Independent reserve review

At Lloyd's, every syndicate files an actuarial opinion on its reserves each year, signed by a named actuary, the signing actuary, which the market uses for its solvency oversight. It is the most codified form of an ordinary practice: the independent reserve review, where someone who did not do the calculation does it again. The reviewer takes the data, preferably the raw triangles rather than the selected factors, chooses methods and assumptions, and compares a central estimate and a range with the booked reserve. The reviewer may come from outside, a firm engaged by management or by the audit committee, or from the second line, like the Solvency II actuarial function when it recalculates rather than rereads. External auditors run a narrower version: their actuaries rework the heaviest or most uncertain lines to support an opinion that there is no material misstatement. Transactions produce the hardest version, because the review then serves a counterparty. In an acquisition or a portfolio transfer, the gap between the seller's reserve and the buyer's estimate is negotiated into the price, or covered by an adverse development cover. Everything turns on whether the assumptions are truly independent. A reviewer who takes over the department's tail factor and the plan prior lands on the same number under a different signature. That is what happens most often when the timetable is tight. Not to be confused with the actuarial opinion on reserves required by US regulators, a regulatory form of the same exercise, nor with the actuarial function, for which the review is one task among several.