BAIC 2 - Data Aggregation and Accounting Flashcards
Key dates for premium reporting
Effective Date and Expiration Date - Dates on which policy begins and ends respectively
Inception Date - Date policy initially coded; usually date in which coverage begins
Accounting Date - Date transaction entered in company’s financial books (done periodically - monthly/quarterly)
Definition of Loss
Amounts paid or payable to claimants under the terms of an insurance policy
Paid Losses
Losses for a particular period that have actually been paid to claimants
Outstanding Losses
Estimate of additional losses expected to be paid (aka Case Reserve); represents information available at a specific point in time - may be re-evaluated
Case Incurred Losses
Sum of Paid and Outstanding Losses
Key dates for Loss Reporting
Accounting date - date entered in books
Accident Date - Day loss occurs (aka loss date, occurrence date, or incidence date)
Report Date - Date insurer notified of claim
Valuation Date - Date through which transactions are included in the evaluation of the claim, regardless of when the evaluation is performed
Data Aggregation definition
Collection and summarization of information for purposes such as statistical analysis
Who plays a part in data aggregation?
State insurance departments and regulatory agencies (NAIC) - verify accounting and tax information
Insurers and Reinsurers - supplement own data and research
Advisory organizations (including ISO) - produce reports on industry-wide trends
ISO 6 uses of aggregated data
Trend and loss development factors Increased limits factors Size and cause of loss analyses Expense and efficiency reports Loss cost filings Statistical reporting
4 types of Exposure
Written Exposure - units of exposure on policies written during the period in question
Earned Exposure - exposure units actually exposed to loss during the period
Unearned Exposures - portion of written exposures not yet earned as of a given point in time
In-force Exposure - exposure units exposed to loss at a given point in time
**Similarly premium can be either written, earned, or un-earned
Half-month Earning Routine
Assume that policies are written and effective uniformly throughout the year, therefore, the effective date is in the middle of the month (simplifies calculations)
Ex: If we know only that a policy became effective in July, 2007, then we assume the effective date is 7/15/2007
Calculation of Earned Premium during period
Number of months(quarters) effective during period / total number of months(quarters) in policy duration * written premium
Calculation of Earned Premium during period
Number of months (quarters) effective during period / total number of months (quarters) in policy duration * written exposures
Half quarter earning routine
- Assume policies are effective uniformly throughout the year
- Therefore the policy is effective in the middle of the quarter
- Simplifies calculation sfor large groups of policies
Four common methods to calculate incurred losses
Policy Year Method
Calendar Year Method
Accident Year Method
Report Year Method
Calendar Year method
EP = Written Premium in CY - change in UEPR IL = Paid Loss in CY + change in outstanding loss
Accident Year (AY) or Report Year (RY) method
EP = Written Premium in CY - change in UEPR IL = Cumulative Paid + Outstanding (as of date) including only losses occurring during the AY (for AY method) or RY (for RY method)
Policy Year (PY) method
EP = Written Premium on the policies in the PY - Unearned Premium on those policies (as of date) IL = Cumulative Paid + Outstanding (as of date), including only losses on policies written in PY
Overview of Policy YEar method
- Losses are the least stable, since the data is the most immature at any given evaluation date
- Perfectly matches premium and exposure to the losses
- Used for pricing and profitability studies
Overview of Calendar Year Method
- Most stable (because based on accounting records, which are frozen at the end of the fiscal year)
- Premium and loss do not need to be re-evaluated
- Limited use in actuarial analysis except in very short-tailed lines of business
- Used for tax and accounting purposes since they reflect activity during the fiscal year
Overview of Accident Year Method
- Data stability falls between PY and CY since the losses evaluated are more mature than PY losses, but require re-evaluation as they do change over time
- Generally viewed as most reflective o fthe industry’s current financial situation
- Used for reserving and pricing
Overview of Report Year Method
- Relatively uncommon
- Primarily used for long-tailed lines that employ claims-made policies such as Medical Malpractice and Professional Liability
- Used to help increase the responsiveness of pricing to the current cost of claims
- May also be used by claims departments to analyze payment patterns and efficiency