Casualty Quarterly, Spring 2019

Spring 2019
VOL 3 | NO 1

Academy Comments to NAIC Regarding ‘Qualified Actuary’ Definition on P/C Opinion Instructions

MillerMary D. Miller, former chief actuary of the state of Ohio and a past Academy president, sent two more comment letters on behalf of the Academy to the NAIC in February regarding qualifications and credentials. These are just the most recent written communications on this topic in which the Academy has been fully engaged over several years—including as recently as late March, when Miller participated in an NAIC telephonic hearing on the subject—to try to continue to support the importance of strong actuarial qualifications of basic education, experience, and continuing education that are all grounded in specific U.S. laws and practice. We believe it is only the Academy credential that provides all of those assurances to regulators.

In the most recent submissions, the first letter, to the Executive (EX) Committee’s Ad Hoc commissioner group, pertains to the proposed changes of the Property and Casualty 2019 Actuarial Opinion Instructions, including the Ad Hoc Group’s draft definition of “qualified actuary.” The second letter, to the Casualty Actuarial and Statistical (C) Task Force (CASTF), is in regards to the CASTF’s draft qualification and related documentation requirements.

Casualty Quarterly conducted a Q&A with Miller about the ongoing issue.

Why has the NAIC taken up the issue of qualifications and credentials for casualty actuaries?

This began when the Society of Actuaries (SOA) asked that its new GI track be recognized as equivalent to Casualty Actuarial Society (CAS) exams for providing an adequate basic education for Appointed Actuaries. CASTF felt it did not have enough information to make that determination, so an extensive process was begun to look at both syllabi by a consultant, WorkCred, that the NAIC retained to develop a process of evaluating the basic education for opining actuaries provided by both the CAS and the SOA.

What are the primary concerns from the Academy’s perspective about the proposed definition of the qualified actuary?

As currently written, the proposed definition does not say an appointed actuary must be a member of the Academy. The Academy has long been the defining credential referenced in model NAIC laws, state laws and regulations, to identify a qualified actuary in Life and Health Opinion Instructions. We believe the definition should reference membership in the Academy because it is, and was created to be, the U.S. national association that establishes the standards of conduct, practice, and qualification for actuaries practicing in the U.S.

Have the NAIC’s proposals evolved in response to comments from the Academy and others?

Yes, the NAIC has adopted many of the changes we suggested. For example, it originally had a list of over 100 knowledge statements the actuary was going to have to check off. Now the CAS and SOA are each mapping its syllabus to the knowledge statements and a group of actuaries is verifying the mapping for the NAIC. There are many other changes that have been made to the original proposals as a result of Academy and others’ comments.

Your letters mentioned the Academy’s P/C Opinion Writing Practice Note and the Seminar on Effective P/C Loss Reserve Opinions. How do these annual publications/events relate to the discussion of qualifications for P/C actuaries?

They are examples of how the Academy has developed extensive educational offerings and tools to support practicing actuaries who file or who want to file these statutory opinions. By our attention to detail and any yearly changes, regulators can have greater assurance that appointed actuaries have the necessary tools at their disposal in order to write quality opinions.

Why do you think the proposed definition of a “Qualified Actuary” as “an Academy member who meets the basic education, experience and continuing education requirements set forth in the U.S. Qualification Standards and has obtained an NAIC-accepted actuarial designation” is the best solution to this issue?

The Academy is the national association of the United States. The SOA and CAS are outstanding international educational societies, but they are very different than the Academy in their focus on basic actuarial education. Membership in the Academy brings regulators an assurance that the appointed actuary will be familiar with U.S. laws and practice because that requirement is a fundamental aspect of Academy membership, and it differs from membership in any other actuarial organization.

How can members stay abreast of the latest developments in this important issue?

The latest developments are usually posted on the NAIC website under the CASTF homepage: https://www.naic.org/cmte_c_catf.htm. The Academy publishes all our comment letters on its website as well and highlights them in the Academy’s weekly newsletter This Week, and monthly publication Actuarial Update.

Richard N. Gibson Is the Academy’s New Senior P/C Fellow

Gibson Richard N. Gibson, an actuary with more than 35 years of experience, was named the Academy’s new senior property/casualty fellow in January. Gibson will communicate the Academy’s work on casualty actuarial issues including cybersecurity, extreme events and climate risk, workers’ compensation, medical professional liability, automobile insurance, and many more P/C issues to public policymakers and the public. He testified and presented at several events in late March (see stories, below).

“Rich brings an impressive depth of actuarial experience and leadership to the Academy’s ongoing work on property/casualty issues,” said Academy President Shawna Ackerman. “He will provide valuable insights in the discussions surrounding today’s P/C public policy issues.”

