Organizing Uncertainty does not eliminate it

Beginning in 2005 the instructions for the Statement of Actuarial Opinion (SAO) require an explicit statement by the Appointed Actuary that identifies his or her best estimate and/or the range of reasonableness that supports the overall statement of opinion.  The Appointed Actuary also must provide specific relevant commentary to address (1) the risk of material adverse deviation and (2) the specific standard of materiality selected by the Appointed Actuary.  DATARRAY, described and demonstrated here, is aimed at supporting the Appointed Actuary in meeting these requirements.

This website describes and demonstrates the DATARRAY reserve variability assessment tool, developed by Bass & Khury.  DATARRAY assists the Appointed Actuary with the task of responding to the NAIC instructions on reserve variability in insurer Annual Statements.  Also, it assists the financial executive in responding to the SEC with respect to providing information on the variability of loss reserves and the impact of altered assumptions.

Why DATARRAY? Loss reserve estimates are stated as point estimates. The user of these estimates generally has little understanding of the underlying variability associated with the reserves. Some actuarial reports contain discussions that could be interpreted as providing some idea of the underlying variability. However, this is the exception rather than the rule. The NAIC, during the past several years, has been taking various steps to try to deal with this issue. Now the NAIC requires that a Statement of Actuarial Opinion contain commentary about the variability associated with loss reserves.  Similarly, the SEC has been moving in the same direction during the past several years and now is requesting companies to provide information on the impact of altered assumptions on their financial statements.  The DATARRAY process provides an important tool that an actuary can use in expressing the variability associated with loss reserve estimates and thus comply with the new NAIC and SEC requirements.

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