A reserve-actuarial proposal is a short document, usually 8 to 20 pages, that a firm produces in response to your RFP. It is also the single best window into how the firm will treat your program if you hire them. Proposals are written quickly, usually by the signing actuary or a senior manager, and they reveal what the firm thinks matters before any contract pressure has been applied.
This article is a guide to reading those proposals with a clear eye, spotting the green flags that tell you the firm is serious and the red flags that tell you they are not, and deciding how to push back when the scope or fee is not quite right.
The ten things a good proposal contains
A proposal that does not contain these ten items is incomplete. A proposal that does contain them has done the minimum professional work to bid seriously on your engagement.
1. A named signing actuary
The name, title, credentials (ACAS, FCAS, MAAA, CERA, ASA, FSA), and years of relevant experience for the actuary who will personally sign the opinion. Not “a qualified actuary from our firm.” Not “to be assigned.” A name.
This single item is the strongest signal in the entire proposal. A firm that names the signing actuary has committed that person’s calendar to your engagement. A firm that does not has kept the option open to send whoever is available.
2. The working team under the signing actuary
Names, roles, and seniority levels of the people who will actually do the analysis. A typical team has a signing actuary, a senior manager, one or two senior analysts, and sometimes a junior analyst. A proposal that lists only the signing actuary is hiding the fact that the work will be done by someone junior with intermittent partner supervision.
3. Scope of work, clearly described
What lines, what accident years, what evaluation date, what deliverables, what meetings. The scope should match what your RFP asked for. If the firm is proposing different scope, they should explain why.
4. Technical approach
Not a formula-by-formula explanation of every method, but a clear statement of how the firm will approach:
- Method selection, usually two to four method families applied across accident years and lines.
- Diagnostics, the review of case adequacy, payment patterns, settlement speed, and mix that inform method selection.
- Range construction, if a range is required.
- Documentation approach.
A proposal that says “we will use accepted actuarial methods” and stops there is hiding the absence of a real approach. A proposal that describes the firm’s thinking, even briefly, tells you how they work.
5. Assumptions about the program
A good proposal reflects that the firm has read your program overview and thought about it. It will say something like “given the case reserve strengthening initiative described in the RFP, we will review development factors at each successive age to determine whether prior patterns remain applicable” or “for the stop-loss layer above $2M, we will use an industry benchmark severity distribution due to the limited internal claim count.”
A proposal that contains none of this has not thought about your program. It has bid from a template.
6. Data expectations
The firm’s expectation for what data it will receive, in what format, by when. This matters because data problems are the single most common source of scope creep. A firm that has thought about the data in advance and negotiated expectations is less likely to blow through the fee cap.
7. Deliverables, enumerated
Report (approximate length), signed opinion (if applicable), Excel exhibits, meetings (how many, what kind). A bullet list.
8. Timeline, with milestones
When work begins, when preliminary results are shared, when the draft report is delivered, when the final report is delivered, when meetings are held. A proposal with only a start and end date is not a timeline.
9. Fee, structured
A fixed fee or an hourly rate schedule with a not-to-exceed cap, broken out by phase or by deliverable. A single-line fee with no breakdown is harder to negotiate and harder to verify against the invoice.
10. Independence and conflicts disclosure
An explicit statement of relationships the firm has that might create a conflict. Broker relationships, TPA relationships, captive manager relationships, prior work for the same ultimate parent. A clean conflicts statement is worth something. A proposal that ignores the topic is either clean and silent or dirty and silent, and you cannot tell which.
Green flags beyond the minimum
Some proposals go beyond the ten basics in ways that signal the firm is serious. These are green flags worth noting.
The proposal proposes peer review explicitly. The firm describes who will peer review the work, at what stage, and how peer review findings will be reflected in the final report. Most firms have a peer review process; few describe it in a proposal.
The proposal offers interim monitoring. The firm suggests a lighter-touch diagnostic between annual opinions. This signals the firm is thinking about the program’s needs rather than just the annual deliverable.
The proposal asks thoughtful questions. A proposal that comes with a list of clarifying questions, “we noted the captive was formed in 2019; can you confirm the accident years 2014 to 2018 are run-off from a prior program?,” signals the actuary actually read the RFP and is thinking ahead.
The proposal references past engagements that match yours. Generic references are cheap. Specific references, “we have worked with three group captives in the trucking sector over the last five years, including structures similar to yours,” are more useful.
