Chapter 2

Question 1

Loss Run

Answer 1

is a summary report of loss experience for a risk over a specified time

Question 2

Loss Runs can also help

Answer 2

1. provide financial information such as reserves and payments. that can be used to determine profitability
2. provide other insights, overall analysis of the account, types and sizes of claims.
   3.determine the acceptability of an account / needed premium/other terms and conditions

Question 3

captions found on a loss run

Answer 3

1.date of loss
2. date of report
3. type of loss
4. description of loss
5. location of loss
6. Outstanding reserves
7.losses incurred
8. claims paid

Question 4

Longstanding reserves for smaller claims an Underwriter would want to know?

Answer 4

1. is the claim still open for the purposes of subrogation, or is there a problem with the claim?
2. has the coverage been denied and litigation pursued?
3. Has the claim just been overlooked when it should have been closed?
4. are there serious injuries
5. is liability an issue?

Question 5

How to determine an accurate picture of the loss history and risk in question

Answer 5

1. are adjustment expenses included
2. what is the split between loss settlement and adjustment expenses
3. Is the employment of outside experts required.
4. is more litigation involved due to the nature of the risk

Question 6

Examples of when math and stats may not give useful conclusions for the underwriter

Answer 6

1. Insufficient statistical data
   2.Familiarity with the industry, allows underwriter to spot oddities in normal looking numbers.
   3.Sufficient data but difficulty in comparing risks
2. Statistical improbability of loss that does not rule out the possibility of it.
3. An absence of loss yet an occurrence of some kind the underwriter should know about

Question 7

Incurred loss ratio

Answer 7

the ratio of incurred losses to earned premium.

Total incurred losses + earned premium = Incurred loss ratio

Question 8

Loss development factor

Answer 8

Derived from loss triangles.
The markers or issues that will cause a change in the difference in the amount between the original estimate of the cost of a claim and the amount for which is finally settled.

Question 9

Loss triangle method

Answer 9

most used technique for projecting loss reserves. The method groups losses by year over successive time periods to demonstrate a history of change in the amounts of the losses. A loss triangle is created from multiple evaluations of the aggregate losses from a series of loss periods.

Question 10

Accident year

Answer 10

Matching all losses, regardless of when they were reported to the 12 month period they occurred

Question 11

What are the two different ways losses develop overtime

Answer 11

1. all reported claims that are open at the end of each valuation interval have the potential to develop by increasing or decreasing until they are settled.
2. IBNR claims that have incurred but not reported by the end of the valuation interval

Question 12

What else can a loss triangle reveal

Answer 12

1. any changes in claim-reporting patterns?
2. are claims taking longer to settle or settled more quickly.
3. has there been a change in exposure units. If revenue has been used, has revenue declined.
4. has there been a change in coverage - ded applied or restricted

Question 13

Pure Premium

Answer 13

Portion of the total premium that is needed to pay expected losses. It does not take into account company expenses

Question 14

Figures in loss development triangle

Answer 14

1.losses that have been IBNR.
2. adjustments to reserves
3. adjustments to claims that have been closed and reopened.
Figures should represent one line of coverage only.