Trust us here, folks. Regulators will be spot the negative surplus
before they bother to read the actuarial opinion. You would not be
breaking the news to an innocent world if you mention in your opinion
that the company is underwater.
The typical regulator will then say: "Well, gosh, just how insolvent is
this turkey?" That is where we rely on the quality professionalism of
the appointed actuary to tell us if we can rely on the stated reserves
in any plan for rehabilitation, sale, or liquidation of the insurer.
Ralph Blanchard said it like it is.
Please go ahead and tell us in your opinion that the company has
negative surplus (or even marginal surplus) if it makes you feel better
and you do not want to look silly. Beyond that, do not worry and fret
about whether you have done enough. The integrity of the reserves
remains the single most critical question for evaluating casualty
companies. The Instructions do ask you to tell us any material thing
you might know about that. We should all want the casualty actuarial
opinion to be a valuable and reliable statement about loss and expense
reserves regardless of how healthy the rest of the balance sheet may
be. When you do that much, you have done a major service worthy of the
public trust in which the insurance business conducts itself.
Now, as for expanding the scope of the actuarial opinion, that sounds
delicious. The next step probably is unearned premium. The problem we
are bumping into is these high-priced consultants do not want to spend
their time and client's money doing pro-rata arithmetic. We are working
on a solution, perhaps allowing the actuary to rely on the company to do
the arithmetic for policies where that is the appropriate reserve. We
do want the actuary to look at the DD&R reserves, long-term policy
premium reserves, and retrospective rating credits wouldn't hurt. Rate
adequacy for in-force policies might be the next step. I'd appreciate
some infield chatter on these ideas.
Great State of Oregon
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