ASOP13.Trend

Reading: Actuarial Standard of Practice No. 13, Trending Procedures in Property/Casualty Insurance

Study Tips

Forum   ASOPs generally have these sections:

Section 1. Purpose, Scope, Cross References, and Effective Date

Section 2. Definitions

Section 3. Analysis of Issues and Recommended Practices

Section 4. Communications and Disclosures

Appendices

Sections 3 & 4 contain most of the relevant information. The definitions in Section 2 are usually obvious and familiar, and are covered in either the Werner of Friedland source texts anyway. You can skip Section 1 and the Appendices. The appendices usually contain either very general background information or comments on the draft version of the ASOP.

Estimated Study Time: 30 minutes (you may occasionally refer back to this ASOP while studying the main pricing and reserving material)

BattleTable

• this reading has not been tested on any exam from the year 2012 and subsequent

reference	part (a)	part (b)	part (c)	part (d)
no prior questions

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In Plain English!

Section 2: Definitions

The 6 terms defined in this sections are: coverage, experience period, forecast period, societal influences, trending period, trending procedure. The only one that may not be obvious is societal influences.

societal influences: refers to the impact on costs of changes in [1] claim consciousness [2] court practices [3] legal precedents [4] other non-economic factors

Section 3: Analysis of Issues and Recommended Practices

Most of this section of the Trend ASOP is common sense. For example, estimates resulting from the trending procedure can be presented in a variety of ways as listed below. The choice may depend on the use and intended user.

• point estimate
• point estimate with a margin for adverse deviation
• range of estimates
• probability distribution of the trend estimate

The actuary should also take care to select appropriate data, whether that's historical insurance data or other non-insurance data, taking into consideration the data's availability for different time periods, credibility, relevance, and biases.

And of course, reliance on the work of others should be considered as well as appropriate documentation provided for the overall analysis.

Section 4: Communications and Disclosures

This section on communications & disclosures is largely common sense. Regarding the trend analysis, the actuary should communicate information that may have a material impact on the user's interpretation. Examples of such items include but aren't limited to:

• intended user
• significant adjustments to the data that may have a material impact on the results
• limitations imposed by particular laws (the actuary may have wanted to analyze trends using different methods but could not because of various laws & regulations)
• reliance on other sources of data or analysis (such as industry data or other public economic data to supplement the company's own data)

Note that many of these same considerations apply to actuarial communications in general.

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