Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

F203: General Insurance Fellowship > Chapter 0.4: Reserving > Flashcards

Chapter 0.4: Reserving Flashcards

1
Q

Reasons for assessing a General Insurer’s liabilities?

[9]

A
  • Estimate the insurer’s reserves for published accounts, supervisory
    solvency or internal management purposes
  • Check reasonableness of reserves
  • Provide information to management on business performance by area
  • Estimate claims costs for premium rating
  • Value an insurer for sale or purchase
  • Negotiate a commutation for the buyer or seller
  • Transfer a book of business
  • Ascertain tax liabilities
  • Test the adequacy of case estimates
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Factors that influence the choice of reserving methodology?

[7]

A
  • Class of business (timing of the run-off of the liabilities)
  • Types of claim that have been incurred or expected to occur
  • Extent and quality of the available data
  • Age of the business
  • Key factors that determine development of claims
  • Historical trends and patterns
  • Purpose of the reserving exercise
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Why would reserves be discounted and what does it allow it for?

A
  • May be a regulatory requirement
  • Allows for investment income
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Factors that discount rate is based on?

[4]

A
  • Regulator may prescribe rate
  • Risk free rate
  • Currency of A&L
  • Nature of A&L
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Data that may be required for claims reserving?

[8]

A
  • Dates of reporting and occurrence
  • Paid claims (gross and net of recoveries)
  • Case estimates (which may or may not be straightforward to make)
  • Premiums
  • Number of claims
  • Other measures of exposure (eg turnover, payroll)
  • Expenses (both direct and indirect)
  • Claims recoveries
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Areas of consideration for claims triangles?

[4]

A
  • Materiality of result
  • Homogeneity of data
  • Treatment of large losses or catastrophes
  • Treatment of latent claims
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What methods can be used to estimate the outstanding claims reserve?

[3]

A
  • Case estimates
  • Statistical methods
  • Exposure-based reserving
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Factors that may affect stability of claims development patterns?

[10]

A
  • Distortions in the data
  • Market wide initiatives
  • Claims reviews
  • Seasonality
  • Changes in commencement of writing policies
  • Changes in average policy length
  • Changes in reserving policy
  • Changes in terms and conditions
  • Changes in claims handling processes
  • Developments in the business, economic and legal environment
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Distortions that may impact reserving results?

A
  • Errors in the data
  • Lack of data
  • Inflation
  • Large claims
  • Latent claims
  • Catastrophes
  • Changes in procedures
  • Changes in the mix of business
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Factors of uncertainty that will influence the run-off of claims reserves?

(sources of process error)

[7]

A
  • Occurrence and severity of claims
  • Notification delays on individual claims
  • Legal changes that affect the size of awards
  • Levels of claims inflation
  • Court rulings on liability or quantum of individual claims not foreseen by claims
    handlers and/or not in the historic data
  • Changes in the mix of claim types
  • Changes in claims handling
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Terms used to identify the sources of uncertainty?

[4]

A
  • Parameter uncertainty: estimation error
  • Process uncertainty: inherent random noise in the process
  • Model error: choice/specification of model
  • Systemic error: data selection error
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Uses of stochastic claims reserving?

[6]

A
  • Assess reserve adequacy
    -Compare different estimates and datasets
  • Monitor performance
  • Allocate capital
  • Provide information to investors
  • Facilitate discussions with regulators
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Methods that can be used to test a model?

[3]

A
  • Examining plots/triangles of residuals
  • Use F-tests to establish which parameters to include
  • Fit model to past data
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

List 7 common diagnostics for claims reserves

A
  • Changes in loss ratios
  • Paid to incurred and/or case estimates to incurred ratios
  • Average outstanding case estimate
  • Ratio of IBNR to case estimates
  • Survival ratios (how long reserve or IBNR estimate will last if current claim
    development continues at a given rate)
  • Claim frequency and average cost per claim
  • Reinsurance to gross ratios
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

List 4 reasons that two actuaries may have different results

A
  • Data used was different (eg one had additional information or better quality
    information)
  • Methodology used was different
  • Additional information was available from underwriting and claims handling
    staff
  • There may be genuine differences of opinion
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Data issues for inwards RI reserving?

[7]

A
  • Claim reporting delays are longer
  • Greater tendency for claims to develop upwards
  • Exposure can be very heterogeneous
  • Data can be sparse
  • Benchmarks are often less relevant
  • There can be IT constraints
  • There is more opportunity to group data differently
17
Q

Methods that can be used to reserve for Outwards RI?

[6]

A
  • Use data gross and net of reinsurance, then find the difference
  • Perform standard triangulation techniques directly on reinsurance data alone
  • Adjust gross data using a broad brush approach
  • Case-by-case approach on only the largest losses
  • Develop all individual losses then apply the reinsurance to each one
  • Derive a reserve distribution net of reinsurance
18
Q

Factors that influence the suitability of an outwards RI reserving approach?

[13]

A
  • Simplicity versus its accuracy
  • Consistency of gross and net estimates
  • Whether it can be used to assess volatility of net outcomes or reinsurance
    recoveries
  • Compliance with regulation
  • How the method copes with different types of reinsurance
  • How the method copes with sparse data
  • How the method copes with changes in reinsurance programme or panel over time
  • How the method copes with reinsurance recoveries on unreported claims
  • How the method copes with catastrophes and large claims
  • How the method copes with aggregate features such as profit commissions, and loss-sensitive
    contracts such as stop loss cover
  • How the method copes with interactions between covers
  • Whether the method can be used to investigate capital requirements and enterprise risk management
  • Whether the method can be used to investigate credit risk
19
Q

What are the advantages [3] and disadvantages [3] of the BCL approach?

A

Advantages
- Simplicity and ease of implementation
- Requires minimal data
- Widely used and understood within the industry

Disadvantages:
- Assumes past claim development patterns will continue into the future
- Sensitive to changes in claim reporting and settlement practices
- Does not incorporate claim exposure or changes in portfolio mix

20
Q

What are the advantages [2] and disadvantages [2] of the BF approach?

A

Advantages:
- Combines the objectivity of actual loss experience with subjective a priori loss estimates
- Less sensitive to fluctuations in early claim development than the chain ladder method

Disadvantages:
- Requires an estimate of ultimate losses or expected loss ratios, which introduces subjectivity
- Effectiveness depends on the accuracy of the a priori estimates

21
Q

What are the advantages [2] and disadvantages [2] of the ELR approach?

A

Advantages:
- Simple conceptual approach, especially when historical loss ratios are stable
- Useful for pricing and reserving when detailed claims data is lacking

Disadvantages:
- Assumes that past loss ratios are a good predictor of future loss ratios, which may not hold if the business mix or external conditions change
- Does not account for changes in claim handling practices or inflation

F203: General Insurance Fellowship (13 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions