NAIC requirements for the Appointed Actuary’s opinion and carried reserves – What CFOs / controllers of P/C insurers need to know

By Robert Daniel, Principal

It is widely understood among professionals involved in insurance financial reporting that an Appointed Actuary must provide a Statement of Actuarial Opinion as part of the Annual Statement. However, many of the finer details of what is and is not required can sometimes become overlooked. We often encounter items that are assumed to be requirements, even though they are not technically statutory. While there are, of course, many “best practices” that should be followed, this discussion focuses specifically on requirements set out by the National Association of Insurance Commissioners (NAIC).

Therefore, if you are responsible for ensuring your financial reporting is accurate and compliant, the following list of common questions and issues may prove helpful.

An important point to note is that NAIC requirements are not, strictly speaking, authoritative guidance unless they are adopted by your state of domicile as the official reporting requirements. Most states do adopt the NAIC Annual Statement Instructions; however, some states have specific laws or regulations that differ from NAIC guidance. In such cases, state laws and regulations take precedence.

Below are some common questions that insurance company management personnel may have:

1. Do I need to carry the Appointed Actuary’s estimate of loss and LAE reserves in the Annual Statement?

Answer: No. Under NAIC requirements, an insurer is not required to carry reserves that match the Appointed Actuary’s estimate. However, if carried loss and LAE reserves fall outside the Appointed Actuary’s range, the Statement of Actuarial Opinion will not be classified as “reasonable”.

It is worth noting that the Appointed Actuary may either provide an explicit range or determine whether carried reserves fall within an implicit range.

A further consideration is that if the Appointed Actuary’s analysis and estimate represent your company’s sole basis for carried reserves (i.e. management does not perform its own internal reserve analysis), it would be prudent to carry the point (or central) estimate. This is because, during an examination by the State Department of Insurance (or equivalent regulator), if carried reserves differ from the Appointed Actuary’s estimate, you are likely to be asked to provide internal justification for the figures reported.

2. Does our Board of Directors need to appoint the actuary each year, even if we are not changing actuaries?

Answer: No. According to the NAIC, the actuary only needs to be appointed upon the initial appointment. In addition, the annual requirement for a Qualifications Letter from the Appointed Actuary has been revised so that it is only required at the time of initial appointment.

3. Is the Appointed Actuary required to present their findings directly to the Board of Directors or Audit Committee?

Answer: No. The NAIC does not require the Appointed Actuary to present directly to the Board or Committee. It is sufficient for the Actuary to ensure that the report and findings are communicated to the Board or Committee when submitting the report to the company.

4. Does the Practice Note on Statements of Actuarial Opinion on Property and Casualty Loss Reserves (issued by the American Academy of Actuaries) constitute authoritative guidance?

Answer: No. The Practice Note itself is not binding guidance. It provides suggested wording and examples to help address scenarios that are not clearly covered by formal requirements.

However, the Practice Note does include appendices containing relevant extracts from the NAIC Annual Statement Instructions and the NAIC Statutory Accounting Practices and Procedures Manual. These extracts do constitute authoritative guidance for the Appointed Actuary and for the Annual Statement.

5. If my company requests a quarterly estimate of loss and LAE reserves from the Appointed Actuary, must we carry reserves within that range in the Quarterly Statement?

Answer: No. There is no NAIC requirement for a Statement of Opinion, nor for an actuarial estimate, to support reserves reported in a Quarterly Statement.

6. If there is a documentation or compliance issue with the Appointed Actuary’s Opinion, Opinion Summary, or actuarial report, will this be identified immediately after submission to the NAIC?

Answer: This depends on the state of domicile. Some states review Opinions for their domiciled companies annually after the submission of Annual Statements, in which case issues are likely to be identified relatively quickly.

However, many states rely on the financial examination process to identify potential compliance concerns. As these examinations are typically conducted every five years (although some states operate on a three-year cycle or conduct annual reviews for newly formed companies, and other factors—such as multi-state coordinated examinations—may also affect timing), it is entirely possible that compliance or documentation issues may not be identified until several years after submission.

Regulatory compliance in the insurance industry is inherently complex, given the unique accounting framework and state-level regulatory environment. As a general guideline, if you have a question regarding regulation or compliance that is not covered here, contacting your state regulator is often a sensible and practical first step.

If you would like to continue the conversation, get in touch with Principal, Robert Daniel at Robert.Daniel@us.davies-group.com