Regulators Restore Exemptions Allowing Small Companies to Use Non-Actuaries

A National Association of Insurance Commissioners (NAIC) committee concerned with insurance companies’ actuarial reporting has retreated from an effort to make it more difficult for small companies to use non-actuaries.

The National Association of Mutual Insurance Companies (NAMIC) had submitted comments to the NAIC’s Actuarial Instructions Working Group protesting the changes that would make it more difficult to use non-actuaries.

Small companies’ primary reason for using non-actuaries is to ease the substantial cost of hiring an actuary to opine on reserves and related actuarial matters.

“Costs of an actuary can be disproportionate for a small company,” William Boyd, NAMIC’s financial regulation manager, remarked. “Small companies that cede lots of business and have simple operations may logically need to economize by using a non-actuary. Solvency regulation doesn’t suffer much from this, and the company is able to avoid substantial costs, often thousands of dollars.”

The Working Group had planned to remove from instructions to companies, the specific exemptions that describe when use of non-actuaries is appropriate, thereby leaving less guidance for states and suggesting that use of non-actuaries in the appropriate circumstances might be sub-standard.

Four specific exceptions, including those for companies with less than $1 million total premium and for financial hardship, were restored to the instructions. As before, approval of the state regulator is required. The undesirable changes now reversed did, however, recognize states’ right to allow use of non-actuaries; those changes would simply have made it more difficult in the long run for small companies to use non-actuaries.

“The restoration of the exemption language is not expected to be changed by superior NAIC committees,” Boyd added.

Even though the instructions are intended for companies reporting to the NAIC, their content is often regarded as applicable to small companies that do not report to the NAIC.