The fee breakdown ties to the work. A breakdown that shows how much time goes to data reconciliation, method selection, diagnostics, range, documentation, and meetings lets you see where the firm is investing effort. If 60 percent of the fee is documentation, something is wrong. If 60 percent is method and diagnostics, that is about right.
Red flags
1. No named signing actuary
Covered above. The single largest red flag.
2. Scope generalizations
“We will provide a reserve analysis consistent with industry practice.” This tells you nothing about what you are buying and signals that the firm has not thought about your program.
3. Fee quoted subject to data review
“Fee to be determined based on initial data review.” Fine if followed by a clear commitment to quote a capped fee within the first two weeks. Bad if it means the fee is open-ended until the engagement is well underway.
4. Hourly billing with no cap
A reserve engagement is scopable. A firm that will not quote a cap is either inexperienced or is pricing in defensive cushion without disclosing it. Either way, insist on a cap.
5. No mention of diagnostics
Diagnostics, the review of whether your case reserving patterns, payment patterns, and mix have shifted in ways that invalidate historical method assumptions, is half the work in a good reserve review. A proposal that does not mention diagnostics is proposing a mechanical application of chain-ladder factors. You can buy that cheaper, but you should not.
6. Bundled services
“Our reserve engagement includes ongoing advisory support and special projects throughout the year.” Fine if priced and scoped separately. Bad if the bundling obscures what you are paying for the reserve work itself. Unbundle before engaging.
7. Evasive on independence
A proposal that either fails to address conflicts or addresses them only in general terms (“our firm maintains independence in accordance with professional standards”) is hiding something or being lazy. If the firm has a relationship with your broker or captive manager, the proposal should say so and explain how the relationship will be managed.
How to compare two proposals with different structures
Proposals rarely come back in identical format. One firm may quote a fixed fee; another may quote a cap with hourly underneath. One may propose a 60-page report; another may propose an 80-page report. Here is how to make them comparable.
Normalize the scope. For each firm, list what is included and what is not. If Firm A includes interim monitoring and Firm B does not, you are not comparing equal engagements. Either ask Firm B to add it or back it out of Firm A’s fee.
Normalize the deliverables. If one firm is giving you a point estimate and another is giving you a point plus range, price the difference. A range is typically 15 to 25 percent of the total fee for a good actuary.
Normalize the team. If one firm has a 30-year FCAS signing and a 25-year senior manager as the working actuary, and another has a 12-year ACAS signing and a 5-year senior analyst working, you are not buying the same thing. This is not about credentials alone; it is about the judgment applied to your program.
Compare on what matters, not on what is easy. Fee is easy to compare. Technical approach is hard to compare but more important. Spend time on the hard comparison.
What to push back on
Proposals are negotiable. Push back on:
- Scope you do not need. If the firm has bundled member allocation work into a single-parent captive engagement, remove it.
- Report length mismatch. If the firm proposes a 150-page report and your board wants a 40-page executive summary plus appendix, ask for the report structure to be changed.
- Fee breakdown that feels off. If documentation looks too expensive or data reconciliation looks too cheap, ask the firm to walk you through the estimate.
- Timeline that will not work. If the firm’s timeline has the final report two weeks after your audit committee meeting, fix it or engage a different firm.
- Terms you cannot accept. Payment terms, termination provisions, indemnification language. Most firms will negotiate on standard commercial terms.
Do not push back on:
- Data requirements. If the firm says they need triangles by accident half-year rather than accident year, let them have it.
- Method selection flexibility. Do not try to lock the firm into a method before the analysis begins.
- Peer review. Do not try to save fee by cutting peer review.
What to do with the best proposal
Once you have selected a firm, the proposal becomes the engagement document alongside the engagement letter. Keep it, reference it during the work, and compare the final invoice to the fee structure in the proposal.
If the firm delivers less than the proposal promised, raise it. If the firm delivers more than the proposal promised, note it for future reference; that firm just earned the benefit of the doubt for next year.
Related reading
- How to Write an RFP for a Reserve Review: the RFP template that produces proposals worth reading.
- What a Reserve Review Should Cost: fee ranges and the scope levers that move price up or down.
- How to Interview a Reserve Actuary: the conversation that should follow the proposal review.
If you are evaluating proposals and want to benchmark against independent reviewers, the hire an actuary directory is in development. Join the waitlist there.