2018 Spring National Meeting Casualty Actuarial and Statistical (C) Task Force March 24, 2018 Milwaukee, Wisconsin © 2018 National Association of Insurance Commissioners Date: 3/8/18 2018 Spring National Meeting Milwaukee, Wisconsin CASUALTY ACTUARIAL AND STATISTICAL (C) TASK FORCE Saturday, March 24, 2018 9:00 – 10:30 a.m. Wisconsin Center—Room 102 AB—1st Floor ROLL CALL James J. Donelon, Chair Louisiana Patrick M. McPharlin Michigan Jessica Looman, Vice Chair Minnesota Chlora Lindley-Myers Missouri Jim L. Ridling Alabama Barbara D. Richardson Nevada Lori K. Wing-Heier Alaska Marlene Caride New Jersey Dave Jones California Maria T. Vullo New York Michael Conway Colorado Mike Causey North Carolina Katharine L. Wade Connecticut Jillian Froment Ohio Stephen C. Taylor District of Columbia John D. Doak Oklahoma David Altmaier Florida Andrew Stolfi Oregon Gordon I. Ito Hawaii Jessica Altman Pennsylvania Jennifer Hammer Illinois Raymond G. Farmer South Carolina Doug Ommen Iowa Kent Sullivan Texas Ken Selzer Kansas Mike Kreidler Washington NAIC Support Staff: Kris DeFrain/Jennifer Gardner AGENDA 1. Consider Adoption of its Feb. 13, 2018, and 2017 Fall National Meeting Minutes Attachment One —Rich Piazza (LA) 2. Consider Adoption of its Working Group Reports— Rich Piazza (LA) a. Actuarial Opinion (C) Working Group—Julie Lederer (MO) Attachment Two b. Statistical Data (C) Working Group—Carl Sornson (NJ) 3. Hear a Report on the Appointed Actuary Job Analysis Project and Next Steps—Rich Piazza (LA) 4. Discuss Appointed Actuary Charges—Rich Piazza (LA) • Attestation of Qualification—Rich Piazza (LA) Attachment Three • Three-Year Experience—Rich Piazza (LA) Attachment Four • Continued Competence Project—Kevin Dyke (MI) 5. Discuss NAIC Activities Relating to Casualty Actuarial Issues—Rich Piazza (LA) • ORSA Implementation (E) Subgroup—Wanchin Chou (CT) • Big Data (EX) Working Group—Rich Piazza (LA) • Insurance Summit and Book Club Training—Rich Piazza (LA) 6. Hear Reports from Actuarial Organizations • Casualty Practice Council and Committee on Property and Liability Financial Reporting (COPLFR)—Kevin Ryan (Academy) • Professionalism—Mary D. Miller (Academy), Jan Carstens (Actuarial Board for Counseling and Discipline) and Beth Fitzgerald (Actuarial Standards Board) • Society of Actuary (SOA) General Insurance Actuarial Research—Dale Hall (SOA) • Casualty Actuarial Society (CAS) Property/Casualty Actuarial Research—Ralph Blanchard (CAS) 7. Discuss Any Other Matters Brought Before the Task Force—Rich Piazza (LA) 8. Adjournment W:\National Meetings\2018\Spring\Agenda\CASTF.docx © 2018 National Association of Insurance Commissioners 1 Attachment One Consider Adoption of its Feb. 13 and Fall National Meeting Minutes © 2018 National Association of Insurance Commissioners Attachment __ Casualty Actuarial and Statistical (C) Task Force 3/__/18 Draft: 3/5/18 Casualty Actuarial and Statistical (C) Task Force Conference Call February 13, 2018 The Casualty Actuarial and Statistical (C) Task Force met via conference call Feb. 13, 2018. The following Task Force members participated: James J. Donelon, Chair, represented by Rich Piazza (LA); Jessica Looman, Vice Chair, represented by Phillip Vigliaturo (MN); Lori K. Wing-Heier represented by Michael Ricker (AK); Jim L. Ridling represented by Charles Angell and Jerry Workman (AL); Dave Jones represented by Rachel Hemphill and Lynne Wehmueller (CA); Michael Conway represented by Michael Muldoon (CO); Katharine L. Wade represented by Wanchin Chou, Sue Gozzo Andrews and Qing He (CT); Stephen C. Taylor represented by David Christhilf and Monica Dyson (DC); David Altmaier represented by Howard Eagelfeld and Robert Lee (FL); Gordon I. Ito represented by Randy Jacobson (HI); Jennifer Hammer represented by Judy Mottar (IL); Ken Selzer represented by Nicole Boyd (KS); Patrick M. McPharlin represented by Kevin Dyke (MI); Chlora Lindley-Myers represented by Gina Clark, Rebecca Helton and Julie Lederer (MO); Marlene Caride represented by Mark McGill (NJ); Barbara D. Richardson represented by Gennady Stolyarov (NV); Jillian Froment represented by Tom Botsko (OH); John D. Doak represented by Daniel Figueroa (OK); Andrew Stolfi represented by David Dahl (OR); Jessica Altman represented by James DiSanto, Melissa Greiner, Michael McKenney and Kevin Clark (PA); Raymond G. Farmer represented by Will Davis (SC); Kent Sullivan represented by J’ne Byckovski, Nicole Elliott, Miriam Fisk, Eric Hintikka, Walt Richards, Brian Ryder and Jennifer Wu (TX); and Mike Kreidler represented by Eric Slavich (WA). Also participating were: Weston Trexler (ID); Walter Dabrowski (MD); Sandra Darby (ME); Mari Kindberg (MT); Gordon Hay (NE); Christian Citarella (NH); Anna Krylova (NM); Tracy Klausmeier, Tomasz Serbinowski and Kathy Stajduhar (UT); and Pat Murray, Barbara Prentice and Rosemary Raszka (VT). 