAO)
• Incurred and/or Paid Claim Counts
• Earned premium

9
Examples

• Situations reflect the actuaries need to
• Combine sub-lines
• Incremental vrs Cumulative paid data
• Bifurcate data by line of business
• Account for losses not subject to actuarial
  review
• Combined (Pooled) Companies
• Splitting Loss adjustment Expenses
• Allocation of IBNR to LOB Acc Year Cells.

10
(No Transcript)
11
(No Transcript)
12
(No Transcript)
13
(No Transcript)
14
(No Transcript)
15
(No Transcript)
16
Questions???