Friedland

Question 1

4 Stakeholders of Reinsurers that Require Sound Estimates of Unpaid Losses

Answer 1

IIRR

1. Reinsurer internal management
   – requires sounds reserves b/c they impact
   - pricing, UW , strategic planning, and financial decision making
2. Investors
   – require sound reserves in order to appropriately evaluate a reinsurer’s
   - B/S and I/S when making investment decisions
3. Regulators
   – require sound reserves in order to appropriately evaluate a reinsurer’s
   - financial health when supervising the reinsurance market
4. Rating agencies
   – require sound reserves in order to issue strong financial ratings.
   - If a reinsurer experiences significant adverse development,
   => it risks a rating downgrade.
   => This may make the reinsurer look less attractive to primary insurers

Question 2

Bordereau

Answer 2

• A detailed report of insurance premiums or losses affected by reinsurance.
• Reinsurers often receive data by bordereau from cedants or the brokers of their cedants.

Question 3

5 Reasons that Cedants Purchase Reinsurance

Answer 3

SEC^3

1. Promote stability
   – reinsurance stabilizes the loss experience of ceding companies from year to year by
   - retaining smaller, more predictable claims and
   - ceding larger, more unpredictable claims
2. Increase capacity
   – reinsurance allows ceding companies to assume more risk by
   - ceding a portion of all of their policies or by ceding their larger policies
3. Protect against catastrophe
   – reinsurance protects ceding companies from
   - a single catastrophic loss event (ex. single hurricane) as well as
   - multiple large loss events (ex. multiple hurricanes within a single year)
4. Manage capital and solvency margin
   – reinsurance passes risk from the cedant to the reinsurer.
   - When less risk is present, less capital is needed
5. Access technical expertise
   – reinsurers can lend their expertise in the areas of
   - underwriting, marketing, claims, and pricing
   - to insurers seeking to enter new lines of business or new regions

Question 4

Define treaty reinsurance and facultative reinsurance.

Contrast treaty reinsurance and facultative reinsurance in terms of underwriting risk for the reinsurer.

Answer 4

Treaty reinsurance
– cedant enters into a contract with one or more reinsurers
- to cede all business from certain lines of business,
- subject to the retentions and attachment points specified in the treaty.

Facultative reinsurance
– a submission, acceptance, and agreement are required
- for each individual risk or group of risks that the cedant wants to reinsure.
- Facultative reinsurance is meant to increase a cedant’s capacity by ceding large risks.

Underwriting risk
- is reduced for the reinsurer under facultative reinsurance vs. treaty reinsurance
- (all else being equal)
- since the reinsurer can conduct its own underwriting.

Question 5

Two Examples of Hybrid Contracts

Answer 5

1. Facultative automatic
   – a bordereau of risks ceded is submitted to the reinsurer,
   - which has limited rights to decline individual risks
2. Facultative obligatory treaty
   – a treaty under which the cedant has the option to cede or not cede individual risks. -
   - The reinsurer must accept any risks that are ceded

Question 6

Briefly describe proportional reinsurance and non-proportional reinsurance.

Answer 6

1. Proportional reinsurance
   – the reinsurer typically pays a ceding commission to the cedant
   - to reimburse for acquisition and underwriting expenses associated with issuing the underlying policies
2. Non-proportional reinsurance
   – the reinsurer or reinsurers pay for all losses above a specified retention,
   - subject to any specified limits.
   - The premium paid to the reinsurer is not proportional to the limits of coverage

Question 7

Two Types of Proportional Reinsurance

Answer 7

1. Quota share
   – the gross premiums and losses of the cedant are ceded to reinsurer uniformly based on a cession percentage
2. Surplus share
   – surplus share does not have a uniform cession percentage across risks.
   - Instead, the cedant cedes the surplus amount of risk
   - above its retained line subject
   - to a maximum ceded percentage and limit

Question 8

Formula for Proportion Ceded Under Surplus Share Reinsurance

Answer 8

Question 9

Three Reasons Why a Cedant Might Purchase Proportional Reinsurance

Answer 9

CCC
1. To manage capital and solvency margins
2. To increase capacity
3. To protect against catastrophes

Question 10

which type of proportional reinsurance increase capacity more effectively? why?