1. Received an Update from the Actuarial Opinion (C) Working Group Mr. Piazza said he reappointed Ms. Lederer as chair of the Actuarial Opinion (C) Working Group. Ms. Lederer said the Working Group proposed several changes to the P/C Statement of Actuarial Opinion instructions for year-end 2018. She said the proposed changes include incorporation of Actuarial Guideline LI—The Application of Asset Adequacy Testing to Long- Term Care Insurance Reserves (AG 51) requirements and added disclosures on accident and health exposures. She said the proposal was exposed for comment for two weeks, and one comment letter was received. She said the Working Group will meet to consider a final proposal to send to the Blanks (E) Working Group. The Blanks (E) Working Group would expose the proposal for an extended period. 2. Received an Update from the Statistical Data (C) Working Group Mr. Piazza said he reappointed Carl Sornson (NJ) as chair of the Statistical Data (C) Working Group. Mr. Sornson confirmed the Working Group will begin its work later in the year. 3. Exposed the P/C Appointed Actuary Attestation Proposal Mr. Piazza said the Task Force has a charge to “[d]evelop an attestation an actuary must complete and sign annually to verify the actuary is qualified to sign a statutory P/C Statement of Actuarial Opinion.” The Task Force first discussed its charge to develop an attestation on its Nov. 14, 2017, call. The Task Force’s 2017 chair, Mr. McKenney, asked for volunteers to discuss and present a P/C Appointed Actuary Attestation proposal to the Task Force. The drafting group consisted of Mr. Piazza, Mr. Angell, Ms. Lederer and Kris DeFrain (NAIC). The drafting group has submitted this initial draft for the Task Force’s discussion. Mr. Piazza said it was not an easy task for the drafting group to come to agreement, and he said he expects there will be some significant discussion on the proposal. He presented the issues the drafters discussed. The drafters first agreed a purpose for introducing an attestation was needed. The drafters propose the purpose is to provide a way for state insurance regulators to require the Appointed Actuary to reflect on knowledge needed to provide an actuarial opinion for a specific company. The attestation should provide reassurance to state insurance regulators that the actuary can be relied upon for the specific actuarial opinion. He said the proposed attestation differs from the American Academy of Actuaries’ (Academy) attestation form. The purpose of the Academy’s form seems to be different. Mr. Piazza said the Academy’s form is focused on whether the U.S. qualification standards are met, which is useful information, but does not fully achieve the state insurance regulators’ goals. State insurance regulators need reassurance that the Appointed Actuary has the knowledge to write a reliable actuarial opinion for a particular company. © 2018 National Association of Insurance Commissioners 1 Attachment __ Casualty Actuarial and Statistical (C) Task Force 3/__/18 During discussions, the drafters discussed a few key issues. One issue was what should be in a public attestation versus what could be documented as supporting information in a confidential document. He said the proposed split is a short Word document and a longer Excel document. The Word document would be the public attestation included as part of an Appointed Actuary’s Statement of Actuarial Opinion. This public attestation would largely follow the requirements that are being established by the Executive (EX) Committee in its work to define a qualified actuary. The longer Excel document is proposed to be confidential reporting in the Actuarial Report provided in support of the public attestation. Mr. Angell said there is also an option to not include the Excel document in the Actuarial Report but rather have the Excel document held and submitted upon