Gibson has nearly 40 years of actuarial experience, most recently as a consultant, during which he has worked on a diverse portfolio of insurance lines including homeowners’, automobile, workers’ compensation, specialty and commercial property lines. Before 2018, he served 14 years as chief actuary of Hallmark Financial Services, where he also was the company’s appointed actuary.

From 2000 to 2003 he was an independent actuarial consultant. Earlier in his career, Gibson directed or managed actuarial services for several insurers, including the California State Automobile Association, TIG Insurance Company, Nationwide, Farmers Insurance Group, Allstate, and others.

Webinar Dives Deep on P/C Actuarial Opinion Report Writing

A Feb. 1 Academy property/casualty webinar explored how to write an effective P/C loss reserve opinion report. “P/C Actuarial Opinion Report Writing,” hosted by the Academy’s Committee on Property and Liability Financial Reporting (COPLFR), included a review of the actuary’s responsibilities, NAIC instructions, and relevant actuarial standards of practice, and featured discussion of how clear communication and documentation of the actuary’s work is handled in each report chapter.

COPLFR Chairperson Kathy Odomirok moderated, and the presenters—COPFLR member and Opinion Seminar Subcommittee Chairperson John Gleba, and subcommittee member Chuck Emma—offered insight on differences in writing the narrative and technical components of the report, what kind of data and disclosures support the report, and what is included in the report to help the intended readers understand and navigate it.

Presenters emphasized that actuaries understand their audience and provide pertinent background and historical information and details to help the reader navigate through the narrative and exhibits, while describing the process and steps along the way. “One of the most important feedback items we get from regulators is that organization is far more important than detail,” Emma said.

Slides and audio are available without charge for Academy members.

Senior P/C Fellow Gibson Presents at Tulane on ACI; Testifies in D.C. on Auto Insurance

Gibson (right) presents in D.C. on March 25

Academy Senior P/C Fellow Rich Gibson spoke at a late March symposium at Tulane University in New Orleans, on climate change, and at a Washington, D.C., Department of Insurance, Securities and Banking (DISB) meeting on passenger automobile insurance.

At the Tulane Environmental Law and Policy Summit on March 23, Gibson—participating in a panel discussion—gave an overview of the Actuaries Climate Index (ACI), developed jointly in 2016 by the Academy along with the Society of Actuaries, the Casualty Actuarial Society, and the Canadian Institute of Actuaries. He also gave a status update on the Actuaries Climate Risk Index (ACRI), still being developed in conjunction with the ACI project and currently undergoing peer review.

“Rising sea levels and more frequent high temperatures are sustaining the long-term trend of higher ACI values,” Gibson said, reaffirming the latest ACI data results released in November.

At the D.C. DISB presentation on March 25, Gibson gave an overview of the work of the Academy’s auto-insurance-related committees and task forces, including the Casualty Practice Council’s (CPC) Automobile Insurance Committee and the Risk Management and Financial Reporting Council’s Data Science and Analytics Committee. He also cited the Academy’s June 2018 monograph, Big Data and the Role of the Actuary, and the CPC’s January comments to NAIC’s Casualty Actuarial Statistical Task Force (CASTF) on CASTF’s recent draft white paper on predictive modeling (see story, below).

COPLFR Releases P/C Loss Reserves Practice Note

The Academy’s Committee on Property and Liability Financial Reporting (COPLFR) released the Statements of Actuarial Opinion on Property and Casualty Loss Reserves practice note, which provides information to actuaries on current or emerging practices relevant to signing NAIC P/C statements of actuarial opinion (SAOs) and actuarial opinion summaries (AOSs). It is intended to assist actuaries by describing practices that COPLFR believes are commonly employed in issuing SAOs and AOSs on loss and loss-adjustment expense reserves in compliance with the P/C Annual Statement Instructions for 2018 issued by the NAIC. Actuaries may also find this information useful in preparing SAOs for other audiences.

Academy Comments on NAIC’s Predictive Modeling White Paper

Academy Senior P/C Fellow Rich Gibson submitted comments to the NAIC’s Casualty Actuarial and Statistical Task Force (CASTF) regarding CASTF’s proposed white paper on regulatory review of predictive models. The letter posed thoughtful questions to the task force; identified areas in the paper where additional clarification may be needed; mentioned some valuable Academy resources to consider including as part of the best practices, such as actuarial standards of practice (ASOPs); and reiterated the Academy’s commitment to work with the task force in developing an appropriate review process for regulators.

“Though predictive analytics is still in its early stages of use in insurance ratemaking, benefits are being realized,” the letter states. “Along the way, the insurance industry has committed resources to fund and staff the development of predictive analytics projects. Actuaries have played a central role in this development.”

