A8. Odomirok 15 Flashcards
List the parts of Schedule P
- Part 1: loss and LAE experience as of 12/31 of the current year.
- Part 2: historical net loss and DCC estimates
- Part 3: historical net paid loss and DCC
- Part 4: historical net IBNR for loss and 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
List some uses of Schedule P (In addition to being used by outside parties to assess 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 and severity, and changes in claims handling and reserving
- Provides the data to calculate the RBC loss sensitive discount
2 Components of LAE
- Defense and Cost Containment (DCC)
2. Adjusting and Other (A and O)
How are losses in Part 1 grouped
- Occurrence policies: Accident Year
- Claims Made policies: Report Year
- Tail policies: Policy Year
- Fidelity and Surety policies: Discovery Year
List some examples of A and O
- fees of adjusters and settling agents
- LAE for pools, if reported by CY
-fees and 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
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 and salaries for appraisers, private investigators, hearing representatives, reinspectors, fraud inspectors; if working in
defense of a claims
- fees and 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)
How are the S and S expenses recorded
- Paid losses are recorded net of S and S received
- Unpaid losses are recorded net of anticipated S and S (in the bulk and IBNR)
How was LAE historically segmented:
- Allocated Loss Adjustment Expenses (ALAE): expenses that can be allocated to a specic claim
- Unallocated Loss Adjustment Expenses (ULAE): expenses that can not be allocated to individual claims
List 2 things that the claim count data from Schedule P can be used to identify/ analyze
- changes in losses
2. changes in claims settlement or reserving philosophy
How are tabular and non tabular discounts treated in Part 1
- Net of tabular discount
- Gross of non tabular discounts (until columns 32 and 33) and Net (in columns 35 and 36)
How is discounting reflected in Parts 2-4
Data is gross of all discounting.
What types of changes should actuaries look out for, when analyzing trends
- Mix of business (type of exposure, geography)
- Policy limits
- Reinsurance attachment points and limits
- The way that the company counts its claims
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 accident years 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 the information in Parts 2 to 4 to develop losses
- Retentions
- Claims settlement and reserving
- Business mix
- Underlying exposures
3 sections in Part 5
- Cumulative number of claims closed with loss payment
- Number of claims outstanding
- Cumulative number of claims reported
Formula to populate the right most column of the Prior Years Row of Part 3
From Part 1:
D and A loss - ceded loss + D and A DCC - ceded DCC = Col 4 - 5 + 6 - 7
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
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.
2 advantages of closing claims early
- Minimize chance that the claim will develop adversely
2. Allow to insured to receive medical treatment/ repair property damage/ recover from loss
Formula for closure rate
Closed claims / total reported claims
Expected impact to ultimate loss projection if a slow down in settlement rates is not reflected:
This will result in an understated projection.
3 reasons that settlement rates may reduce
- Reduction in staff
- Growth in the book without a corresponding increase in staff
- Surge in claims from a catastrophe
Claim Frequency equation
Claim Counts (from Part 5) divided by Earned Premiums (from Part 1)
CWP ratio equation
CWP claims / total closed claims
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 Claim Severity formula
Net paid loss and DCC (from Part 3) / direct and assumed claims closed with payment (from Part 5, Section 1)
Factors that may cause loss trends
- Inflation
- Law changes
- One time catastrophic claims
- Changes in deductibles/ retentions
- Internal factors
Average Reported Claim Severity formula
Net reported loss and DCC (from Part 2 - 4) / direct and assumed reported counts (Part 5, Section 3)
List some reasons that premiums in Part 6 may change over time:
- Premium audits
- Retrospective rated policies
- Lags in reporting/ accounting for premiums
List some metrics that can be calculated from the Part 5 data to perform reasonableness checks on 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 the 2 parts of Part 7
- Part A: Primary Contracts (direct business)
- Part B: Reinsurance Contracts (assumed business)
When would an insurer populate Part 7
Only if it is using the loss sensitive adjustment to RBC
Briefly describe the Schedule P Interrogatories
Series of seven questions that the insurer needs to answer, that add insight to the other information reported in Schedule P
List the five sections of each part of Part 7
- Section 1: net loss and LAE unpaid and NWP on loss sensitive contracts, relative to all contracts, for each Schedule P line
- Section 2: incurred loss and DCC on loss sensitive contracts, in the same format as Part 2
- Section 3: loss and DCC IBNR on loss sensitive contracts, in the same format as Part 4
- Section 4: net earned premiums on loss sensitive contracts, in the same format as Part 6
- Section 5: triangle of net reserves for premium adjustments and accrued retrospective premiums for each of the last ten years that the policies were issued
Main purpose of Interrogatory 1
Ensure that the ERE coverage has been reserved for.
What topics does Interrogatory 1 cover
Extended reporting endorsements (EREs) arising from death, disability or retirement (DDR). There are six parts:
- The first asks whether the insurer offered the endorsement for free (or at a reduced rate)
- The remaining parts are about how the company reports the DDR
What topics does Interrogatory 4 cover
Asks for disclosure about whether the reserves are net of non-tabular discounts.
What topics does Interrogatory 2 cover
Asks if the LAE is being defined as DCC and A and O
What topics does Interrogatory 7 cover
Asks if there are any changes or anything special that the user needs to be aware of if she relies on the Schedule P data to assess the adequacy of recorded loss and LAE reserves
What topics does Interrogatory 6 cover
Whether the insurer reports claim counts per claim or per claimant.
