three perspectives on peer review · december 17, 2019 erich a. brandt, fcas, maaa darcie r....
TRANSCRIPT
![Page 1: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/1.jpg)
December 17, 2019
Erich A. Brandt, FCAS, MAAA
Darcie R. Truttmann, FCAS, MAAA
Carrie Rice, CPA
Three Perspectives on Peer ReviewFrom Three Professionals Who Review Loss Reserve Analyses
![Page 2: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/2.jpg)
1
• CAS Fellow
• Illinois State University
• 22 years of experience
• Reserving studies for insurance companies, captives and self-insureds
• Experience includes:
– Financial statement data reviews
– Commercial and liability lines
– Workers’ compensation
– Medical professional liability
About the Presenters
Erich BrandtSenior Consulting Actuary
Pinnacle Actuarial Resources, Inc.
![Page 3: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/3.jpg)
2
Darcie TruttmannConsulting Actuary
Pinnacle Actuarial Resources, Inc.
• CAS Fellow
• B.A., M.S. Mathematics, Illinois College
• 14 years of experience
• Reserving studies for insurance companies, captives and self-insureds
• Experience includes:
– Funding recommendations for emerging coverages
– Commercial and liability lines
– Workers’ compensation
– Medical professional liability
About the Presenters
![Page 4: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/4.jpg)
3
Carolyn RicePartner
Johnson Lambert LLP
About the Presenters
• CPA
• B.A., M.S. Accounting, University of Vermont
• 20 years of experience
• 16 years experience auditing insurance companies
• Experience includes:
– Alternative risk
– Governmental risk pools
– Commercial
![Page 5: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/5.jpg)
4
1. About the Presenters
2. Peer Review – Procedures and ASOPs
3. Peer Review – Methodology, Selections and Exhibits
4. Auditor’s Perspective on Actuarial Conclusions
Agenda
![Page 6: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/6.jpg)
5
• An evaluation of professional work product
– Conducted by a qualified professional
– Peer of the preparing actuary
• Perspectives differ as to peer review
• What are common peer review concepts and approaches in loss reserving?
What is Peer Review?
![Page 7: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/7.jpg)
6
Examples of Peer Review
• Are methods reasonable?
• Does it comply with ASOPs?
• Are the conclusions supported?
• Check calculations
![Page 8: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/8.jpg)
7
• Positive, not defensive
• Strong organizational support
• Evaluated by risk:
– “Higher risk” vs. “lower risk”
– Higher risk = more intensive review
Some General Considerations
![Page 9: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/9.jpg)
8
Which of the following is the MOST important for a successful peer review program?
Polling Question #1
Strong management commitment
Independence
Peer reviewer’s knowledge
Emphasis on education during the process
Follow through of feedback
A
B
C
D
E
![Page 10: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/10.jpg)
9
• Enhanced quality
• Compliance with ASOPs
• Learning through exchange of ideas
• Enhanced reputation
• Greater consistency of procedure and work product quality
• Error reduction
Benefits of Peer Review
![Page 11: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/11.jpg)
10
1. An actuary shall perform Actuarial Services with skill and care
2. Material departures from ASOPs must be justified and documented
3. Actuarial communications are clear and appropriate
– Right for intended audience
4. Work product shall not be used to mislead other parties
– Specify limitations
CAS Code of Professional Conduct
![Page 12: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/12.jpg)
11
• Applies to work products regarding reserves
• Are the three dates identified?
• Are the reserve amounts identified?
• Stated basis of reserves
– Discounted
– Risk margin
– Recoverable
– What expenses are included in loss adjustment expenses?
• Has actuary made use of another’s work? Another actuary’s opinion?
ASOP 36 – Statements of Actuarial Opinion
![Page 13: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/13.jpg)
12
• Identify intended purpose
• Identify constraints:
– Data
– Staff and/or time
• Nature of unpaid claims:
– Coverage
– Limits and reinsurance
– Claims adjustment process
– Conditions that may affect severity
• Are assumptions reasonable?
ASOP 43 – Unpaid Claim Estimates
![Page 14: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/14.jpg)
13
• Identify:
– Methods
– Procedures
– Assumptions
– Data
• Another qualified actuary could make objective appraisal of reasonableness of work product.
ASOP 41 – Actuarial Communications - Report
![Page 15: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/15.jpg)
14
• Identify responsible actuary and actuarial documents
• Necessary disclosures:
– Scope
– Cautions, reliances and limitations
– Reliance on sources of data
– Responsibility for assumptions and methods
• Be clear to minimize misinterpretation and/or misquotation
• Is potential variability of results adequately discussed
ASOP 41 – Actuarial Communications
![Page 16: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/16.jpg)
15
Other Standards of Practice
ASOP 20Discounting
ASOP 21Working with auditors
ASOP 23Data quality
ASOP 38Models outside the actuary’s area of expertise
ASOP 1Introductory actuarial standard of practice
![Page 17: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/17.jpg)
16
www.actuary.org
![Page 18: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/18.jpg)
17
Other References
AAA Law Manual
Internal Captive Law Reference Sheet
COPLFR Practice Note
Annual Statement Instructions
![Page 19: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/19.jpg)
18
• Focusing on unpaid claim estimates
• Exhibit or line/segment specific
– Reviewing LDFs
– Evaluation of methods
– Ultimate loss selections
• Big picture
– Do exhibits flow?
