Exam 5 Reserving: Information gathering

Question 1

Process of estimating unpaid claims

Answer 1

1. Explore the data to identify key characteristics and possible anomalies. Balance data to other verified sources 2. Apply techniques for estimating unpaid claims 3. Evaluate the conflicting results of the various methods used 4. Monitoring projections of claim development over subsequent calendar periods

Question 2

External data sources in US

Answer 2

ISO, NCCI, RAA, SFAA, AM Best, NAIC

Question 3

External data sources in Canada

Answer 3

Best, GISA, IBC, RRC, MSA

Question 4

When is external information particularly valuable

Answer 4

When selecting tail development factors, trend rates, and expected claim ratios (i.e. expected loss ratios)

Question 5

Why IAA believes in entity-specific data over external data

Answer 5

Risk that external data maybe misleading or irrelevant due to differences relating to: insurance products, case outstanding and settlement practices, insurers’ operations, coding, geographic areas, and mix of business and product types

Question 6

What should actuaries focus on when separating data into groups for an aalysis of unpaid claims

Answer 6

1. Consistency of the coverage triggered by the claims in the group (which generally subject to similar laws,policy terms, claim handling)
2. Volume of claims
3. Length of time to report the claim
4. Ability to develop an appropriate case outstanding
5. Length of time to settle
6. Likelihood of claim to reopen
7. Average settlement value (i.e., severity)

Question 7

What’s the goal of actuary in organizing data

Answer 7

Divide data into sufficiently homogeneous groupings without compromisingt he credibility of the data

Question 8

credibility

Answer 8

predictive value given to a group of data

Question 9

Types of data mostly used

Answer 9

1. Incremental paid claims
2. Cumulative paid claims
3. Paid claims on closed claims
4. Paid claims on open claims
5. Case outstanding
6. Reported claims

Question 10

Types of data mostly used cont’d

Answer 10

7. Incremental reported claims
8. Reported claim counts
9. Claim counts on closed with payment
10. Claim count on closed with no payment
11. Open claim counts
12. Reopened claim counts

Question 11

claim

Answer 11

claims + ALAE

Question 12

DCC

Answer 12

defense and cost containment,

Question 13

A&O

Answer 13

adjusting and other, include all claim adjusters costs

Question 14

How to deal with unusually large claims

Answer 14

1. exclude large claims from initial projection
2. At the end of the unpaid claims analysis, add a case specific projection for the reported portion of large claims and a smoothed provision for the IBNR portion of large claims

Question 15

What to consider when establishing the large claim threshold

Answer 15

1. Number of claim over the threshold each year
2. Size of claim relative to policy limits
3. Size of claim relative to reinsurance limits
4. Credibility of internal data regarding large claims
5. Availability if relevant external data

Question 16

How is deductible applied to third-party coverage

Answer 16

Deductible is after claim payment - insurer issues a payment to the injured party and then seeks recovery of the deductible from the insured

Question 17

salvage

Answer 17

any amount that the insurer is able to collect from the sale of damaged property

Question 18

subrogation

Answer 18

an insurer’s right to recover the amount of claim payment to a covered insured from a third-party responsible for the injury or damage

Question 19

Three treatments of ALAE in excess of loss reinsurance contracts

Answer 19

1. Included with the claim amount in determining excess of loss coverage (most common)
2. Not included in the coverage
3. Included on a pro rata basis: excess portion of claim to the total claim amount determines coverage for ALAE

Question 20

Types of exposures

Answer 20

earned premium, written premium, policies in force, policy limits by region(early estimation of unpaid claims related to a natural catastrophe), number of vehicles insured (Personal automobile), and payroll (workers compensation)

Question 21

Two ways to derive on-level premiums

Answer 21

1. Re-rating of historical exposures at current rates
2. Use a summary of rate level changes over the experience period and adjust the premiums in the aggregate for historical rate changes