the state’s request. Mr. Piazza said the drafting group also discussed whether an actuary could complete one attestation for all companies or whether the attestation should be specific to each Statement of Actuarial Opinion completed. While there are parts of the attestation Excel file that would likely only need to be completed once and would not change over the years or for different companies, the drafting group recommends the public attestation be completed with the specific company in mind. Another topic of discussion was what the state insurance regulator role would be in reviewing the attestation and supporting information. The drafting group believes such a decision would be made when determining the financial analysis and examination processes. The initial perspective is that it is not the state insurance regulators’ role to validate the truthfulness of the attestation, but rather to only check that the given information shows three things: 1) the actuary appears to meet the qualification requirements; 2) the actuary has documented he/she has the knowledge necessary to complete the Statement of Actuarial Opinion; and 3) the actuary has documented he/she is taking continuing education and believes such continuing education is relevant to being an Appointed Actuary. Mr. Stolyarov said he submitted comments on the definition of “qualified actuary” that the NAIC exposed for a public comment period in a project being overseen by the Executive (EX) Committee. He noted that any changes made in that definition could affect the attestation. He said he does not have any comment on the public attestation form and said he believes it would accomplish the intended purpose. He questioned the use of the detailed supporting documentation. He said he does not believe an actuary needs to attest to each knowledge statement for every assignment and that the list of knowledge statements would need to change over time. He suggested the state insurance regulators can offer the Excel file as one way to provide the documentation but also allow other submission formats. He said a detailed resume could be an option, such as those he has seen submitted by applicants requesting to be a captive actuary in Nevada. Mr. Piazza said that the knowledge statements will need to evolve over time and that what is presented is the current version. He said an actuary would not necessarily need to know all of the knowledge statements. Mr. Slavich agreed not all of the knowledge statements should be required. He said it is an extensive list. He said if he were an Appointed Actuary he might believe he needs to have all of the knowledge, so state insurance regulators would need to explain how much depth of knowledge is needed. Mr. Piazza agreed there should be clarification as to how extensive the appointed actuary’s knowledge would need to be. He said there is subjectivity, but the purpose is to have the appointed actuary reflect on the knowledge statements and get additional education, if needed. Mr. Angell said the original thought was the actuary would answer the knowledge statements as appropriate for all companies, but then the drafting group changed the proposal to allow an attestation for an individual client. Mr. Angell said if the attestation is to be completed for each client, then some knowledge statements are not required. He said an actuarial opinion for a personal lines company would not require commercial lines knowledge. The actuary would just have to answer “not required for this client.” Ms. Greiner said the first time an actuary completes the list would be the most arduous. Any time it takes will likely be chargeable and would increase the cost of preparing an actuarial report. She said the cost of the actuarial opinion for small companies is a big cost to those companies. She questioned what a financial analyst might do with the checklist and how someone would assess whether the actuary is qualified to sign for the client. She asked what state insurance regulators would do if the checklist has “no” next to a knowledge statement. Mr. Piazza said the cost to complete the list will be minimized with a mapping of the professional actuarial exams to the knowledge statements, which is an activity that will be done in the work the Executive (EX) Committee is overseeing. Mr. Angell said the state insurance regulators could prefill