Patrik

Question 1

Reinsurance Loss Reserving Problems

Answer 1

1. Claim report lags to reinsurers are generally longer
2. There is a persistent upward development of claim reserves
3. Claims reporting patterns differ greatly by reinsurance line, type of contract,etc
4. Because of heterogeneity, industry statistics not very useful
5. The reports the reinsurer receives may be lacking important info
6. Because of the heterogeneity, often have data coding and IT systems problems
7. The size of an adequate loss reserve compared to surplus is greater for a reinsurer

Question 2

U.S Tax Reform Act of 1986

Answer 2

• Requires discounting of loss reserves for income tax purposes
• Insurers no longer have an implicit risk marging built into loss reserve estimates
• This buffer flows into profits and is taxed sooner, decreasing assets and increasing risk level

Question 3

Components of a Reinsurer’s Loss Reserve

Answer 3

1. Case reserves reported by the ceding companies
2. Reinsurer additional reserves on individual claims
3. Actuarial estimate of future development on components 1 and 2
4. Actuarial estimate of pure IBNR
5. Discount for future investment income
6. Risk load

Question 4

General Procedure for Reinsurance Reserving

Answer 4

1. Partition the reinsurance portfolio into reasonably homogeneous exposure groups
2. Analyze the historical development patterns. If possible, consider case reserves and IBNR separately
3. Estimate the future development

Question 5

Short Tailed Lines examples

Answer 5

• Treaty property proprtional
• Treaty property catastrophe
• Treaty property excess
• Facultative property

Question 6

Methods for Short-Tailed Exposure Categories

Answer 6

1. Set IBNR equal to some percentage of the latest-year EP
2. Reserve up to a selected loss ratio, where the selected loss ratio is larger than the one computed from reported non-cat claims
3. If losses are summarized by UW year, then percentage estimates should be used to allocate losses to true AY to avoid overstating AY loss development

Question 7

Medium-Tailed Exposure Categories

Answer 7

• Treaty property excess higher layers
• Construction risks
• Surety

Question 8

Methods for Medium-Tailed Exposure Categories

Answer 8

1. Standard Chain Ladder method
   
   1. Advantage - strongly correlates future development w/ an overall lag pattern and with the claims reported for each accident year
   2. Disadvantage - IBNR is so correlated withreported claims that estimates are not very credible for recent, immature years

Question 9

Long-Tailed Exposure Categories

Answer 9

• Treaty casualty excess
• Treaty casualty proportional
• Asbestos, pollution, etc

Question 10

Methods for Long-Tailed Exposure Categories

Answer 10

1. Chain-Ladder (not great for immature years)
2. BF method
   
   1. Pro - correlates future development for each year with exposure measure
   2. Con - dependent upon the selected loss ratio, estimate ignores reported claims for each accident year
3. Stanard-Buhlmann (Cape Cod) method
   
   1. pro - ultimate expected loss ratio estimated from reported claims experience instead of judgmentally selected
   2. Con - IBNR by year is dependent upon rate-level adjusted premium
4. Simple credibility IBNR estimate
5. Other credibility procedures
6. Alternative estimation methodolagies (stochastic models, frequency/severity model)