– Are findings reasonable and supported?
Peer Reviewing the Results
![Page 20: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/20.jpg)
19
• How do they compare to benchmarks?
• Are differences from benchmarks or triangles explained?
• Would other types of loss development analysis be of benefit?
– Counts and averages
• Should other averages or diagnostics be added?
– Average excluding low and high
– Volume-weighted average
– Three and five years averages
Peer Reviewing Loss Development Factors
![Page 21: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/21.jpg)
20
Peer Reviewing Loss Development Factors
Loss Development Interval
Line A Line B Line C
Accident Year 12-24 12-24 12-24
2011 1.45 1.7 1.19
2012 1.18 1.45 1.21
2013 1.21 1.43 1.2
2014 1.7 1.18 1.21
2015 1.2 1.21 1.18
2016 1.19 1.2 1.43
2017 1.43 1.21 1.45
2018 1.21 1.19 1.7
Average: 1.321 1.321 1.321
Average Last 5: 1.35 1.20 1.39
Selection:
![Page 22: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/22.jpg)
21
• Are assumptions and methods reasonable for this assignment?
• Are known biases in methods taken into account?
• If a BF method is used, is the a priori assumption appropriate?
• If only one method, is it adequate?
• Are loss adjustment expenses treated appropriately?
Evaluation of Development Methods
![Page 23: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/23.jpg)
22
Is the A Priori Appropriate?
Scenario 1 Scenario 2
Policy PeriodEarned Premium
Selected Ultimate Losses
Indicated Loss Ratio
Earned Premium
Selected Ultimate Losses
Indicated Loss Ratio
2012 1,000,000 1,000,000 100% 1,000,000 750,000 75.00%
2013 1,500,000 1,000,000 66.67% 1,500,000 750,000 50.00%
2014 2,000,000 1,500,000 75.00% 2,000,000 750,000 37.50%
2015 2,000,000 1,500,000 75.00% 2,000,000 1,750,000 87.50%
2016 2,500,000 2,000,000 80.00% 2,500,000 2,000,000 80.00%
2017 3,000,000 2,000,000 66.67% 3,000,000 3,000,000 100.00%
Total: 12,000,000 9,000,000 75.00% 12,000,000 9,000,000 75.00%
Selected: 75.00% 75.00%
![Page 24: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/24.jpg)
23
• Are final selections appropriate?
– Lines of business and available data
– Are loss dev methods over-reacting to large claim(s)?
• Compare subtotals or across policy periods
• Are differences between methods intuitive?
Peer Reviewing Ultimate Loss Selections
![Page 25: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/25.jpg)
24
• Is there negative IBNR?
• Can unusual loss ratios between lines be explained?
• Can unusual loss ratios between policy periods be explained?
• Any unusual observations in frequency or severity?
Big Picture – Are Findings Reasonable?
![Page 26: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/26.jpg)
25
• Do exhibits flow?
• Do findings make sense given diagnostics?
– Expected vs. Actual
– Compare from previous analysis
– Comparisons of frequency / severity / loss ratios
• Are limits and reinsurance communicated and calculated correctly?
Big Picture
![Page 27: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/27.jpg)
26
• Are differences between source and analysis data taken into account?
• Are there reconciliations between data provided and numbers in the analysis?
• Does the analysis adequately take reinsurance structure into account?
Peer Reviewing the Results – Adjustments to Data
![Page 28: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/28.jpg)
27
Which of the following is the most helpful when peer reviewing a loss reserve analysis?
Polling Question #2
Comments embedded in the analysis
Expected vs. Actual Exhibits
Comparison of data and selections from last review
Frequency and Severity Analysis
Narrative describing the analysis
A
B
C
D
E
![Page 29: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/29.jpg)
28
Carolyn RicePartner
Johnson Lambert LLP
Peer Review – An Auditor’s Perspective
![Page 30: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/30.jpg)
29
• Testing of actuarial reports – audit risk
• Requirement of auditor’s under GAAS
• Testing of key data, and testing over key areas of the actuary’s report
• Review of actuarial methodologies
• Adequacy of booked reserves
Learning Objectives
![Page 31: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/31.jpg)
30
• The Goal: comfort over management’s booked loss reserves
• The Approach: test the work of management’s specialist
• The Focus: IBNR reserves (GAAS Audits)
Auditor Goals, Approach and Focus
![Page 32: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/32.jpg)
31
Have you ever received pressure when setting reserves?
Polling Question #3
Yes
No
I receive target ranges preferred by management
A
B
C
![Page 33: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/33.jpg)
32
• Loss reserves (IBNR) = significant estimate
– Usually material to the Financial Statements
– High degree of uncertainty, judgment required
– Susceptible to bias and manipulation
– Generally, few internal controls over IBNR estimation
Significant Estimate
![Page 34: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/34.jpg)
33
• AU-C 500 paragraph .08: Management’s Specialist
– evaluate the competence, capabilities, and objectivity of that specialist;
– obtain an understanding of the work of that specialist; and
– evaluate the appropriateness of that specialist’s work as audit evidence for the relevant assertion.
Why We Need to Do This—The Standard (GAAS)
![Page 35: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/35.jpg)
34
• Evaluate [and document] the competence, capabilities, and objectivity…
– Actuary’s qualifications, specialties, experience
– Actuary’s firm specialties, staffing/resources, history
– Change in actuary from the prior year? If yes, understand the reason(s) for the change.
– Is the actuary objective, independent? What’s the actuary’s role?
What We Need to Do—Evaluate the Specialist
![Page 36: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/36.jpg)
35
• What’s the scope, what’s included, excluded?
• What’s changed since last year?
• Is the actuary’s understanding of the business, exposures and coverages accurate?
Obtain an Understanding—Scope Actuary’s Work
![Page 37: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/37.jpg)
36
• Which data does the actuary consider critical/significant
• NAIC filers: significant data letter required
• We are required to test data we deem significant to the estimate we are auditing
Obtain an Understanding—Actuary’s Data
![Page 38: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/38.jpg)
37
• Example testing approach
– Tie-out each line of business in total
– Paid and case reserves
• This step should effectively tie-out data in aggregate
– Select sample lines of business and sample years
• Tie-out data in total by year for each line selected
– This step tests accuracy of loss data allocation
Evaluate the Work—Loss Data Testing
![Page 39: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/39.jpg)
38
• Actuary’s valuation date may not be client year-end
• The actuary may limit loss data in some way
• Multiple claims may be combined as one loss event
• Actuary may sort/disaggregate loss data differently than management
• Certain exposures, years, insureds etc. may be carved out
• We need to understand why actuary manipulates data and evaluate the appropriateness, may re-perform on a sample basis
Evaluate the Work—Loss Data, Potential Pitfalls
![Page 40: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/40.jpg)
39
• Variances—if the data does not tie exactly
• Judgment required, must understand:
– Sources/causes of variances
– Impact on reserve estimates/booked reserves
• Materiality applies to the booked reserves, consider the impact of variances on the overall reserve estimate, booked reserves
Evaluate the Work—Loss Data, Specifics
![Page 41: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/41.jpg)
40
• We are not actuaries, our responsibility is to:
– obtain an understanding of the work of that specialist; and
– evaluate the appropriateness of that specialist’s work as audit evidence for the relevant assertion.
Evaluate the Work—Analysis, Overview
![Page 42: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/42.jpg)
41
• Review actuary’s description of business and program
• Review actuary’s understanding of policy terms and limits, etc.
• Review actuary’s scope of work
• Something missing, things don’t add up?
Evaluate the Work—Analysis, Overview
![Page 43: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/43.jpg)
42
• The goal: gain comfort over booked loss reserves (IBNR)
• Consider lines where the bulk of IBNR resides
• Consider significant lines for ASU 2015-09 disclosure
– >10% total gross reserves, by line
– ≥75% total gross reserves, in aggregate
Evaluate the Work—Analysis, Lines of Coverage
![Page 44: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/44.jpg)
43
• Review schedule of selected ultimates
• Which methodologies drive total IBNR estimate?
• Select methodologies that most closely approximate IBNR estimate on the selected lines
Evaluate the Work—Analysis, Methodologies
![Page 45: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/45.jpg)
44
• Inquiry is essential component of testing
– Variances, potential errors? Discuss with the actuary!
– Errors confirmed—discuss impact, will this change the actuary’s analysis or recommendations?
Evaluate the Work—Inquiries
![Page 46: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/46.jpg)
45
Do you receive inquiries from auditors on your report?
Polling Question #4
Yes
No
Only by management
A
B
C
![Page 47: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/47.jpg)
46
• We must understand and evaluate the appropriateness of the methodologies used by the actuary, consider:
– Are these commonly used methodologies?
– Does the application seem reasonable, is it a novel approach?
– Do the inputs (exposure data, industry data) appear reasonable?
– Do the results appear reasonable given what we’ve noted in the underlying loss data or exposure data?
Evaluate the Work—Methodologies, Overview
![Page 48: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/48.jpg)
47
Questions?
![Page 49: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/49.jpg)
48
Join Us for the Next APEX Webinar
![Page 50: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/50.jpg)
49
• We’d like your feedback and suggestions
• Please complete our survey
• For copies of this APEX presentation
• Visit the Resource Knowledge Center at Pinnacleactuaries.com
Final notes
![Page 51: Three Perspectives on Peer Review · December 17, 2019 Erich A. Brandt, FCAS, MAAA Darcie R. Truttmann, FCAS, MAAA Carrie Rice, CPA Three Perspectives on Peer Review From Three Professionals](https://reader030.vdocument.in/reader030/viewer/2022040403/5e863aab70115412fc0a06aa/html5/thumbnails/51.jpg)
Commitment Beyond Numbers 50
Thank You for Your Time and Attention
Erich A. Brandt, FCAS, [email protected]
309.807.2311
Darcie R. Truttmann, FCAS, [email protected]
309.807.2325
Carrie Rice, [email protected]
802.383.4820