Report of the Actuary on the Estimation of Reserves

The report of the Actuary should contain the following elements at a minimum. Some elements will be at an overall company level, and the others should be at the line of business or coverage level to document the analysis of the Actuary.

Name of Company:

Name of Actuary:

Insurance activity practiced by the company:

Section 1 - The Company and its business:

1. The premium scale of the Company and the classes of business it writes. Has the growth of premium income been steady and reasonable? Fluctuations in growth rates or high or low growth rates may be indicative of a change in the composition of business or changes in underwriting policy.
    
2. What is the underwriting policy of the Company in respect of:
    
   1. Selection of risks;
       
   2. Rates and deductibles; and
       
   3. Delegation of underwriting authority.
       
3. Has the underwriting policy remained stable over the past three years? Note any changes in key underwriting personnel and the impact on the underwriting policy of the Company
    
4. What is the claims processing and settlement policy of the Company in the matter of:
    
   1. First recognition of claim;
       
   2. Provision for claims where no information or inadequate information on facts are available;
       
   3. Periodicity of review of the provision for a claim;
       
   4. Negotiation of bodily injury claims relating to motor accidents;
       
   5. Processing and settlement of claims; and
       
   6. Pursuit of recovery or sale of salvage.
       
5. Has the claims processing and settlement policy remained the same over the past three years? Note any changes in key claims personnel and the impact on the claims settlement practice of the Company.
    
6. Has the Company experienced any cash flow or financial problems over the observation period? Note any effects on the Company's underwriting or claims settlement practices as a result of these problems.
    
7. Has the claims data been affected by catastrophic events such as earthquake, flood, windstorm, individual large claims, etc. or any significant changes in the business environment such as a severe economic recession that would have affected the business experience and impacted the claims figures?
    
8. Any changes in the general business and insurance industry conditions in matters such as legislative environment, competition, consumerism, levels of court awards, etc.? Note the impact of these changes.

Section 2 - The data

1. The data should be compiled separately for each class of insurance business as required by the insurance regulations. If not, comment on the reasons for variation.
    
2. Comment on the source of data and steps taken to ensure that the data is consistent, reliable, complete and in agreement with the financials.
    
3. Comment on the observed trends in the growth of premiums, frequency of loss occurrence, average cost per claim paid and per claim outstanding, speed of emergence of claims and speed of settlement. Also state how these have been taken into account in the selection process of assumptions used in the estimation of provisions.
    
4. Note any individually large claims that affect the claims development figures and how the estimation process was adapted as a result of these claims.
    
5. The estimation of provisions should be done pre- and post-adjusting for the reinsurance share (gross and net of reinsurance). A description of the process followed to determine the provisions post-adjusting for reinsurance share should be provided. Any material change in the reinsurance program, along with how the estimation process was adapted to adjust for the change should be provided. If data on a net of reinsurance basis is not readily available, it is up to the Actuary to work on the provision estimates on a gross basis and work on the estimate of provisions for the share of reinsurance ceded, if that is more easily possible.

Section 3 - The methods

1. Describe the methods used for estimation of provisions. If the methods used now are different from the methods used previously, state the reason(s) for change.
    
2. Document the assumptions underlying the methods and discuss to what extent the validity of the assumptions was verified.
    
3. Where the method(s) used is not commonly understood, explain the methodology and provide adequate working sheets to understand the calculations and results.
    
4. The review and the examination of the results should be executed using another method.

Section 4 - Evaluation of the results

1. Compare the prior estimated claim provisions (that were pending at the end of the previous year's estimate), with the paid claims in the subsequent year for each claim in order to test the accuracy of the prior estimates.
    
2. The difference between the claim reserves booked by the Company and the claim reserves estimated by the Actuary must be disclosed. If the Company estimates are lower than the estimates by the Actuary, then additional tests that were conducted to assess the accuracy of the estimates should be disclosed.

Section 5 - Overall results

Comment on calculated incurred claim ratios for the Company over the years. In particular, comment whether the claim ratios for the more recent years are logical and state how the estimation process was modified to achieve more credible results.

Section 6 - Attachments

The data collected from the database of the Company, the compiled cumulative figures, the calculation sheets and the final results should be attached to the report.

Section 7 - Certification

1. The Actuary should not put forward or certify any figures, which lack credibility, with serious reservations.
    
2. The Actuary should certify that he has checked the data to the best of his ability and is satisfied that they are consistent, reliable and complete and that the assumptions underlying the methods used for estimation of provisions are reasonable.
    
3. The report should be signed with date by the Actuary.