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Flashcards in Odomirok 15 Deck (40)
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1

List some uses of Schedule P (in addition to being used by outside parties to assess the reserve adequacy)

-Supports and provides disclosure for the SAO
-Shows how reserves have developed over time, and indicates where the development is coming from
-Provides the source of payment patterns to be used in the tax discounting calculations
-Shows the split between case reserves and IBNR
-Provides historical claim count data to help review trends in frequency & severity, and chances in the claims handling and reserving
-Provides the data to calculate the RBC loss sensitive discount

2

List the parts of Schedule P

Part 1. Loss & LAE experience as of 12/31 of the current year.
Part 2. Historical net loss & DCC estimates
Part 3. Historical net paid loss & DCC
Part 4. Historical net IBNR for loss & DCC (before tabular discount)
Part 5. Historical claim counts (closed with payment, open and reported)
Part 6. Historical earned premium
Part 7. Loss and premium data on loss sensitive contracts

3

How are losses in Part 1 grouped

-Occurrence policies: AY
-Claims made policies: RY
-Tail policies: PY
-Fidelity & surety policies: Discovery year

4

2 components of LAE

1. Defense & cost containment (DCC)
2. Adjusting and other (A&O)

5

List some examples of DCC

-Surveillance expenses
-Fixed amounts for medical cost containment
-Litigation management expenses (eg audit of bills)
-LAE for pools, if reported by AY
-Fees & salaries for appraisers, private investigators, hearing representatives, reinspectors, fraud inspectors; if working in defense of a claim
-Fees & salaries for rehabilitation nurses (if not included in losses)
-Attorney fees incurred due to duty to defend
-Cost of engaging experts (if not included in losses)

6

List some examples of A&O

-Fees of adjusters & settling agents
-LAE for pools, if reported by CY
-Fees & salaries for appraisers, private investigators, hearing representatives, reinspectors, fraud inspectors; if working in the capacity of an adjuster
-Attorney fees incurred in determination of coverage

7

How was LAE historically segmented

-Allocated Loss Adjustment Expenses (ALAE): expenses that can be allocated to a specific claim
-Unallocated Loss Adjustment Expenses (ULAE): Expenses that can not be allocated to individual claims

8

How are S&S expenses recorded

-Paid losses are recorded net of S&S received
-Unpaid losses are recorded net of anticipated S&S (in the bulk & IBNR)

9

How are tabular & non tabular discounts treated in part 1

-Net of tabular discount
-Gross of non tabular discounts (until columns 32 & 33) and net (in columns 35 & 36)

10

List 2 things that the claim count data from schedule P can be used to identify/analyze

1. Changes in losses
2. Changes in claims settlement or reserving philosophy

11

What types of changes should actuaries look out for, when analyzing trends

-Mix of business (type of exposure, geography)
-Policy limits
-Reinsurance attachment points & limits
-The way that the company counts its claims

12

How is discounting reflected in parts 2-4?

Data is gross of all discounting

13

Issues with using the information in parts 2 to 4 to develop losses

-Various allocations in the creation of Schedule P are based on the interpretation of the person completing it
-Internal pooling or reinsurance arrangements that may have an impact on the data set may not be very obvious by looking exclusively at schedule P
-Schedule P includes business from participation in voluntary and involuntary pools and/or associations: many of these pools record IBNR as case reserves/the level of participation in the pool may have changed over time
-Schedule P only contains 10 AYs of data, but long tail lines may experience development later than 10 years
-Commutations will distort the reserves
-The data combines losses and DCC, potentially hiding trends in either component

14

What changes should be considered when using information in parts 2 to 4 to develop losses

-Retentions
-Claims settlement and reserving
-Business mix
-Underlying exposures

15

Formula to populate the right most column of the prior years row of part 3

From part 1:
D&A loss - ceded loss + D&A DCC - ceded DCC = Col 4 - 5 + 6 - 7

16

3 sections of part 5

1. Cumulative number of claims closed with loss payment
2. Number of claims outstanding
3. Cumulative number of claims reported

17

What inconsistency should users be aware of when comparing part 5 data of different companies

Some companies record counts on a per claim basis, whereas others record them on a per claimant basis

18

List some metrics that can be derived from the claim count data (in addition to other data from the Annual Statement)

-Claim closure rates
-CWP ratios
-Claim frequency
-Avg claim severity

19

Formula for closure rate

Closed claims/total reported claims

20

2 advantages of closing claims early

1. Minimize chance that the claim will develop adversely
2. Allow insured to receive medical treatment/repair property damage/recover from loss

21

3 reasons that settlement rates may reduce

1. Reduction in staff
2. Growth in the book without a corresponding increase in staff
3. Surge in claims from a catastrophe

22

Expected impact to ultimate loss projection if a slow down in settlement rates is not reflected

This will result in an understated projection

23

CWP ratio equation

CWP claims/total closed claims

24

Claims frequency equation

Claim counts (from part 5) divided by EPs (from part 1)

25

Average claim severity formula

Net paid loss & DCC (from part 3)/ direct and assumed claims closed with payment (from part 5, section 1)

26

Average case outstanding severity formula

Net case outstanding loss and DCC (part 2 - 3 -4)/direct and assumed open counts (part 5, section 2)

27

Average reported claim severity formula

Net reported loss & DCC (from part 2-4)/direct and assumed reported counts (part 5, section 3)

28

Factors that may cause loss trends

-Inflation
-Law changes
-One time catastrophic claims
-Changes in deductible/retentions
-Internal factors

29

List some metrics that can be calculated from the part 5 data to perform reasonableness checks to the unpaid claim estimates (by comparing actual to expected)

-Average claim frequency = Ultimate claim count by AY/corresponding EP
-Average ultimate severity = Ultimate loss and DCC by AY/Ultimate claim counts
-Average unpaid claim severity = Unpaid loss and DCC by AY/Unpaid claims

30

List some reasons that premiums in part 6 may change over time

-Premium audits
-Retrospective rated policies
-Lags in reporting/accounting for premiums