5. Schdule P

Question 1

Functions of Schedule P dt-rapid

Answer 1

1. Rsv Development
2. Freq-sev Trends
3. Calc RBC loss sensitive discount
4. Rsv Adequacy
5. Pmt patterns for discounting rsvs
6. IBNR & case rsv split
7. Disclosures for SAO

Question 2

Data shortcomings of Schedule P (6)

Answer 2

Triangles are L & LAE combined (can’t separate)

Triangles inc pooling (distorts data)

Triangles only go back 10AY (not enough for long tail LOB

Frequency trends don’t use EP @CRL

EP is CY & losses are AY

Clm counts are reported (not ultimate)

Question 3

losses in are net or gross of reinsurance?

Answer 3

Net of reinsurance

Question 4

Discounts in Schedule P

Part 1

parts 2,3,4

balance sheet

Answer 4

Part 1 is net of tabular discounts & gross of non-tabular discounts

Part 2,3,4 are gross of both tabular & non-tabular discounts

Balance sheet is net of both tabular & non-tabular discounts

Question 5

Reconcile unpaid in part 1 to part 2 and 3

Answer 5

1. Part 1 (unpaid loss ex A&O) + tabular discount from notes to financial statements = Part 2 (net incurred loss & DCC) - part 3 (net paid loss & DCC)

Question 6

Answer 6

Question 7

Answer 7

Question 8

Stuff we can do in schedule p part 1

Formula for Reported Claim Frequency on

1. direct basis
2. net basis

Answer 8

1. # of clms reported direct & assumed / direct EP
2. # of clms reported direct & assumed /net EP

Question 9

Stuff we can do in schedule p part 1

Formula for avg reported claims on…

1. direct basis
2. net basis

Answer 9

1. [Direct and assumed paid losses + direct and assumed paid DCC + direct and assumed case unpaid losses + direct and assumed case unpaid DCC] / # of reptd clms
2. [Numertor from item 1 – ceded paid loss –ceded paid DCC – ceded case unpaid loss – ceded case unpaid DCC] /# reptd clms

Question 10

Stuff we can do in schedule p part 1

Formula for Avg Case Outstanding on…

1. direct
2. net basis

Answer 10

1. [Direct and assumed case unpaid loss + direct and assumed case unpaid DCC] / open clms
2. [numerator from 1 – ceded case unpaid loss – ceded case unpaid DCC] / open clms

Question 11

Answer 11

Question 12

Ultimate Incurred Loss Formula

incurred = reported + unpaid =

reported =

unpaid =

Answer 12

Incurred = Paid + case + IBNR

Reported = paid + case

Unpaid = case + IBNR

Question 13

Part 2, 3, 4 defined

Answer 13

Part 2 = incurred net loss & DCC

Part 3 = cumulative paid net loss & DCC

Part 4 = IBNR net loss & DCC

Question 14

Part 2, 3, 4 formulas

unpaid =

case =

case incurred =

Answer 14

Unpaid = part 2 – part 3

Case =part 2 – part 3 – part 4

Case incurred = paid + case = part 3 + case OR part 2 – part 4

Question 15

Answer 15

Question 16

Answer 16

Question 17

Answer 17

Question 18

Answer 18

Question 19

Part 5 – 3 sections

section 1

section 2

section 3

Answer 19

1. Cumulative # of CWP claims w/ loss pmt direct & assumed at year end
2. Cumulative # of outstanding claims w/ loss pmt direct & assumed at year end
3. Cumulative # of reported claims w/ loss pmt direct & assumed at year end

Question 20

Stuff we can do w/ schedule P part 5

1. Claim closure rate =
2. CWP rate =
3. Avg closed claim severity =
4. Avg case outstanding severity =
5. Avg reported claim severity =
6. Clm frequency =

Answer 20

1. Claim closure rate = closed ÷ reported = (section 3 – section 2) ÷ section 3
2. CWP rate= CWP ÷ closed = section 1 ÷ (section 3 – section 2)
3. Avg closed clm severity = net paid loss & DCC ÷ total claims closed = P3 / (P5 section 3 – P5 section 2)
4. Avg case outstanding severity = net case outstanding loss & DCC ÷ total open clms = (P2-P3-P4) / P5 section 2
5. Avg reported claim severity = net reported loss & DCC ÷ total reported clms= (P2-P4) / P5 section 3
6. Clm frequency = claim counts ÷ Earned Premium

Question 21

Why claim closure rate change? (3)

Answer 21

1. cats –> claims ↑
2. ∆in staffing
3. PIF growth–> claims↑

Question 22

Why severities change?(4)

Answer 22

1. inflation
2. cats
3. law change
4. claims practice to settle certain size clm first

Question 23

Answer 23

Question 24

Answer 24

Question 25

Answer 25

Question 26

Purpose of part 6 – cumulative EP for 10 CYs (2)

Answer 26

1. Develop EP to ultimate
2. Show prior 9 CYs EP adjusted up (for premium audits, lags, retrospectively rated policies) so surplus is not understated

Question 27

Answer 27

Question 28

Answer 28

Question 29

Answer 29

Question 30

Answer 30

Question 31

Schedule P interrogatories (4)

most important one

Answer 31

1. ***Changes or anything special that user should be aware of to assess reserve adequacy? Disclose if yes
2. How LAE reported? (DCC or A&O)
3. Rsvs net or gross of non-tabular discount
4. reported claims counts per claim or claimant

Question 32

Adverse development reasons (2)

Answer 32

1. PIF growth
2. Large clm from old AY

Question 33

Yearly reporting convention

Answer 33

1. Accident yr (occurrence policy)
2. Report yrr (claims-made policies)
3. Policy yr (tail policies)
4. Discovery yr (fidelity /surety policies)

Question 34

2 categories of LAE

Answer 34

DCC – defense ligation & medical cost containment expenses

A&O –fees, salaries, expense of employees working in claim adjusting capacity

Question 35

Schedule P intercompany pooling formulas for prem or rsvs

Gross rsvs co A

net rsvs co A

Answer 35

Gross rsvs co A

1. Total direct L&LAE * pool % A

net rsvs co A

1. Total net L&LAE * pool % A

Question 36

Answer 36

Question 37

Non-Schedule P intercompany pooling formulas for prem or rsvs

Gross rsvs (or prem) lead A

Gross rsvs (or prem) non-lead B

net rsvs (or prem) co A

Answer 37

Gross rsvs lead A & gross rsvs non-lead B

1. Gross rsvs for lead A = A direct rsvs + B net rsvs +C net rsvs
2. Gross rsvs for non-lead B = B direct rsvs + toal net rsvs* B pool%

net rsvs co A

1. Same as schedule P: Total net L&LAE * pool % A

Question 38

Answer 38

Question 39

Answer 39