I issued a 2019 Statement of Actuarial Opinion and Actuarial Opinion Summary prior to COVID-19 being declared a pandemic by the World Health Organization on March 11. My range of unpaid claims and conclusion with respect to the reasonableness of the Compa
There are several considerations in response to this question.
First, if an Actuarial Report has not been issued, the National Association of Insurance Commissioners (NAIC) Instructions to the P&C Statement of Actuarial Opinion say, “The Actuarial Report should be consistent with the documentation and disclosure requirements of ASOP No. 41, Actuarial Communications. Section 3.4.6 of ASOP No. 41 requires the Actuary to “disclose any relevant event that meets the following conditions:
- It becomes known to the actuary after the latest information date;1
- It becomes known to the actuary before the report is issued;
- It may have a material effect on the actuarial findings if it were reflected in the actuarial findings; and
- It is impractical to revise the report before it is issued.”2
Such events are defined in ASOP No. 41 as “Subsequent Events.” COVID-19 would be considered a Subsequent Event in the Actuarial Report supporting the Opinion if the event could have a material effect on the actuarial findings. The findings not only include the opinion on both gross and net loss and LAE reserves, but also include other reserves for which the actuary is expressing an opinion, such as P&C Long Duration Contracts, findings regarding risk of material adverse deviation, and considerations regarding the collectability of reinsurance, among others. For example, the event can have an impact on the asset side of the balance sheet that could impact a company’s surplus position and the determination of the actuary’s materiality standard for the purpose of assessing the risk of material adverse deviation (RMAD).
The impacts of COVID-19 are currently not fully known. If the appointed actuary determines that COVID-19 may have a material effect on the actuarial findings should it be reflected in the actuarial findings and the other criteria for a Subsequent Event in ASOP No. 41 are met, a disclosure is required.
An appointed actuary will likely hold discussions with company management to confirm that the appointed actuary’s assessment is in alignment with management’s evaluation of the impact on the recorded reserves as of December 31, 2019. Management is being asked by state regulators and rating agencies to address the operational and financial impacts of COVID-19. An appointed actuary would likely consider disclosures made by management to external parties with respect to the impact on the year-end 2019 reserves and/or risk of material adverse deviation.
If the appointed actuary has already issued the Actuarial Report but deems the event to have a material impact on the 2019 Statement of Actuarial Opinion, the appointed actuary will likely hold discussions with company management to determine communication and disclosure to the company’s board of directors and regulator.
[1] Information date is defined in section 3.4.5 of ASOP No. 41 as “the date(s) through which data or other information has been considered in developing the findings included in the report.”
[2] http://www.actuarialstandardsboard.org/asops/actuarial-communications/