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What is the purpose of ASOP 43?
Provide guidance to actuaries on estimating unpaid claims
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To whom does ASOP 43 apply to?
*Actuaries developing unpaid claim estimates for events that have already occurredor will have occurred as of an accounting date
*All classes of entities - self-insureds, insurance companies, reinsurers, and government
*Gross of recoverables, net of recoverables, and estimates of such recoverables
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Define Actuarial Central Estimate
Represents an expected value over the range of reasonably possible outcomes
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Define Claim Adjustment Expense
Costs of administering, determining coverage for, settling, or defending claims even if claim is invalid
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Define Process Risk
Risk associated with projection of future contingencies that are inherently variable, even when parameters are known with certainty
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What should Actuary disclose when estimating unpaid claims?
- 1.Intended measure (high or low estimate, median, mode, actuarial central estimate)
- 2. If gross or net of recoverables
- 3.If and to what extent collectibility risk is considered
- 4. Specific types of unpaid claim adjustment expenses covered
- 5. Types of claims covered (type of loss, year, line, province)
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In an "Unpaid Claim Estimate", consider:
- Methods & Models
- • relevant factors for selection, modification, and/or development
- Additional:
- • Different methods for different components (e.g., coverages within a line)
- •Whether reliance on a single method may be appropriate• If an update, are same methods appropriate
- Assumptions• Consider reasonableness of assumptions underlying each method
- • May be implicit or explicit
- • Should have no known significant bias for intended purpose
- Data
- Recoverables
- Gross vs Net
- External Conditions that will have material effect
- • e.g. potential economic changes, regulations, judicial decisions, social forcesUncertainty - decide if needs to be measured
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What should Actuary take into account?
- 1. Reasonableness of estimate
- 2. Multiple components - if reasonably consistent
- 3. Presentation - point estimate, range, point with margin
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In Actuarial Communication, what should be disclosed?
- Intended purposes
- Significant limitations
- Scope of unpaid claim estimate
- Dates - acctg, validation, review
- Specific significant risks & uncertainties
- Significant events, assumptions or reliances that have material effect
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