H.1 Recoveries

Question 1

Some ways S&S data availability can vary by insurer

Answer 1

-Some insurers treat S&S recoveries as negative payments, while other insurers record S&S recoveries separately.
-Some insurers capture data for different types of recoveries separately, while others combine all recovery types together.
-Some insurers estimate case outstanding amounts for
recoveries, while other insurers do not.

Question 2

Two ways to estimate S&S recoverables

Answer 2

1. Use the development technique (or one of the other
   previously discussed techniques) on a S&S triangle directly. This may work better for salvage than subrogation, since salvage is related to property coverage and develops quickly, while subrogation is mostly related to liability coverage and takes longer to develop.
2. Use a ratio approach that develops ratios of S&S to gross claims, and use those ratios along with ultimate claim estimates to project ultimate S&S.

Question 3

Two advantages of using the ratio approach to

estimate S&S recoverables

Answer 3

1. The development factors for the ratio approach tend to
   be less leveraged than the development factors based on received S&S dollars.
2. The ratio approach produces ratios of ultimate S&S to
   ultimate claims, which can be used as a diagnostic. If a ratio for a particular year seems unreasonable, a more reasonable S&S ratio can be selected for that year.

Question 4

Considerations for whether to develop gross and
ceded losses separately rather than developing net of
reinsurance losses directly

Answer 4

-Data availability
-Characteristics of the reinsurance program
-The actuary’s personal preferences

Question 5

Formula for ceded and net losses for Quota Share and

XOL treaties

Answer 5

Quota Share Ceded = Ceded % x Gross Loss
XOL Ceded = max[$0, min[XOL Limit, Gross Loss - XOL
Retention]]
Net Loss = Gross Loss - Ceded Loss

Question 6

Relationship between tail factors for gross, ceded, and

net loss triangles for Quota Share and XOL treaties

Answer 6

-For Quota Share treaties, the tail factors for gross, net, and ceded triangles will be the same since the net and ceded triangles are just constant multiples of the gross triangle.
-For Excess of Loss and Stop Loss treaties, the tail factor for the ceded triangle will typically be larger than for the gross triangle since once the retention is hit, all development occurs in the ceded layer (at least up to the treaty limit). For the same reason, the tail factor for the net triangle will typically be smaller than for the gross triangle since the net losses may be capped by the reinsurance protection.