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  #1  
Old 08-29-2018, 11:10 AM
bsanders33 bsanders33 is offline
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Default Personal liability for Reserve Opinions

I got offered a chief actuary job about a year ago, a company with a fairly small department, and some struggles in recent years. But I do think they are on the right direction and currently have a decent reserve position. I turned it down, and it sat open for a long time, but recently got filled.

What spooked me a bit is that they wanted their chief actuary to sign the reserve opinion. And I realize that there are a lot of companies that ask the chief to sign the opinion. But imho the vast majority of internal actuaries who sign an opinion don't fully appreciate their personal liability exposure. In fact, I don't think it's fair to ask an internal actuary to sign.

Maybe I'm jaded by many years of designing and pricing a D&o product, and seeing the kinds of claims that BOD's and officers get hit with. And I've asked a couple of colleagues who are opinion signers if they are worried about the personal legal exposure, and the answer is usually "nah, my company has a D&o policy". But I'm like ... even if that's true, have you ever seen or read this D&o policy? There's lots of deductibles, exclusions, sublimits, etc.

Consultant who sign opinions are usually protected by more specialized liability policies. Really, I think that's a big reason why companies should pay for an outside opinion.

At this point in my career and life, I would not be willing to sign an opinion, but Jmo
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  #2  
Old 08-29-2018, 11:23 AM
OnLevel OnLevel is online now
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It seems pretty common for the appointed actuary to be either the chief actuary or another high ranking actuary working for the company. Unless the company is so small that the outsorce most of their reserving work.
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Old 08-29-2018, 11:28 AM
bsanders33 bsanders33 is offline
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Originally Posted by OnLevel View Post
It seems pretty common for the appointed actuary to be either the chief actuary or another high ranking actuary working for the company. Unless the company is so small that the outsorce most of their reserving work.
I don't necessarily disagree. My main point is that imo these actuaries don't often fully appreciate the personal loss exposure associated with this activity.

But I'm very risk averse at this point in my financial life, and also a bit jaded by years of involvement in D&o so Jmo
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Old 08-29-2018, 11:59 AM
CuriousGeorge CuriousGeorge is offline
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Originally Posted by bsanders33 View Post
I don't necessarily disagree. My main point is that imo these actuaries don't often fully appreciate the personal loss exposure associated with this activity.

But I'm very risk averse at this point in my financial life, and also a bit jaded by years of involvement in D&o so Jmo
Do you have any information on how many appointed actuaries have been personally sued due to their signing the reserve opinion? Maybe I'm wrong, but I'm struggling to imagine there have been even dozens of these in the last 50 years. It feels like you are worrying about a virtual non-issue.
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Old 08-29-2018, 12:35 PM
bsanders33 bsanders33 is offline
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Do you have any information on how many appointed actuaries have been personally sued due to their signing the reserve opinion? Maybe I'm wrong, but I'm struggling to imagine there have been even dozens of these in the last 50 years. It feels like you are worrying about a virtual non-issue.
No I don't have that info. I believe the percentage of appointed actuaries who have been sued over an opinion is very low. But it's a low frequency/ high severity exposure.

The plaintiffs lawyers who deal in these cases seem to get ever more creative and aggressive. If a company like the one that offered me gets downgraded or has other financial issues and one of the stated reasons is reserve strengthening on old AYs, it's just hard for me to believe that the signing actuary won't be a target. And even if the actuary did great work with perfect documentation, you still need to defend it, and that's a huge cost and exposure

Like I say Jmo and others might say it's not a significant worry for an internal appointed actuary
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Old 08-29-2018, 12:47 PM
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IANAFCAS, so forgive me if I oversimplify: if management books your team's numbers without adjustment, and if you and your team document the whole way, aren't the risks low?

If management books something that's lower than what you and your team presented, can't you refuse to sign? or am i being naive?
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Old 08-29-2018, 01:26 PM
CuriousGeorge CuriousGeorge is offline
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IANAFCAS, so forgive me if I oversimplify: if management books your team's numbers without adjustment, and if you and your team document the whole way, aren't the risks low?

If management books something that's lower than what you and your team presented, can't you refuse to sign? or am i being naive?
Implicit in reserves is the idea that there is a range of reasonable values that one might book. The appointed actuary gives an opinion as to whether the amount that management booked is reasonable, deficient, or excessive, as well as a range for reasonable values. Since they are required to provide a range, they can't very well insist that one number is the only proper value that can be used.

If management decides to book a lower number than the actuary's recommendation, at some point there will be a discussion about whether that might result in a deficient opinion.
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Old 08-29-2018, 01:31 PM
TDH TDH is offline
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Why would the responsibility fall under the actuary? At least at my company, management (usually the CFO) is responsible for the reported reserves.
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Old 08-29-2018, 02:11 PM
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Originally Posted by CuriousGeorge View Post
Implicit in reserves is the idea that there is a range of reasonable values that one might book. The appointed actuary gives an opinion as to whether the amount that management booked is reasonable, deficient, or excessive, as well as a range for reasonable values. Since they are required to provide a range, they can't very well insist that one number is the only proper value that can be used.

If management decides to book a lower number than the actuary's recommendation, at some point there will be a discussion about whether that might result in a deficient opinion.
I don't think a range is required for P&C (US).
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Old 08-29-2018, 03:14 PM
CuriousGeorge CuriousGeorge is offline
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I don't think a range is required for P&C (US).
I could be wrong, but I thought they started requiring a range a couple years ago.
Edit: Looks like I am wrong. The rest of the post stands, though. No reputable actuary could claim that the right reserve is $20M, and $19.9M isn't also reasonable.

Last edited by CuriousGeorge; 08-29-2018 at 03:20 PM..
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