Asset Adequacy Analysis and Actuarial Opinions: Question Two Report

This report delves into the intricacies of asset adequacy analysis and actuarial opinions, focusing on the exposure draft's major issues. It examines the role of actuaries in providing statements based on asset efficiency analysis, adhering to relevant regulations and standards. The report highlights key definitions, including assets, cash flows, and various risks, while emphasizing the importance of selecting appropriate assets and considering potential business trends. Furthermore, it explores the application of public interest theory in explaining regulator behavior, addressing comments and views on discount rates and additional reserves. The report underscores the significance of documentation and the evolution of actuarial practices, offering a comprehensive overview of the subject matter.

Running Head: QUESTION TWO 1
Statements of Actuarial Opinion Based On Asset Adequacy Analysis for Life or Health
Liabilities
Name
Institution

Question Two 2
Major Issues in the exposure draft
The major purpose of this paper is highlighting on specific segments of the actuarial standard
of practice that provides the execution events of the actuarial services relating to the
provision of various prospects concerning to asset efficiency analysis, and its health.
Moreover, the paper highlights about the actuarial services relating to provision of actuarial
statements based on asset efficiency analysis based on different situations. Furthermore, the
actuarial statement is basically created in order to adhere to the suitable rules and regulations
focused on the model standard valuation. Consequently, the statements of actuarial
recommendations adhere to other additional policies. Moreover, the exposure draft also
highlights the regulations instituted within the particular set of standard so that it would
effectively comply with the suitable policies, whereas among other reasons the actuary tends
to be effective. Additionally, if arousal of any conflict or problems, then the present conflict
amid the standard and suitable laws must clearly adhere to the applicable policies.
Consequently, the exposure draft will talk about effective dates for statements of actuarial
opinions provided within or after six months’ prior enactment of the policy by the Actuarial
standard board. Additionally, the draft will point out by explaining various definitions
highlighted in the standard ASOP. Such definitions will incorporate words such as assets,
cash flows, asset adequacy analysis, cash flow risks, the gross premium reserves, investment
risks, liability moderately adverse deviations, and so on. As asset adequacy analysis being
among the core issues which specifically underlies the cash flows, then the actuary must
select a set of assets including the statement of value assets that is always no more than the
reserve statements and other inclusive liabilities evaluated. Moreover, the actuary clearly
establishes an extra equitable statement value for the additional assets. Moreover, there
should be consideration the types of assets and liabilities in the assets adequacy analysis and
linked cash flow risks and investment yield risks.

Question Two 3
Additionally, the exposure risk highlights the major trends in assumptions that critically,
reflect on the anticipated business trends, for instance, enhancement of dissimilar products
and life. Moreover, it explains on the sources and how credible the assumptions are, i.e.
utilizing firm’s experiences certain aspects would be effective. On the other hand, the effect
of the trends within the asset adequacy evaluation outputs, instantly, the influence of
prospective economic circumstances based on the policyholder election process. In addition
to this, various assumptions relating to the margins will diversely influence the margins
assumptions adversely. Thus the prices of assessing the assumptions level, various
considerations must be instituted, they include:
1. Uncertainty levels used for various assumptions, inclusive of scarcity of
information
2. Extent of adverse deflection assessed
3. If individual or aggregate margins are outlined in the analysis
4. The effect of prescribed margins and the entire analysis
Actuaries can utilize certain assumptions which effectively point on the chances that
consistent circumstances may happen at similar rates. Thus the major documentation issues
that wile highlighted will be the preparation and the retaining of the support compliance
document. Moreover, the actuary should factor out assessing such documentation so that a
similar actuary used in the similar manner can easily assess the workability of the actuaries.
Consecutively, the documentation must be professionally based and linked to the ASOP
standard guideline. Concluding, the major statements based on the opinion reserves have
issued vast number of opinions and various basic practices concerning the primary elements
of the recommendations made. Based on the opinions and recommendations focused on asset
availing, present practice always grows steadily.

