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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


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


How are losses in Part 1 grouped

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


2 components of LAE

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


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)


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


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


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)


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)


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


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


How is discounting reflected in parts 2-4?

Data is gross of all discounting


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


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

-Claims settlement and reserving
-Business mix
-Underlying exposures


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


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


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


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


Formula for closure rate

Closed claims/total reported claims


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


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


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

This will result in an understated projection


CWP ratio equation

CWP claims/total closed claims


Claims frequency equation

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


Average claim severity formula

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


Average case outstanding severity formula

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


Average reported claim severity formula

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


Factors that may cause loss trends

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


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


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

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