At the end of 2021, we offered guidance on preparing for a year-end actuarial analysis. June is now here, and many companies are considering a mid-year actuarial report for retained liabilities and prospective loss projections. Quarterly or semi-annual actuarial reports can help eliminate year-end surprises and manage overall financial reporting. This may be particularly helpful if your company has had significant changes during the year such as growth, acquisitions, divestitures, changes in third party claims administrators, or shifts in geographic exposures.
As you consider a mid-year analysis, review the list of tips below to help ensure this process is smooth and effective.
- Consider the timing of the mid-year analysis. Reports with data valued in June, July, and August provide results earlier in the year. However, reports completed in September or October may allow for a more credible roll-forward analysis to year-end and give better indications of year-end results.
- Consider any continuing effects of the pandemic on exposures or changes in business.
- How should the current year be handled if it is not a complete year? Most actuarial reports use a pro-rata portion through the evaluation date of the most current year. Therefore, any large claims or significant exposure changes for the current year should be identified and discussed.
- Are changes to data fields needed? Mid-year is a great time to address any changes to the way data is captured. This process may allow for more detailed claims analysis and can be implemented more efficiently prior to year-end. Examples of potential changes include adding data fields to identify specific injuries, COVID-related claims, or claims being litigated.
These suggestions from the prior blog on preparing for a year-end report also continue to apply:
- Check the status of any COVID-related claims. Are these claims explicitly flagged in the loss run? Be prepared to provide information to your actuary on how these are handled.
- Discuss adding multiple retention scenarios to the loss projections in your upcoming report. This may help facilitate discussions related to alternative program structures and options going into 2023.
- Has your company experienced significant wage inflation? Be prepared to discuss how wage increases have affected your company’s payroll estimates. These increases can be discussed relative to Average Hourly Earnings (AHE) indices. Note that this also applies to revenue increases related to inflation.
- Review your exposures (e.g., payroll, revenue, number of automobiles) for non-inflationary changes. Be prepared to discuss significant changes related to growth, geographic shifts, or the effects of the pandemic.
- Have any of your retentions changed because of the hard market? Be sure to discuss these changes with your actuary. Retention changes may affect both the reserves for the current year and the loss projection for the upcoming year.
- Is collateral an issue? Make sure your actuarial report segments the years related to potential collateral concerns. Doing so can aid in future collateral negotiations. Additionally, consider sharing the carrier’s collateral calculations with your actuary.
- Have there been changes in the claims administration philosophy? If so, compile qualitative information related to these changes. Reserve strengthening, for example, can have significant impacts on both loss development factors and ultimate loss estimates.
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