Statement of Actuarial Opinion

Study guides: Exam 6C, Exam 6U, Exam GI-201

The Statement of Actuarial Opinion is the Appointed Actuary's formal written opinion, filed with the Canadian Annual Return and included in the financial statements, on the Insurance Contract Liabilities an insurer carries. It states whether the amount makes appropriate provision for all policy obligations and whether the financial statements fairly present the results of the valuation.

• The structure of the Canadian opinion: a scope paragraph identifying what was valued and as at what date; a statement on the data — that the actuary verified their consistency with the financial statements and found them sufficient and reliable for the valuation; and the opinion itself, that the liabilities were valued in accordance with Accepted Actuarial Practice and make appropriate provision.
• The four outcomes: an unqualified opinion; a qualified opinion, where some component prevents an unreserved conclusion; an adverse opinion, where the amount carried does not make appropriate provision; and a denial of opinion, where the actuary cannot form one at all — most often because the data are inadequate.
• Data sufficiency is a real gate, not a formality. If data are so deficient that the valuation cannot be relied upon, the actuary cannot simply add a margin and sign — the Standards of Practice require the deficiency to be stated and, if severe enough, the opinion to be qualified or denied.
• It is an opinion on the amount carried, not on the actuary's own estimate. The question is whether the reported liability makes appropriate provision, which is why a carried figure below the range of reasonable estimates forces a qualification regardless of how the estimate was produced.
• Subsequent Events must be considered up to the date the opinion is signed, and events providing evidence of conditions existing at the valuation date require the liability to be adjusted.
• The opinion is supported by, and must be read with, the Appointed Actuary's Report, which documents the data, methods, assumptions and selections behind it.

Which Opinion? Determine the appropriate opinion in each case.

1. The carried liability is \$412 million; the actuary's range is \$395M to \$440M, central estimate \$418M.

2. The carried liability is \$380 million against the same range.

3. A newly acquired subsidiary's claim data cannot be reconciled to its financial statements, and it represents 22\% of liabilities.

4. The carried liability is within range, but a court decision three weeks after year end and before signing has widened a benefit definition affecting \$30 million of open claims.

Answer

1. Unqualified. \$412M is within the range, slightly below the central estimate. That is a legitimate carrying position. A careful Appointed Actuary's Report would note it is toward the low end and quantify what that implies for future development, but the opinion is clean.
2. Adverse. \$380M is below the range. The amount carried does not make appropriate provision, and the opinion must say so and quantify the deficiency.
3. Qualified, or a denial, depending on severity. At 22\% of liabilities, unreconcilable data are material. If the actuary can value the remaining 78\% and identify the affected portion, a qualified opinion excluding that component is appropriate. If the deficiency contaminates the whole valuation, the opinion must be denied. What is not available is signing unqualified with a private note in the file.
4. The liability must be adjusted before the opinion is given. This is a subsequent event providing evidence of conditions that existed at the valuation date — the decision interprets the law as it always was, so the obligation existed at year end. If the carried amount is restated to include the \$30 million and remains within range, the opinion is unqualified. If management refuses to restate, the carried amount is now below the range and the opinion becomes adverse.