which exams satisfy each statement. He said the remainder should not be too time-consuming. Mr. Stoylarov said he agrees with pre-filling the list with mapping to exams. Mr. Dahl said a consultant hired by the NAIC studied the Society of Actuaries (SOA) General Insurance Track and found that the track, by itself, would not make someone a qualified actuary for purposes of signing the P/C Statement of Actuarial Opinion. Mr. Dahl said a mapping of knowledge statements to exams based on the syllabus alone is not enough. Mr. Piazza © 2018 National Association of Insurance Commissioners 2 Attachment __ Casualty Actuarial and Statistical (C) Task Force 3/__/18 said the project started with the Task Force’s attempt to evaluate the SOA General Insurance Track. He said the process was very difficult because there were no job study and minimum educational standards established by the state insurance regulators. Mr. Eagelfeld said all of the items on the public attestation would need to be checked affirmatively, so he believes the form should be lined up in a straight line of check boxes with no indentions. He asked whether a column would be added to the spreadsheet to allow the appointed actuary to equivalently check off “yes,” “no” or “not required.” Mr. Piazza said a “not required” check would be reasonable to add to the list of knowledge statements. Mr. Jacobsen remarked on the requirement to list the companies that have appointed an actuary in the last five years. He asked how that would be interpreted in regards to qualifications. Mr. Piazza said it would not disqualify someone if that table were blank, but could add credibility the greater the experiences. Ralph Blanchard (Travelers) said the list of knowledge statements, including those on mass tort or risk-based capital (RBC) that are specific or might change each year, is not a list met by basic education alone. He said the “yes/no” questions do not provide the information needed. He said Bloom’s Taxonomy is important whereby one would identify whether a topic should be covered and, if so, on what scale (i.e., should questions focus on familiarity or advanced knowledge). Mr. Blanchard said a better option would be a discussion of how one’s experience and education prepares one to be the Appointed Actuary. Mr. Angell agreed that not all would be covered under basic education. He said that affects the definition of a qualified actuary but not the attestation. Mr. Angell said an actuary does not need to be an expert in every topic. He said an actuary could miss every question on a particular topic and still pass an exam. Mr. Blanchard said there was an example in the past where a person had only conducted personal lines work and then issued a workers’ compensation opinion. Mr. Angell said that was the reason to add a list of companies where the reserve analysis was completed, even if the actuary was not the Appointed Actuary. Mr. Stoylarov said circumstances will arise in the future for which no amount of prior examination or experience will have given an individual the exact type of background needed (e.g., new perils, new mass tort). He said there should be a way for someone to be qualified even if it is the first time opining on such a risk. Mr. Piazza asked for written comments to be submitted by March 7, so the Task Force can continue to discuss the issues at the Spring National Meeting. 4. Discussed P/C Actuarial Three-Year Experience Requirement for Qualifications Mr. Piazza said the Task Force is charged to “[w]ork with the American Academy of Actuaries to add clarity to the required three-year experience period in the U.S. Qualification Standards regarding the mentor’s responsibilities and the learning expectations for the actuary.” He said the word “mentor” in that charge is not meant to be viewed narrowly, but should be interpreted broadly to include reviewer, teacher, etc. Mr. Piazza said it would be premature to discuss this requirement on the call because it depends largely on the work that is likely to being conducted by the Executive (EX) Committee to develop educational standards. The answer to this charge might be a byproduct of that work. He said written comments may be submitted if anyone has specific suggestions on how to fulfil this charge. 