Laura A. Maxwell

Asbestos Liabilities

In 2009, Pinnacle provided expert testimony about the evolution of insurance industry asbestos liabilities in an arbitration hearing among several insurance companies and a pool manager. This assignment drew on our knowledge of the history of insurance industry asbestos liabilities, e.g., the evolution of the legal aspects surrounding coverage determinations, the interplay of primary, excess and reinsurance contracts, the history of failed attempts to control the problem and the impact of bankruptcies among other factors. The assignment also drew on our mass tort / latent liability reserving expertise.

Portfolio Aggregation

A reinsurer wanted to combine the results of their pricing and reserving models for individual treaties - from diverse lines of business and treaty structures - to produce an annual return distribution for the company. This was a part of their ERM framework and the genesis of their economic capital modeling process. After reviewing treaty wordings and pricing and reserving models, we designed a model that reflected dependency amongst the treaties and produced an annual return distribution. Furthermore, the model was designed to allow users of the model output to easily see how sensitive the results were to the assumed dependency structures.

U S Domestic Statement of Actuarial Opinion

Domestic U.S. property/casualty insurers and risk retention groups are required to file an Annual Statement with state regulators each year by March 1. Part of that filing includes the submission of a formal Statement of Actuarial Opinion (SAO) by a qualified Appointed Actuary as to the reasonableness of held loss and loss adjustment expense reserves. The SAO must be one of five types:

• Reasonable
• Inadequate/Deficient
• Excessive/Redundant
• Qualified
• No Opinion

In addition to the SAO, most jurisdictions require an Actuarial Opinion Summary (AOS) providing more detail on the Appointed Actuary’s specific findings by March 15. Lastly, a formal report narrative in support of the SAO and AOS is required to be available by May 1.

As the SAO is a compliance document, the primary audience is state regulators but the individual company must arrange for the service to be provided.

A recent SAO for one of our clients touched on many of the required disclosures:

1. The adequacy of held reserves on a net basis were below the low end of our range of reasonable reserves until we took into account anticipated salvage and subrogation recoveries.
2. The unearned premium reserves for long duration contracts were substantial and we conducted a review to determine they were adequate
3. The Company held material loss and loss adjustment expense reserves for pools and associations. In order avoid having to issue a Qualified Opinion, we separately computed indicated reserves for two of the pools/associations, and obtained an SAO from the Appointed Actuary for the National Workers Compensation Reinsurance Pool.
4. Reinsurance recoveries were in doubt for certain carriers as balance were sometimes overdue by more than 90 days. After reviewing the reinsurers’ A. M. Best ratings, we made the required disclosures about reinsurance collectability.