STATEMENTOFACTUARIALOPINION
AnnualStatementofABCInsuranceCompany,FortheYearEndedDecember31 , 2013
Page1of6
IDENTIFICATION
I,Percy Jackson,amassociatedwithXYZActuarialResources,Inc. I amamemberoftheAmericanAcademyofActuaries ingoodstandingandmeetitsqualificationstandards.I amalsoaFellowoftheCasualtyActuarialSociety.IwasappointedbytheBoardofDirectorsofABCInsuranceCompany,Inc.("Company")onJanuary2 , 2013torenderthisopinion.
SCOPE
I haveexaminedthereserveslistedinExhibitA,asshownintheAnnualStatementoftheCompanyaspreparedforfilingwithstateregulatoryofficials,asofDecember31 , 2013andreviewedinformationprovidedtomeupthroughandincludingApril18,2014.TheitemsinthisScopeparagraphonwhichI amexpressinganopinion,reflecttheLossReserveDisclosureitems8 through13 inExhibitB.
Informingmyopiniononthelossandlossadjustmentexpensereserves,IreliedupondataandrelatedinformationpreparedbyagentsandofficersoftheCompany. Ievaluatedthedatauseddirectlyinmyanalysisforreasonablenessandconsistency.Myevaluationdidnotrevealanydatapointsmateriallyaffectingmyanalysisthatfelloutsideoftherangeofreasonablepossibilities.
Inperformingthisevaluation, I haveassumedthattheCompany{a)useditsbesteffortstosupplyaccurateandcompletedataand(b)didnotknowinglyprovideanyinaccuratedata.I alsoreconciledthegross(direct+assumed)andnetpaidlossandlossadjustmentexpenseamountsandgrossandnetcasereserveamountsasofDecember31 , 2013usedinmyanalysisagainstScheduleP-Part1oftheCompany'scurrentAnnualStatement.Thedifferences inourreconciliationwereduetothetreatmentofdeductiblesandcededreinsurance.Thesedifferencesinthereconciliationrepresentapproximately2%ofnetcasereserves.Inotherrespects,myexaminationincludedtheuseofsuchactuarialassumptionsandmethodsandsuchtestsofcalculationsasI considerednecessary.
Myreviewwaslimitedtoitems inExhibitAanddidnotincludeananalysisofanyincomestatementitemsorotherbalancesheetitems.Myopiniononthereservesisbasedupontheassumptionthatallreservesarebackedbyvalidassets,whichhavesuitablyscheduledmaturitiesand/oradequateliquiditytomeetcashflow requirements.
OPINION
This isaReasonableOpinion.
Inmyopinion,theamountscarriedintheScopeparagraphonaccountof theitemsidentified:
a.meettherequirementsoftheinsurancelawsof Arizona;
b.areconsistent withreservescomputedinaccordancewithacceptedlossreservingstandardsandprinciples;
c.makeareasonableprovisionintheaggregateforallunpaidlossandlossexpenseobligationsoftheCompanyunderthe termsofitscontractsandagreements.
Intheaggregate,theCompany'sstatedreservesonbothanetanddirectandassumedbasisarewithinareasonable rangeof myindependent reserveestimates,hencethestated reservesmakeareasonableprovisionfortheliabilitiesassociatedwiththespecifiedreserves.Inmyopinion,thereservesdescribedinthiscertificationareconsistentwithreservescomputed inaccordancewithstandardsandprinciplesestablishedbytheActuarialStandardsBoardandarefairlystated. Thisopinionappliestolossesandlossadjustment expensescombined.
TheCompanywritesnopoliciesorcontractsrelated tosingleorfixedpremiumpolicieswithcoverageperiodsofthirteenmonthsorgreaterwhicharenon-cancelableandnotsubjecttopremiumincrease.
RELEVANT COMMENTS
TheintendedpurposeofthisOpinionistocomplywithNAICAnnualStatementInstructions.TheintendedusersoftheOpinionare:
regulatorswithwhichitfilesitsAnnualStatement;
theCompany;and
AuditorsfortheCompany.
Thestatedbasesofthe reservespresentedinthisOpinionarefullnominalamountsconsistentwithStatutoryAccountingPrinciples(SAP);noadjustmentsaremadetoreflect eitherthetimevalueofmoneyortheriskofadversedeviation.NomaterialassumptionsthatwereusedindevelopingthisOpinionwereprescribedbylaworregulation.