Question Two 4
Is regulator behavior explained by the public interest theory?
According to the regulations stated in the exposure draft, public interest theory can clearly be
used in elaboration of regulators behavior since the theory is specifically focused in meeting
the interests of the customers through the restriction of dreadful actions within the business
enterprise. Thus the main challenge posed by regulators has been vastly challenged by public
choice regulators, that takes into account that all people, inclusive of the public clients,
inclusive the public servants, are specifically based on self-gain. Thus rival firms may
comprise of incentives of operating as a cartel. Therefore, the theory is in a position of
protecting such collusion through a pervasive incentive for the organizations to cheat.
Moreover, the public interest theory conforms that firms must be regulated in order to
ascertain effective distribution of product and goods including healthcare service, education,
telephone services etc. Although that would not be effective through the induction of
conformed organization polices which are provided by a specific community. Organizations
that distributes such services most often are provided with the license and franchises which
hinders competence. Moreover, regulatory bodies permit the firms in adjusting prices higher
than average within the protected marketplace so that the community losses can be covered.
In such a manner, organizations are effectively permitted to earn, moreover assured a
substantial rate of return entirely. Sections of the public interest theory highly justify the
regulations of the organization through painting to the external factors including pollutants
which are not considered when unregulated organizations implement their choices. With no
property rights which compel firms in considering entire costs and advantages for their
decisions, then the market may not allot assets effectively.
Views of comment letters

Question Two 5
According to the comment views the discount rate section must be elevated to provide an
explanation for in which rate reductions may be used. For example, in the modern-day
context are mark downs getting used to bargain projected surplus? The draft references using
gross top class valuations which also use rate reductions. However, the rates utilized in those
2 styles of analyses might be one of a kind. Even as you could not need the draft to signify
how outcomes ought to be discounted me feel it might be prudent to mention that the actuary
ought to remember whether taxes need to be used within the bargain fee calculation.
Additional reserves: One area in which the ASOP has been silent is how the actuary might
also calculate what tiers of extra property are wanted. Too often I have seen actuaries simply
use discounted deficiencies in order to set additional assets/reserves. I experience the draft
must encourage the actuary to affirm that the additional property is certainly enough with the
aid of re-running the coins go with the flow checking out fashions with the additional assets
to verify that there may be sufficiency. This point back to the discount rate section due to the
fact, to me, the simplest use of discount rates is for reporting outcomes. They should not be
used to definitely set asset/legal responsibility tiers.
Thu the commented located a probable typo inside the ultra-modern publicity draft of ASOP
22. In the Appendix/heritage section, at the cease of the fifth paragraph, section 7 of the 1991
AOMR did now not require an opinion on reserve adequacy. Admittedly 1991 is a touch
earlier than my time, but have to “reserve adequacy” be “asset adequacy. There is steerage to
receive as making certain that the property for the non‐CFT examined liabilities is
appropriate for them. There is steering given for checking out/no longer checking out ceded
dangers to a non‐authorized reinsurer whilst the reinsurance is coinsurance budget withheld,
especially if the reinsurer is offshore.
Moreover, consequences from lines of commercial enterprise with distinct trying out
techniques are aggregated. Combined effects from a gross premium take a look at (which

Question Two 6
does now not at once use the property backing that line) with cash float trying out effects,
which do directly use belongings backing the ones traces. Listing them in this ASOP is
extremely redundant, potentially difficult, and problem to threat of divergence through the
years (the VM is up to date annually and ASOPs are also updated: maintaining those files in
sync may be tough). at the same time as I appreciate that the ASOP may be trying to set up a
professional “ground” for disclosure, given the explicit necessities of VM-30, and the reality
that this ASOP is centered around standards referring to VM-30, I advocate elimination of
most, if no longer all of these objects inside the ASOP.
The comments agree though that a connection with the necessities of VM-30, supplemented
with a more standard statement regarding other disclosure upgrades or concerns, might be
extra efficacious. As stated above, i have no longer pass-referenced every detail of the
publicity, VM-30, and the AAA practice be aware. I respectfully advise, to the quantity that
the mission force has not already achieved so, that this pass-referencing attempt be
undertaken. Specially, given the manner wherein PBA reserves are calculated there exist the
possibility that a PBA reserve could have an excellent diploma of inherent conservatism.
Therefore, the best theory that should be improvised in this exposure draft is public interest
theory as it enables alignment of the healthcare resources amicably in order to meet every
customer’s need.