5. Discussed P/C Actuarial Continued Competence The next agenda item addresses the charge to the Task Force to “[w]ork with actuarial organizations to require P/C Appointed Actuaries participate in a continued competence process every one to three years.” He asked for a volunteer to discuss this charge with U.S. actuarial organizations and provide a proposal for how this charge can be completed. The Task Force can then have discussions and decide whether the proposed way forward is acceptable to the Task Force and would complete the charge. Mr. Dyke volunteered and said the Casualty Actuarial Society (CAS) and SOA have formed a joint task force to present a proposal to the NAIC. He said he would serve as the liaison. Mr. Piazza said additional volunteers are welcome to assist. 6. Discussed ASOP for Own Risk and Solvency Assessment (ORSA) Capital Adequacy Assessment Mr. Piazza said Mr. Chou volunteered to be the Task Force’s liaison to the ORSA Implementation (E) Subgroup. Mr. Chou said he attended a Jan. 30 Subgroup meeting where the main subject was the Actuarial Standards Board’s (ASB) second exposure draft of an Actuarial Standard of Practice (ASOP) on Capital Adequacy Assessment for Insurers. He provided © 2018 National Association of Insurance Commissioners 3 Attachment __ Casualty Actuarial and Statistical (C) Task Force 3/__/18 history of enterprise risk management (ERM) ASOPs. He said the comment deadline on the new ASOP is March 1, 2018. He said the scope of the standard is broad and applies to reviewers, such as state insurance regulators. He said the state insurance regulators had a heated discussion because they might not be capable of complying with the ASOP, especially if the education standard is a “specific” requirement instead of a “general” requirement in the U.S. Qualification Standards. Mr. Piazza asked if the Task Force would like to send comments to the Subgroup for compilation and further action. He suggested the Task Force representatives individually review the exposure draft and send comments to the Subgroup and/or the ASB. Mr. Hay said he submitted comments to the ASB. He said the ASB tends to believe “no comment” is the same as support for the draft so he asked others to submit comments. 7. Discussed Regulatory Training on Predictive Models Mr. Piazza said the Task Force’s next Book Club meeting is scheduled for Feb. 27. He said Arthur Schwartz (NC) will be presenting. The NAIC will hold sessions on predictive modeling at the NAIC/NIPR Insurance Summit in May. He said last year, there was one day of presentations by the Academy. State insurance regulators then held a half day of regulator-to-regulator discussion. He asked for ideas of discussion topics on predictive analytics for the Insurance Summit. He said the Big Data (EX) Working Group is discussing formation of a Predictive Analytics (C) Working Group. Any progress on that activity will be reported to the Task Force. Mr. Piazza said the CAS Ratemaking Committee is developing a guide for actuaries using or reviewing sophisticated models in ratemaking. He said the paper might include a best practice approach on how to review models. He said Task Force members might wish to participate in development of this work. Caryn Carmean (CAS Ratemaking Committee) said the current title of the paper is “A Practical Guide of Multivariate Analysis and Modeling for Practitioners and Regulators.” The purpose is to give end users insight into what they should ask modelers to aid transparency. The Committee is close to producing a first draft and is searching for regulatory assistance to review and make the paper as useful as possible. 8. Report on Regulator-to-Regulator Calls Regarding P/C Rate Issues Mr. Piazza said the Task Force met Jan. 16 in regulator-to-regulator session in accordance with paragraph 3 (specific companies, entities or individuals) of the NAIC Policy Statement on Open Meetings as charged to “[f]acilitate discussion among regulators regarding rate filing issues of common interest across states.” Having no further business, the Casualty Actuarial and Statistical (C) Task Force adjourned. W:\National Meetings\2018\Spring\TF\CasAct\2-13 CASTF min.docx © 2018 National Association of Insurance Commissioners 4 Draft Pending Adoption Draft: 12/13/17 Casualty Actuarial and Statistical (C) Task Force Honolulu, Hawaii December 3, 2017 The Casualty Actuarial and Statistical (C) Task Force met in Honolulu, HI, Dec. 3, 2017. The