Answer 10

surplus share

b/c it allows the ceding co to cede a smaller portion of smaller risks and a larger portion of larger risks

Question 11

Five Types of Non-Proportional Reinsurance

Answer 11

1. Excess per risk reinsurance
   – indemnifies the cedant against the amount of loss in excess of a specified retention subject to specified limits on a per risk basis
2. Excess per occurrence reinsurance
   – protects a cedant from an accumulation of losses due to a single occurrence. The subject loss under excess per occurrence reinsurance is the sum of all losses arising from an insured event for all subject policies
3. Catastrophe reinsurance
   – indemnifies the cedant for the accumulation of losses in excess of a specified retention arising from a single catastrophic event or a series of events, subject to a specified limit
4. Annual aggregate excess of loss reinsurance
   – the total losses to the cedant cannot exceed a specified annual threshold (expressed as either a percent of premium or fixed dollar amount)
5. Clash reinsurance
   – attaches above all other policy limits and is meant to cover exceptional events where traditional reinsurance contracts will not fully reimburse a cedant’s claims. This can occur when a cedant receives multiple claims from multiple insureds arising out of the same catastrophe

Question 12

Explain when a cedant might want to purchase excess per risk reinsurance.

Answer 12

To protect property exposures and increase capacity.

Question 13

Explain why ceding commissions might provide less surplus relief for nonproportional reinsurance vs. proportional reinsurance.

Answer 13

• Ceding commissions are stated as a percentage of premium.
• It’s often the case that non-proportional reinsurance premiums are less than proportional reinsurance premiums.
• The ceding commissions are smaller as a result.

Question 14

Explain when a cedant might want to purchase annual aggregate excess of
loss reinsurance.

Answer 14

To protect net results and an insurer’s capital base.

Question 15

Briefly describe policy limit restatements and reinstatement premiums.

Answer 15

Restatement – in the event of a full limit loss or some other amount specified
in the reinsurance contract, cedants can obtain a restatement of the
reinsurance policy limit

Reinstatement premium – if a restatement requires an additional premium
to be paid by the cedant to the reinsurer, it is known as a reinstatement
premium

Question 16

notes on reinstatement premium

Answer 16

• the reinstatement premium is immediately earned premium by the reinsurer
• reinstatement premium can distort the historical premium and loss data and should be recognized when the actuary calculates expected loss ratios for the catastrophe reinsurance

Question 17

Explain what is meant by “reinsurance contract A inures to the benefit of
reinsurance contract B.”

Answer 17

In this case, reinsurance contract A is applied first and reduces the loss subject
to reinsurance contract B.

Question 18

Briefly describe an issue with securing aggregate excess of loss reinsurance.

Answer 18

It is often unavailable or very expensive.

Question 19

Three Components of a Clash Events

Answer 19

1. The loss must arise out of multiple policies held by one insured or similar policies held by multiple insureds
2. All damages must be traceable to a specific event
3. The event must take place in its entirety within a specific timeframe

Question 20

Briefly describe finite risk reinsurance.
Describe four features of finite risk reinsurance.

Answer 20

Multi-year contracts that spread risk over time and take into account the investment
income generated over the period.

Four features are as follows:
1. Risk transfer and risk financing combined in a multi-year contract
2. Emphasis on the time value of money with investment income explicitly included in the contract
3. Limited assumption of risk by the reinsurer
4. Sharing of the results with the cedant

Question 21

Describe a loss portfolio transfer.
Describe an adverse development cover.

Answer 21

LPT
- An LPT is a form of reinsurance that transfers all or a portion of a cedant’s loss reserves present at a specific accounting date to a reinsurer.
- LPTs are often used by cedants to withdraw from a specific line of business while meeting their obligations to policies they already wrote.