Question 22

Examples of exposure for self-insurers: workers compensation

Answer 22

payroll

Question 23

Examples of exposure for self-insurers: automobile liability

Answer 23

Number of vehicles or miles driven

Question 24

Examples of exposure for self-insurers: General liability for public entities

Answer 24

Population or operating expenditures

Question 25

Examples of exposure for self-insurers: General liability for corporations

Answer 25

Sales or square footage

Question 26

Examples of exposure for self-insurers: Hospital professional liability

Answer 26

Average occupied beds and outpatient visits

Question 27

Examples of exposure for self-insurers: property

Answer 27

property values

Question 28

Examples of exposure for self-insurers: crime

Answer 28

number of employees

Question 29

provision

Answer 29

unpaid claim estimates

Question 30

Data verification concerns

Answer 30

1. Consistency with financial statement data 2. consistency with prior data 3. Data reasonableness 4. Data definitions

Question 31

Key dates for the organization of the claim data

Answer 31

1. Policy effective dates 2. Accident date 3. Report date 4. Accounting date 5. Valuation date

Question 32

Policy effective dates

Answer 32

The period for which the policy triggered by the claim was effective

Question 33

Policy year

Answer 33

the year that the policy became effective

Question 34

Policy date for reinsurer

Answer 34

Underwriting date (or year)

Question 35

notification date

Answer 35

the date that the insurer is put on notice that an event occurred that may result in a claim

Question 36

sequence of notification, report and record date

Answer 36

notification, report, record

Question 37

accounting date

Answer 37

date that defines the group of claims for which liability may exist, namely all incurred claim incurred on or before the accounting date

Question 38

valuation date

Answer 38

date through which transactions are included in the database used in the evaluation of the liability, regardless of when the actuary performs the analysis

Question 39

calendar year data

Answer 39

transaction data. Calendar year 2008 paid claim s refer to the claim payments made by the insurer between Jan 1, 2008 and Dec 31, 2008

Question 40

Calendar year earned premium

Answer 40

Written premium + Beginning Unearned Premium Reserve - Ending Unearned Premium Reserve

Question 41

Advantage of calendar year data

Answer 41

1. no future development, the value remains fixed and does not change as time goes by 2. It is readily available

Question 42

Disadvantage of calendar year data

Answer 42

Inability to address the critical issue of development

Question 43

Accident year data

Answer 43

claims grouped according to the data of occurence

Question 44

policy year data

Answer 44

year in which the policy was written

Question 45

Underwriting year data

Answer 45

frequently used by reinsurers, claims data grouped by the year in which the reinsurance policy became effective

Question 46

policy provisions

Answer 46

e.g. policy limits and deductibles

Question 47

development triangle

Answer 47

a table that shows changes in the value of various cohorts over time

Question 48

Analysis of triangles

Answer 48

Rows corresponding to the experienced period and columns representing the maturity maturity ages

Question 49

How will development factors change as the retention increases?

Answer 49

Increase

Question 50

When the development technique is not useful?

Answer 50

Changes to the insurer's operations, environmental changes which changes the assumption that the past will be predictive of the future Large volume of historical claims might distort the data

Question 51

Examples of changes to the insurer's operations

Answer 51

1. New claims processing systems 2. Revisions to tabular formulae for case outstanding 3. Changes in claims management philosophy 4. Policyholder deductibles 5. Insurer's reinsurance limits

Question 52

environmental changes

Answer 52

e.g. when a major tort reform occurs (such as a cap on claim settlements or a restriction in the statute of limitations)

Question 53

Is development techniques used when an insurer entering a new line of business of a new territory and for small insurers

Answer 53

Yes. though they rely more on benchmark patterns (e.g. comparable lines of business or available industry data) to select claim development factors

Question 54

Should actuaries still apply the development techniques in highly leveraged cumulative claim development factors

Answer 54

No. Actuaries would seek alternative techniques for estimating unpaid claims