following Task Force members participated: Jessica Altman, Chair, represented by Michael McKenney (PA); James J. Donelon, Vice Chair, represented by Rich Piazza (LA); Lori K. Wing-Heier represented by Michael Ricker (AK); Jim L. Ridling represented by Charles Angell and Dan Davis (AL); Dave Jones represented by Ken Allen, Perry Kupferman and Rachel Hemphill (CA); Marguerite Salazar represented by Michael Muldoon (CO); Katharine L. Wade represented by Wanchin Chou and Tricia Dave (CT); David Altmaier represented by Virginia Christy (FL); Gordon I. Ito represented by Randy Jacobson (HI); Ken Selzer represented by Nicole Boyd and Cindy Hermes (KS); Patrick M. McPharlin represented by Kevin Dyke (MI); Jessica Looman represented by Phillip Vigliaturo (MN); Chlora Lindley-Myers represented by Julie Lederer and Leslie Nehring (MO); Richard J. Badolato represented by Mark McGill and Carl Sornson (NJ); Jillian Froment represented by Tom Botsko (OH); John D. Doak represented by Joel Sander and Frank Stone (OK); Raymond G. Farmer represented by Kendall Buchanan (SC); and Kent Sullivan represented by J’ne Byckovski and Nicole Elliott (TX). Also participating were: Karl Knable (IN); and Tomasz Serbinowski (UT). 1. Adopted its Nov. 14, Oct. 2/Sept. 12 and Summer National Meeting Minutes Mr. Dyke made a motion, seconded by Mr. Angell, to adopt the Task Force’s Nov. 14 (Attachment One), Oct. 2/Sept. 12 (Attachment Two) and Aug. 6 (see NAIC Proceedings – Summer 2017, Casualty Actuarial and Statistical (C) Task Force) minutes. The motion passed unanimously. 2. Adopted the Report of the Actuarial Opinion (C) Working Group Ms. Nehring said the Actuarial Opinion (C) Working Group adopted the Regulatory Guidance on Property and Casualty Statutory Statements of Actuarial Opinion, Actuarial Opinion Summaries and Actuarial Reports for the Year 2017 (Regulatory Guidance). She said there is one substantive change to the 2017 version having to do with Actuarial Guideline LI—The Application of Asset Adequacy Testing to Long-Term Care Insurance Reserves (AG 51), which was adopted by the Executive (EX) Committee and Plenary at the Summer National Meeting. Ms. Nehring said AG 51 has instructions on the asset adequacy testing applied to a company’s long-term care (LTC) block of contracts, including instructions on how that analysis is carried out and how it is documented in the actuarial memorandum. There are at least two property/casualty (P/C) insurers with significant LTC exposure. On its Sept. 26 call, the Working Group decided not to make any last-minute changes to the 2017 P/C Statement of Actuarial Opinion instructions in connection with AG 51. The Working Group added some language in the Regulatory Guidance encouraging insurers to follow AG 51. The Working Group received a letter from the American Academy of Actuaries (Academy) Committee on Property and Liability Financial Reporting (COPLFR) that asks how the directives in the Valuation Manual affect P/C companies that write life and accident & health exposures, including LTC. The Working Group will be coordinating with life and health actuarial regulators, NAIC legal staff and the Academy to address the identified issues. She said the P/C Statement of Actuarial Opinion instructions will need to be modified for 2018. Ms. Nehring made a motion, seconded by Mr. Stone, to adopt the report of the Actuarial Opinion (C) Working Group, including its Oct. 5/Sept. 26/Sept. 5/Aug. 22/Aug. 15 minutes (Attachment Three) and the Regulatory Guidance (Attachment Three-A). The motion passed unanimously. 3. Received a Status Update from the Statistical Data (C) Working Group Mr. Sornson said the Statistical Data (C) Working Group met Aug. 24 in regulator-to-regulator session via conference call to discuss data for the Auto Insurance Database (Auto Report) and the Dwelling Fire, Homeowners Owner-Occupied, and Homeowners Tenant and Condominium/Cooperative Unit Owners Insurance: Data for 2015 (Homeowners Report). The Homeowners Report and the Auto Report were discussed during the Working Group’s Nov. 6 conference call. The Homeowners Report was adopted Nov. 28 by the Working Group via e-vote. The Auto Report was adopted Dec. 1 by the Working group via e-vote. These reports will be distributed and considered for adoption by the Task Force via e-vote. © 2017 National Association of Insurance Commissioners 1