P/C Loss Reserve Manual Available

The Academy’s law manuals, updated each year, are designed to help appointed actuaries know requirements relevant to their work. The newly released Property/Casualty Loss Reserve Law Manual contains a compilation of insurance laws relating to P/C loss and loss expense reserves for all 50 states, Washington, D.C., and Puerto Rico. Order today.

Legislative / Regulatory Update

Following is an update of key federal and state property/casualty legislation.

Federal Legislative and Regulatory Activities

Flood insurance remains a key issue for Congress in 2019. Following multiple short-term reauthorizations, Congress has extended the National Flood Insurance Program (NFIP) through May 31. The recent reauthorizations of the NFIP have not addressed proposals to revise the program, and neither chamber has considered significant legislation on the NFIP since November 2017, when the U.S. House of Representatives passed H.R. 2874, The 21st Century Flood Reform Act. However, the Committee on Financial Services of the U.S. House of Representatives held a hearing on March 13 focusing on proposed changes to the NFIP and highlighting draft proposals to address flood insurance affordability, floodplain management, flood mapping, and flood insurance claims.

The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) jointly issued a final rule in January requiring lenders to accept private flood insurance policies in addition to government-backed policies. The OCC and FDIC originally proposed the rule in 2016, along with the Board of Governors of the Federal Reserve System, the Farm Credit Administration, and the National Credit Union Administration. Read the Academy alert.

The U.S. Government Accountability Office released the 2019 update of its “High Risk Series” in March, identifying “federal programs and operations that are vulnerable to waste, fraud, abuse, and mismanagement, or that need broad reform.” Programs identified in the update included the NFIP, the federal crop insurance program, and the Federal Housing Administration’s Mutual Mortgage Insurance Fund. Read the Academy alert.

State P/C Legislation

As states begin their legislative sessions, state lawmakers are considering a number of bills regarding insurance legislation.

Auto Insurance

Legislation passed in the Colorado Senate in February and now under consideration in the House would regulate insurance requirements for peer-to-peer car sharing, including provisions that: require the shared car to be covered by insurance, with the required coverage set at three times the normal required coverage when the insurance is provided by a car-sharing program; require that a car-sharing program must carry insurance to cover a lapse of coverage when the required insurance is provided by the owner or driver; and prohibit insurers from refusing coverage for a shared car outside of the car-sharing program solely because the covered car has been made available for car sharing.

Autonomous Vehicles

The Utah Legislature passed a bill in March that would allow the operation of autonomous vehicles on state roads. The legislation now goes to Gov. Gary Herbert for consideration.

Flood Insurance and Climate Risk

Legislation under consideration in the Florida House would require insurers issuing homeowners insurance policies to include a notice at the issuance and every renewal of a policy informing homeowners that they may need to obtain flood insurance coverage.
A bill introduced in the Hawaii House in February would require the Social Science Research Institute at the University of Hawaii at Manoa to conduct a study to determine whether the use of parametric disaster insurance policies for the state is “feasible, practical, affordable, and in the public interest, with its findings to be submitted to the legislature by 2021.

Travel Insurance

Virginia Gov. Ralph Northam signed a bill into law in March establishing travel insurance as an inland marine line of insurance and placing a tax on travel insurance premiums paid by Virginia residents.
Arkansas Gov. Asa Hutchinson is considering legislation similar to the bill enacted in Virginia, and similar bills have been introduced in Georgia, New York, Rhode Island, and Texas.

Workers’ Compensation

The Arizona House passed a bill, now under consideration in the Senate, that would make the state’s Special Fund the successor in interest to all excess workers’ compensation insurance policies, and require excess insurers to make payments to the fund for all covered amounts spent.

State Regulatory Update

A rule regulating workers’ compensation high-deductible policies that was finalized by the California Department of Insurance in 2018 took effect on Jan. 1. The Academy’s Committee on Property and Liability Financial Reporting submitted comments on the proposed rule last August.
The Colorado Division of Insurance has proposed an amendment to a rule that would prohibit insurers from refusing, canceling, reclassifying, or increasing premiums for auto insurance coverage on the basis that a policyholder had not-at-fault accidents, or has a physical impairment which has an adverse effect on the insured’s ability to drive safely, and cannot be corrected by the use of medication or special equipment.
The Pennsylvania Department of Insurance announced in February that it would be “conducting a medical professional liability insurance study to determine whether sufficient capacity exists to increase the basic coverage limits of insurance required by the Medical Care Availability and Reduction of Error (MCARE) Act.” Initial public comments were due March 2.
The Texas Department of Insurance proposed an amendment to a rule that would require insurers to provide lienholders at least 10 days’ notice of the cancellation of an auto insurance policy.

In the News

An Adviser Voice story on the Australian Actuaries Climate Index cited the Academy’s role as a co-sponsor of the Actuaries Climate Index, launched in 2016 by organizations representing the actuarial profession in the United States and Canada.