The actuary's role.

The process of estimating, testing, and opining about carried loss reserves usually is performed by professionals who are credentialed members of the Casualty Actuarial Society. Actuaries specialize in the quantification and measurement of risk and contingent amounts. Actuaries are trained through a course of nine rigorous exams, on-the-job experience and continuing educational requirements. Actuarial exams establish a foundation of knowledge on topics such as statistics, finance, economics, law and the business of insurance. The exam process typically involves seven to 10 years from the time the first exam is taken to completion. The actuarial accreditation process is much longer than for individuals seeking professional designations in most other fields.

One exam within the curriculum is dedicated to understanding the issues, methods and principles involved in estimating loss reserves. Methods range from basics that use historical patterns of loss payment or reporting, to sophisticated methods that employ stochastic simulation. Actuaries study the strengths and weaknesses of different reserving methods and the situations to best apply them and how to assess the impact of operational changes and external effects on the reserve estimate.

Most CAS actuaries are also members of the American Academy of Actuaries. The academy promulgates qualification standards, the Actuarial Standards of Practice and the Code of Professional Conduct, and provides a formal panel for counseling and discipline to ensure actuaries maintain the highest professional standards.

Due to their training, actuaries are entrusted by regulatory authorities to provide each insurer with a "Statement of Actuarial Opinion" as part of the company's annual financial statement. Note that the SAO is not a guarantee that the financial condition reported by insurers will prove accurate in all cases, nor is it a "certification" of reserve levels as it is often described. Rather, the SAO contains the appointed actuary's opinion regarding the reasonableness of the loss reserves carried on the insurer's balance sheet based on information available as of the statement date. The SAO also highlights aspects of the insurance company's reserves that deserve regulatory attention or monitoring. It also helps provide a clearer picture of the potential risks and uncertainties faced by insurers regarding loss reserves.

Also, within the American Academy of Actuaries, a Financial Soundness and Risk Management Committee was formed within the Casualty Practice Council. This group hopes to develop new approaches to assist in monitoring the financial condition of companies. External viewpoints and emerging events regarding loss reserves and overall company solvency are central to this committee's purpose.

Finally, the CAS and the academy co-sponsor the Casualty Loss Reserve Seminar, an annual seminar dedicated to loss reserving.

Actuarial Credibility

At first glance, it may be easy to call into question the credibility of actuaries based on the overall magnitude of recent reserve increases. However, studying the nature of loss reserves, the changes in values become more understandable. The term "credibility" within actuarial science relates to how much reliance a user should place on the actual results to date vs. that placed on prior expectations. If the expectation of external audiences such as rating agencies and regulators prior to the past two years was one of trust and reliance on the actuaries, then we are committed to maintaining our credibility. It is essential to our profession and to the insurance industry.