Educational Notes on the Application of the Standard of Practice Concerning Provision for Adverse Development

"This document is intended to provide guidance to actuaries in the application of the standard of practice (SOP) ‘Provision for Adverse Deviations for Property & Casualty Insurance Companies’ in valuing the policy liabilities of a property casualty insurance company operating in Canada, domestic or foreign, or any similar liabilities.” The document explains that the SOP’s provision for adverse deviations (PFAD) may be included explicitly, by adding margin to the outstanding liabilities, or implicitly, by including margin when calculating the outstanding liabilities. Additionally, the difference between the discounted liabilities with the PFAD and the not fully discounted liabilities is considered, as is the resulting action the valuation actuary should take. KEY WORDS: Canadian Issues, Reserving, Discounting , Exam Part 7/7C, Risk Margin, Standard of Practice, Statement of Opinion, Valuation Actuary.