As part of the Statement of Actuarial Opinion (SA) for a National Association of Insurance Commissioners' (NAIC) property and casualty annual statement, actuaries are required to comment on the risk of material adverse deviation (RMAD) of a company's booked loss and loss adjustment expense (LAE) reserves. For some actuaries, RMAD epitomizes the elephant test—hard to describe but instantly recognizable when spotted.
Other actuaries set materiality standards so high that only an extremely low-probability event could produce a material adverse deviation. Since the SAO is used by some regulators as a way to triage property & casualty insurance insurance companies, there needs to be greater consistency in how actuaries evaluate RMAD.
Chris Tait analyzes this dynamic in this article from Contingencies.Read or print the article