Actuarial Opinions and Financial Analysis in Insurance Regulation

1. One Regulatory Viewpoint F. Laurence Lindberg Deputy Division Director Regulatory Services Division Georgia Insurance Department

2. Disclaimer • The opinions and comments expressed herein are my personal views only. • My opinions and comments are not in any way an official position or comment by the Georgia Department of Insurance. F. Laurence Lindberg

3. Perspective for Comments • Actuarial Assistant, Assistant Actuary • Financial officer, MBA, CPA • CFO, Exec. VP • Independent Consultant • Insurance Department Examiner • Deputy Receiver • Insurance Department Regulator F. Laurence Lindberg

4. Professional Credibility • Consistent errors are noticed. • Loss reserve development is considered in financial analysis. • Overly-wide ranges of reasonable reserves raise questions. • Some actuaries become known for being frequently low, seldom high. • Bad reputations become a red flag for insolvency risk. • The professionalism of most actuaries is known and appreciated. F. Laurence Lindberg

5. Fables I Have Heard • “We’ve been settling claims faster.” • “Our new systems accelerated claims payments in the last half of the year; the old loss development factors had to be adjusted down for faster payments.” • “Reserves didn’t go up because nothing changed this year.” F. Laurence Lindberg

6. More Fables I Have Heard • “Improved underwriting and/or claims practices reduced our loss ratios way below those of our peers.” • “Our new marketing officer got better business at higher rates, while growing the business by 40%.” • “Any losses above our reserves would get into excess reinsurance anyway.” F. Laurence Lindberg

7. Effects on Actuaries • Skepticism • Scrutiny • More questions and requests for deeper explanations • Independent reviews of actuarial opinions, memoranda, complete reports and assumptions • More hours and more fees? Or lower hourly rates actually realized? F. Laurence Lindberg

8. Effects on Clients • Deeper financial analyses intended to detect early signs of weakening financial strength • Additional questions from regulators; requests for more detailed explanations • Independent reviews of actuarial opinions, memoranda, complete reports and assumptions • Increased costs and management time F. Laurence Lindberg

9. Actuarial Opinions • We obtain reviews of actuarial opinions for all our domestic insurers. • Many actuarial opinions do not meet the technical requirements of the annual statement instructions. • The opinion should explicitly state in which of the five categories it falls. • Include a reconciliation of all data used in the analysis. • Carefully set a materiality standard for each company; don’t use one value or percentage for all companies. • Georgia does not yet commonly receive Actuarial Opinion Summaries; but we request entire actuarial reports as needed. F. Laurence Lindberg

10. When You Get Our Attention • Questions can lead to review of the full actuarial report • Targeted examinations • Independent actuarial opinion • Book a corrected reserve amount • Address the RBC effects F. Laurence Lindberg

11. Goals for the Future • Educate your clients • Monitor the real-world effects on your clients of premium growth, loss cost growth and changes in the competitive environment • Help clients work through problems, not around them • Continue progress already made by the profession F. Laurence Lindberg

12. F. Laurence Lindberg Deputy Division Director Regulatory Services Division Georgia Department of Insurance 604 West Tower, Floyd Building 2 Martin Luther King Jr. Drive Atlanta, Georgia 30334 Direct No: (404) 651-9690 E-mail: larry.lindberg@mail.oci.state.ga.us F. Laurence Lindberg