Arthur R. Randolph II

Captive Dividend Assessment

An onshore, single parent captive was concerned with the amount of retained earnings and wanted to establish a policy for the minimum capital for the program to trigger dividend distributions. Pinnacle compared the program’s capitalization to a wide variety of industry standards for similar programs from rating agencies, regulators, and other sources. The results of this analysis lead to a recommended board policy regarding a minimum capital threshold for dividend distributions and ultimately to a significant dividend being declared to the parent company.

Medical Malpractice Damage Caps

A state insurance regulator asked Pinnacle to determine the potential impact of several proposed tort reforms, including a change to non-economic damage caps for medical professional liability claims. Pinnacle worked with medical society to identify the most appropriate claims databases for assessing the potential legislative change. Our detailed analysis not only considered data from that state, but several others to stress test the results and provide a range of reasonable outcomes. In many cases, the specific reform’s effect, for example “I’m Sorry” legislation, was very difficult to isolate. Through this industry analysis, we identified differences well beyond a simple loss limitation to provide a more complete review of potential environmental changes that could be expected in the state.

This comprehensive analysis helped our client identify the effect of various legislative options, which empowered them to be a strong voice in the legislative debate and to influence policymaking in the state.

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.