Reinsurance reserving

Question 1

o Data can be a problem particularly for reinsurers because (7)

Answer 1

 Claim reporting delays are longer
 There is a 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

Question 2

• Reserving for inwards reinsurance

Answer 2

o For most reinsurance reserving exercises, paid claims development patterns are more reliable than incurred
o For short-tailed business, normal triangulation (or even simpler) methods may well be used, although catastrophes should be treated separately
o For medium and long-tailed business, we can use the same methods, but taking extra care where development years have not matured, for example by using hybrid methods. We should consider both paid and incurred development patterns,

Question 3

• Reserving for outwards reinsurance:
  o The five main methods are (6):

Answer 3

 Use data gross and net of reinsurance, the 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

Question 4

o The suitability of any method can be assessed by considering (6)

Answer 4

 Its simplicity (eg how easily it can be added to an automatic reserving process) versus its accuracy
 The consistency of gross and net estimates
 Whether it can be used to assess volatility of net outcomes or reinsurance recoveries, eg by using stochastic techniques such as bootstrapping
 Compliance with regulation (eg SAM)
 How the method copes with:
* Different types of reinsurance, eg proportional, non-proportional, working layer, high layer
* Sparse data
* Changes in reinsurance programme or panel over time
* Reinsurance recoveries on unreported claims
* Catastrophes and large claims, eg whether it allows for claims that breach the vertical cover
* Aggregate features such as profit commissions, and loss-sensitive contracts such as stop loss cover
* Interactions between covers, eg whole account covers
 Whether the method can be used to investigate:
* Capital requirements and enterprise risk management
* Credit risk