A property-casualty insurer carries $85 million in net loss reserves. The appointed actuary thinks $84 million is central and the reasonable range runs $78 million to $92 million. Three separate documents now have to say something about that gap, each to a different audience with a different confidentiality posture.
The opinion cannot be signed by just anyone. The signer must be a Qualified Actuary, which the NAIC defines with three prongs:
- Meets the basic education, experience, and continuing education requirements of the Specific Qualification Standard of the U.S. Qualification Standards.
- Holds and maintains an Accepted Actuarial Designation: FCAS with Exam 6-US, ACAS with Exam 6-US and Exam 7, or FSA through the general insurance track.
- Belongs to a professional actuarial association that requires the Academy's Code of Professional Conduct and the U.S. Qualification Standards, and that participates in the Actuarial Board for Counseling and Discipline.
The Board of Directors appoints the actuary. This is deliberate. Tying the appointment to the Board gives the actuary standing above management pressure on reserve levels.
Common mistakes
- Treating a reasonable-provision opinion as ruling out RMAD. Reserves can be reasonable AND carry a significant risk of material adverse deviation. In Example 2, carried was inside the range yet a $9 million exposure exceeded the $6 million standard.
- Confusing a qualified opinion with the signer's qualifications. A qualified opinion flags an exception on a specific reserve item. The actuary's competence is a separate matter settled in the Identification section.
- Putting AOS numbers in the public SAO. The point estimate, range, and carried-versus-estimate differences belong in the confidential AOS, not the public opinion. Mixing them defeats the confidentiality design.
Bottom line
- The appointed actuary must be a Qualified Actuary, appointed by the Board of Directors; the company notifies the domiciliary commissioner within five business days if the actuary is replaced.
- Three deliverables: the Statement of Actuarial Opinion (public, filed with the Annual Statement), the Actuarial Opinion Summary (confidential, to the domiciliary commissioner by March 15), and the actuarial report (confidential, supports the SAO).
- The SAO has four sections in order: Identification, Scope, Opinion, and Relevant Comments.
- Five opinion types: reasonable provision, deficient/inadequate, redundant/excessive, qualified, and no opinion.
Exam shortcut
Map every fact to its home document before answering: verdict language ("reasonable," "deficient") is the SAO; specific point estimate, range, and carried-versus-estimate numbers are the AOS; methods, assumptions, and Schedule P reconciliation are the actuarial report. For opinion type, place carried against the range on a number line: inside is reasonable, below is deficient, above is redundant; an item-specific exception is qualified, and total inability is no opinion.
The full lesson (about 2,957 words, 20 min read) adds 2 worked examples, all 7 common mistakes, a self-check, free in the app.
Learning objectives
- C7
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