The P&C Actuary's Role in Solvency Monitoring - Property and ...

PACICC – The P&C Actuary’s Role in Solvency Monitoring Page 32
― Aggregate limits
― Collateral sources
― Reinsurance cession
― Pools and associations
― Operational changes
― Changes in loss distribution
― External influences
― Claim reserving techniques
Even though the Recommendations were repealed by the CIA, these considerations are still
applicable to Canadian fully qualified actuaries working in P&C insurance. Some of the
considerations were explicitly incorporated into subsequent standards of practice of the CIA.
Furthermore, P&C actuaries typically attain Fellowship in the CAS in order to achieve their FCIA
designation. Thus, as members of the CAS, P&C actuaries are required to consider the Statement
of Principles in conducting analyses of policy liabilities.
Two significant requirements for P&C actuaries as set out in the Recommendations were the
establishment of policy and claim liabilities on a present value basis and the provision for adverse
deviation. In addressing the requirements for the present value of policy (i.e., premium) and claim
liabilities, the Recommendations states:
It is generally accepted actuarial practice to value liabilities as the present value
of the payments which those liabilities represent. Pending better definition by the
profession of an appropriate provision for adverse deviations, regulation in some
jurisdictions requires the liabilities in government financial statements to be the
sum, rather than the present value, of those payments. Where there is such a
requirement, the recommendation in this section to establish a present value
provision does not apply to the valuation of liabilities in government financial
statements and because it is desirable that liabilities be reported the same way in
both government and published financial statements, it likewise does not apply to
the valuation of liabilities in published financial statements. 65
And when discussing provision for adverse deviation, the Recommendations note:
It is not possible to determine total liabilities with complete confidence. In
evaluating liabilities, consideration should be given to the insurer’s obligations to
policyholders and claimants, as well as the inherent variability of conditions
affecting future claim payments.
Such consideration will result in the estimation of liabilities on a conservative
basis. The degree of conservatism is a matter of actuarial judgment and depends
upon the following factors:
1. The member’s confidence in the expected development pattern;
2. The quality and depth of historical data forming the basis on which the
reserve is evaluated;
3. The statistical fluctuations affecting ultimate claim frequency and severity;
4. The inflation rate (implicitly or explicitly) assumed in the valuation; and
65 http://www.actuaries.ca/members/publications/1990/9005e.pdf, Section 5.04, accessed November 2010.