a.RiskofMaterialAdverseDeviation
ThereisariskofmaterialadversedeviationintheCompany's lossandlossadjustmentexpensereserves.Riskfactorsmateriallyaffectinglossandlossadjustmentexpensereservesforthe Companyincludetherelatively shorttimetheCompanyhasbeeninoperation,thepotentialforfuturejudicialandlegislativechangestoincreasevariabilityinultimatelosses,andthesignificantlevelsofreinsuranceutilizedbytheCompanyandthecorrespondingsignificantamountofreinsurancerecoverableoncededreserves
ThematerialitythresholdIusedformakingthedeterminationofthesignificantriskofmaterialadverse deviationis5%ofsurplus,orapproximately$30,000.Thereasonforchoosinga5%materialitythresholdisitsconsistencywiththematerialitythresholdcommonlyusedinstatutoryfinancialexaminations.
b.OtherDisclosuresinExhibitB
ReservesareestablishedbytheCompanygrossofanticipatedsalvageandsubrogation.TheCompanydoesnotdiscountlossandlossadjustmentexpensereserves.TheCompanydoesnotparticipateinanyvoluntaryorinvoluntarypools.IhavereviewedtheCompany'sexposuretoasbestosandenvironmentalclaims.In myopinion,thereisa remotechanceofmaterialliability,sincetheCompanywritesonlynursinghomeprofessionalliability.
c.Reinsurance
BasedondiscussionswithCompany managementandareviewofScheduleFoftheannualstatement,Iamnotawareofanyreinsurancecontractthateitherhasbeenor shouldhavebeenaccountedforaslossportfoliotransfer, retroactivereinsurance orfinancialreinsurance.
IndicatedreservesonanetbasisreflectanticipatedrecoverablesfromseveralreinsurersaslistedinScheduleF,Part3oftheCompany's201 3AnnualStatement.There arenootherrecoverablescontemplatedinthisopinion.
Myopiniononthelossandlossadjustmentexpensereservesnetofcededreinsuranceassumesthatallcededreinsuranceisvalidandcollectible. TheCompanyhasrepresentedtomethatitknowsofnouncollectiblereinsurancecessions. TheCompanyreinsureswithOffshore Affiliated Inc.(OAI )whichappears tobebothunauthorizedandunratedandseveralLloyd'ssyndicates. Management has represented that all OAI collectibles are collateralized at a rate of 80% or more. Thereforecededlossreservesarealleitherwithcompaniesrated"A"orbetterbyAMBestorover80%collateralized. Noamountsaremorethan90daysoverdue. Therefore,reinsurancecollectabilitydoesnotappeartobeamaterialissue.
Ihave reviewedthePart2-PropertyandCasualtyInterrogatory #9regardingtherisktransferelementsofitsreinsurancecontracts.Furthermore,Idiscussed thecompany'sreinsuranceprogramwithmanagement. Ihavenotperformedanindependentevaluationoftherisktransferelementsofindividualcontractsbutrelyon management'srepresentationsthatthecreditforreinsuranceisconsistentwithSSAPNo.62-PropertyandCasualtyReinsurance.
d.IRISRatios
TheCompany'sresultsfor theIRISTestsforOne-YearReserveDevelopmenttoSurplusandEstimatedCurrentReserveDeficiencytoSurplusdonotproduceanyexceptionalvalues.TheCompanyresultfortheTwo-YearReserveDevelopmenttoSurplustestdoesproduceanunusualresultof27.1%.Thisresultisduetoadversedevelopmentinthe2007and2009reportyears.
e.MethodsandAssumptions
Therewere nosignificantchangesintheactuarialassumptionsand methodsfromthosepreviouslyemployed.Thereweremultipleminorchangesinassumptions regardingtheapplicationofreinsurance contractsbypolicyperiodandthetreatmentofdeductiblesbyreinsurancecontracts.
VARIABILITY
Inevaluatingwhetherthereservesmakeareasonableprovisionforunpaidlossesandlossexpenses,itisnecessarytoprojectfuturelossandlossadjustmentexpensepayments. Itiscertainthatactualfuturelossesandlossadjustmentexpenseswillnotdevelopexactlyasprojectedandmay,infact,varysignificantlyfromtheprojections. Further,myprojections makenoprovisionforextraordinaryfutureemergenceofnewclassesoflossesortypesoflossesnotsufficiently representedintheCompany'shistoricaldatabaseorwhicharenotyetquantifiable.
ACTUARIALREPORT
Anactuarialreportandanyunderlyingactuarial workpaperssupportingthefindingsexpressedinthis StatementofActuarialOpinionwillberetainedforaperiodofseven yearsandavailableforregulatoryexamination.
Thisstatementofopinionissolelyfortheuseof,and onlytoberelieduponby,theCompanyandthevariousstatedepartmentswithwhichitfilesitsAnnualStatement.
Date:April1,2014
SignatureofActuary
Percy Jackson,FCAS,MAAA
XYZActuarialResources,Inc.Address
Phone number
ExhibitA:SCOPE
LossReserves / Columnl Amount1. / Reservefor UnpaidLosses(Liabilities,SurplusandOtherFunds / 1.
page,Col.1 , Line1) / 759,159
2. / ReserveforUnpaidLossAdjustmentExpenses(Liabilities,SurplusandOtherFundspage,Col.1 ,Line3) / 2. / 1 60,571
3. / ReserveforUnpaidLosses-DirectandAssumed{ScheduleP, / 3.
