SIGA ctuary Guidance Letter

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SIGA ctuary Guidance Letter Powered By Docstoc
					STATE OF CALIFORNIA                                                      EDMUND G. BROWN JR., Governor
PHONE (916) 574-0300

                                 SELF-INSURED GROUP


        The purpose of this letter is to provide guidance to Self-Insured Group (SIG) Boards of
Trustees, Group Administrators, and Actuaries related to SIG actuarial reports. SIGs operating
in California are required to annually obtain actuarial reports to estimate the unpaid liability for
loss and loss adjustment expenses as of the end of the SIG’s fiscal year. These actuarial
reports are used in preparing the group’s financial statements and determining compliance with
regulatory funding requirements for the group aggregate results and for each of its “program” or
“accident” years. Actuarial reports are also required to establish the SIG’s annual required
funding contributions.

        In anticipation of the submission of actuarial reports for the 2011 liabilities and to ensure
that reports are compliant with the rules and regulations, and that they also meet the specific
needs of the Office of Self Insurance Plans (OSIP), the following presents a summary of the
relevant regulatory requirements for actuarial reports prepared for SIGs.

        The California Code of Regulations (CCR) sets forth the specific compliance
requirements for actuarial reports prepared to estimate the SIG’s unpaid liabilities and required
funding contributions. CCR § 15481 pertains to the annual actuarial certification of losses of a
SIG. It is available on the OSIP website under Regulations (,
and contains the following requirements:

       1. Actuarial reports must be performed by an actuary with experience performing
          actuarial estimates involving California workers’ compensation and be an Associate
          or Fellow of the Casualty Actuarial Society, or a Member of the American Academy
          of Actuaries;

       2. The actuary’s estimate of unpaid loss must include a liability for incurred but not
          reported claims (IBNR);

       3. The actuary’s estimate of unpaid loss must include a liability for unallocated loss
          adjustment expenses (ULAE);

       4. The actuarial report must present the liability for unpaid loss and loss adjustment
          expenses at both the expected and 80% confidence levels;
   5. The Actuary’s report must be presented to the Group Administrator and Board of
      Trustees within ninety days after the SIG’s fiscal year end, and made available to the
      Board of Trustees and any group member;

   6. The Group Administrator must submit the actuarial report to OSIP within 100 days of
      the end of the SIG’s fiscal year end;

   7. The actuarial report submitted to OSIP must include an exhibit that contains the
      following for each program year presented in the report: 1) ultimate losses at the
      80% and expected confidence levels, inclusive of IBNR and ULAE, 2) total member
      contributions for each program year, 3) total surplus funds distributed to members for
      each program year. An actuarial exhibit of program year profitability will satisfy this
      requirement as long as it contains the required information ; and

   8. The Board of Trustees must ensure that contribution rates for the initial funding of
      claims for each program year are based on the actuarial projection at the 80%
      confidence level.

    CCR § 15475 (d)(8) addresses the responsibilities of the Board of Trustees to ensure
that contributions are collected for each program year based upon projected losses
calculated at the 80% actuarial confidence level, inclusive of IBNR and ULAE. The
regulation further requires that if factors reflecting loss histories such as experience
modification calculations (e.g. ex-mods) are utilized to modify group self insurer or individual
member contributions, the contributions for the funding of group self insurer claims for the
program year shall be calculated at the overall 80% confidence level as determined by the
SIG’s actuary.     Group’s should ensure their consulting actuaries are aware of these
requirements if the actuary assists in the development of experience modification factors or
other mechanisms designed to adjust contributions for member’s experience.

    In addition to the regulatory requirements described above, OSIP provides the following
guidance to the Board of Trustees, Group Administrator, and consulting actuaries when
preparing actuarial reports to be submitted to the OSIP.

   1. Estimates of the liabilities for unpaid loss and loss adjustment expenses should be
      presented on an undiscounted and net present value basis;

   2. Estimates of the liabilities for unpaid loss and loss adjustment expenses should be
      presented on a gross, ceded, and net basis;

   3. Estimates of unallocated loss adjustment expenses (ULAE) should be actuarially

   4. Projections at the expected and 80% confidence level should be point estimates and
      not ranges;

   5. The actuarial report should document significant changes in the composition of the
      group over time. Furthermore the actuarial report should specifically address whether
      or not changes in the mix of the group required adjustments in the actuary’s
      assumption, methods, or selections of ultimate loss;
6. Historical loss development and claim reporting patterns should be compiled in the
   actuarial study for SIGs operating more than two years;

7. Actuarial reports must conform to actuarial standards as detailed in Actuarial
   Standard of Practice #43.

8. Each actuarial report prepared for a SIG should include a letter of acknowledgement
   signed by a credentialed actuary affirming a) compliance with the credential
   requirements required by the regulations, b) adherence to the Actuarial Standards
   Board’s Code of Professional Conduct and Actuarial Standards of Practice, c)
   compliance with relevant regulatory requirements for actuarial reports prepared for
   SIGs, and d) the actuary’s understanding that the OSIP and the SIG may rely on the
   actuary’s work to determine the financial health of the group and compliance with the
   rules and regulations.

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