Re: FW: Statement of Opinion Question by "BRAD GILE" <bgile@amfam.com>

Ruy A. Cardoso ( (no email) )
Wed, 8 Apr 1998 11:04:58 -0400

An excellent discussion topic for this forum=2C and so far I can see validi=
ty in everyone's points of view=2E There is=2C however=2C a great distance=
between disclosing negative surplus and opining on the balance sheet as a =
whole=2E I don't entirely agree with Brad Gile that an opinion which was s=
ilent on negative surplus would be intentionally misleading=3B are there re=
ally many situations out there in which people would rely on an actuarial o=
pinion without even looking at a balance sheet=3F But I am also inclined=2C=
like Mary Frances Miller and Ralph Blanchard=2C towards disclosure of the =
negative surplus=2E If nothing else=2C it indicates that the company's fin=
ancial position is extremely sensitive to variations in reserves=2E I am c=
urious what people's views would be if the reserves being opined on were=2C=
say=2C 100 zlotys while surplus was=2C say=2C 5 zlotys=2E Since surplus i=
s not negative in this situation=2C should an opining actuary disclose that=
surplus could be eliminated by a small variation in the reserves=3F

At the same time=2C it may be imprudent for actuaries to opine on anything =
beyond what the letter of the law requires=2C and I think the current marke=
t makes it extremely difficult for actuaries to be sufficiently compensated=
to opine on an entire balance sheet=2E If regulation were to require us t=
o do so=2C then I hope that compensation to the opining actuaries would inc=
rease accordingly=2C and I do agree with Todd Bault that this is the direct=
ion in which we should be moving=2E Then again=2C historically we haven't =
even been able to agree on whether it's appropriate to opine on a deficienc=
y in the unearned premium=2E =

Finally=2C I note that Section 3=2E4 of the recent ASB exposure draft state=
s that =22materiality may be evaluated in terms of the company's reported s=
tatutory surplus=22 and that Section 3=2E11 states that the standard =22doe=
s not obligate the actuary to undertake an evaluation of the adequacy of th=
e assets supporting the stated reserve amount=22=2C with a couple of except=
ions=2E

Ruy Cardoso
email=3A ruy=2Ecardoso=40ey=2Ecom

bault001=40maroon=2Etc=2Eumn=2Eedu on 04=2F08=2F98 10=3A10=3A36 AM
To=3A=09casnet=40lists=2Ecasact=2Eorg=40Internet
cc=3A=09 =

Subject=3A=09FW=3A Statement of Opinion Question by =22BRAD GILE=22 =3Cbgil=
e=40amfam=2Ecom=3E

=2E=2E=2E
This is a good example of how actuaries probably need to be more pro-active=
=

in keeping their profession relevant=2E While I certainly don't expect =

individual actuaries to go out on a limb and put themselves in jeopardy=2C =
=

this example indicates to me that we=2C as a profession=2C should be moving=
=

quickly towards opining on the entire balance sheet=2E If we are not willi=
ng =

to do this=2C we could eventually be cut out of the process in favor of tho=
se =

who are willing to take on this job=2E

Todd Bault=2C FCAS

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