4. / Part1 ,SummaryTotalsfromCols.1 3and1 5,line12•1000)ReserveforUnpaidLossAdjustmentExpenses-Directand / 4. / 4, 299,000
Assumed(shouldequal ScheduleP,Part1 ,Summary Totalsfrom
Cols.17,19and21 ,Line12•1000)
5. / ThePage 3write-initemreserve,"RetroactiveReinsurance / 5.
ReserveAssumed" / 0
6. / OtherLossReserveitemsonwhichtheAppointedActuaryis / 6.
expressinganOpinion(listseparately) / 0
PremiumReservesColumn1
Amount
7. / ReserveforDirectandAssumedUnearnedPremiumsforLongDuration Contracts / $08. / ReserveforNetUnearnedPremiumsforLongDurationContracts / $0
9. / OtherPremiumReserveitemsonwhichtheAppointedActuary
isexpressinganOpinion{list separately) / $0
ExhibitB:DISCLOSURES
Column1Column2
Column3
Column4
1.NameoftheAppointedActuary
2.TheAppointedActuary'sRelationshiptotheCompany. EnterEorCbaseduponthefollowing:
EifanEmployeeor theCompanyorGroupCifaConsultant
3.TheAppointedActuaryhasthefollowingdesignation:
FifaFellowoftheCasualtyActuarialSociety (FCAS)
AifanAssociateoftheCasualtyActuarialSociety(ACAS)
MifnotamemberoftheCasualtyActuarialSociety,butaMemberoftheAmericanAcademyofActuaries(MAAA)approvedbytheCasualtyPracticeCouncil,asdocumentedwiththeattachedapproval letter.
OforOther
4.TypeofOpinion,asidentifiedintheOPINIONparagraph. EnterR,I,E,Q,orNbaseduponthefollowing:
RifReasonable
IifInadequateorDeficientProvision EifExcessiveorRedundantProvision
Q ifQualified.UseQ whenpartoftheOPINIONis Qualified.
NifNoOpinion
Jacksonw.
c
F
R
s.MaterialityStandardexpressed inUSdollars(UsedtoAnswerQuestion#6)s
6.AretheresignificantrisksthatcouldresultinMaterialAdverseDeviation?
30,000_
Yes [X)
No[ )
N/A[ )
7.StatutorySurplus(liabilities,Col.1 , Line35)
8.Anticipated netsalvageandsubrogationincludedasareductiontolossreservesasreportedinScheduleP(shouldequalPart1Summary,Col.23,
$650,000
line12•1000)So_
9.DiscountincludedasareductioninlossreservesandlossexpensereservesasreportedinScheduleP
9.1Non-tabularDiscount[Notes,line31823,(Amounts1 , 2,3,4)],
ElectronicFilingCols.7,8,9,&10$0
9.2TabularDiscount[Notes,ffne31A23,(Amounts12)],Electronic
10. / FilingCols.78Thenetreservesforlossesandexpensesforthecompany'sshareofvoluntary / $ ----- / --
andinvoluntaryunderwritingpools'andassociations'unpaidlossesand
expensesthatareincludedinreservesshownontheliabilities,SurplusandOtherFundspage,LossesandLossAdjustmentExpenseslines. / $0
11. / Thenetreservesforlossesandlossadjustmentexpensesthatthecompany
carriesforthefollowingliabilitiesincludedontheliabilities,Surplusand
OtherFundspage,LossesandLossAdjustmentExpenseslines.•
11.1Asbestos,asdisclosedintheNotestoFinancialStatements(Notes,
Line32A03D,endingnetasbestosreservesforcurrentyear)
Electronic FilingCol.11 / $0
11.2 Environmental,asdisclosedintheNotestoFinancialStatements(Notes,Line320030,endingnetenvironmentalreservesforcurrent
year)ElectronicFilingCol.11$0
12.Thetotalclaimsmadeextendedlossandexpensereserve (SchedulePInterrogatories).
12.1Amount reportedaslossreserves$0
12.2Amountreportedasunearnedpremium reserves$0
13.OtheritemsonwhichtheAppointedActuaryisprovidingRelevantComment
(listseparately)$0
•Thereservesdisclosedinitem11above,shouldexcludeamountsrelatingtocontractsspecificallywrittentocoverasbestos andenvironmentalexposures. Contractsspecificallywrittentocovertheseexposures includeEnvironmentalImpairmentLiability(post1986),AsbestosAbatement,PollutionLegalLiability,Contractor'sPollution Liability,Consultant'sEnvironmentalLiability, andPollutionandRemediationLegalLiability.