I have had experience in this area. I do not have the exact wording
in front of me at this time but can suggest the intent of this rule.
It would be the responsibility of the actuary to focus on the
"in-force" policies that were written for terms gretare than thirteen
months. This means than only a portion of the unerned premium
reserve may be the subject of this particular opinion.
As to other unearned premiums, no opinion is necessary. Of course,
the loss and expense reserves on the underlying policies, as well as
the underlying policies constituting the greater than 13 month
policies, would require an opinion as to "losses incurred" through
the statement date.
Specifically, the incurred losses and expense on the portion of the policy
"earned" as of the statement date would need evaluation in order to
assess the adequacy of the corresponding reserves. This is necessary
regardless of the original policy term.
This opinion begins to address an evaluation of the reserve that
might be created under GAAP for "Premium Deficiency." The important
point of this opinion would address in particular "long term"
policies, ten or more years for some warranty coverages, where the
quantum of such a deficiency could be quite significant relative to a
company's financial condition..
So yes, no opinion is needed at this time on the unearned premium
for policies with terms of 13 months or less. The rationale for the
distinction would seem to stem from "materiality" when there might
be a significant potential deficiency on the long term contracts of
the in-force policies, hence the need for an opinion on the greater
than 13 month policy term unearned premium.
One interesting idea is to consider whether the duration of the
unexpired term is really the key. After all, what if the remaining
policy term were only six months (or less!) on policies with original
policy terms greater than 13 months?
Christopher Diamantoukos, FCAS
Visit the CAS Web Site at http://www.casact.org
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