Adverse Development Cover
- This is an alternative to an LPT where the cedant receives reimbursement from the
reinsurer for losses in excess of a pre-agreed retention level.
- Reserves are not transferred under these covers.
- These covers are often used for Mergers & Acquisitions to transfer the risks of timing and adverse reserve development

Question 22

Business covered clause: Two Ways in Which Reinsurance Covers Claims

Answer 22

1. Losses-occurring-during coverage – provides reinsurance coverage for all losses that occur between the contract inception and expiration date regardless of when the cedant issued the underlying policy that resulted in the loss
2. Risks-attaching coverage – provides reinsurance coverage only for those policies that began during the reinsurance contract effective period

Question 23

Briefly describe a subscription policy.

Answer 23

A subscription policy is a policy in which multiple reinsurers share a risk
subject to corresponding subscription percentages.

Question 24

ceded loss with subscription % formula

Answer 24

Question 25

Briefly describe a commutation and a commutation clause.

Answer 25

Under a commutation, the reinsurer pays the present value of reinsurance
recoveries not yet due to the cedant in exchange for full termination of all
future obligations related to the reinsurance contract.

The commutation clause lays out the terms and conditions for the
estimation, payment, and discharge of all obligations of the parties to a
reinsurance contract for the purposes of a commutation.

Question 26

Four Reasons Why a Cedant Might Pursue a Commutation

Answer 26

RECC

1. To exit a line of business or geographic region
2. To manage reserves for transfer or sale
3. To avoid the credit risk associated with its reinsurer, especially if the reinsurer has experienced a ratings downgrade
4. To better manage claims and claims-related expenses

Question 27

Three Reasons Why a Reinsurer Might Pursue a Commutation

Answer 27

DIE

1. To end a relationship with a cedant that is in run-off or one with which
   it no longer conducts business
2. To protect itself from the potential insolvency of the cedant
3. To avoid disputes when there are significant differences of opinion with
   respect to future loss development of subject losses

Question 28

Four Reasons Why Understanding Commutations is Important for the
Reserving Actuary

Answer 28

LAPU

1. Actuaries are often involved in the analysis of reinsurance contracts that
   are subject to commutation
2. Commutations affect the estimation of unpaid ceded losses. Thus, a
   ceding company’s actuary should be aware of commuted contracts
3. Commutations eliminate the corresponding liability to the reinsurer.
   Thus, a reinsurer’s actuary should also be aware of commuted contracts
4. Loss development patterns for commuted contracts could be different
   from contracts that remain in-force

Question 29

Define “sufficient data.”
Explain why ensuring “sufficient” data for projecting ultimate losses using
the development method can be challenging for reinsurers.

Answer 29

Data are sufficient if they include the needed information for the work.

When projecting ultimate losses using the development method, consistent
historical data is key. Consistency might not be present for the following
reasons:
1. Contract terms can differ from one cedant to another and from year
to year
2. Operational and strategic changes implemented at the cedant and the
reinsurer can cause significant changes in mix of business, attachment
points, policy limits, and claims processing

Question 30

Define “reliable data.”

Answer 30

Data are reliable if they are sufficiently complete, consistent, and accurate for
the purposes of the work.

Question 31

Four Steps for Data Validation

Answer 31

RIPE

1. Reconcile data against audited financial statements, trial balances, or
   other relevant records (if available)
2. Test the data for reasonableness against external or independent data
3. Test the data for internal consistency and consistency with other relevant
   information
4. Compare the data to those for a prior period or periods

Question 32

Six Reasons Why Data Validation Might be More Difficult for Actuaries
Working for Reinsurers than for Actuaries Working for Primary Insurers

Answer 32

LIB GCC

1. For each cedant and broker, different IT systems capture different types of data and use different terms for similar types of data
2. Bordereau reporting may differ by cedant and broker in the types of data reported, data labels, and the frequency of submission to the reinsurer
3. There may be lags in reporting to the reinsurer
4. There may be gaps in reporting critical claims information from the cedants (ex. loss payments, case reserves, etc.)
5. The unique nature of reinsurance policies can lead to different coverage for similar loss events with different cedants
6. There may be issues related to data coding for the reinsurer

Question 33

Three Reasons for Reporting Lags to Reinsurers

Answer 33

PLQ

1. Claims must first be reported to the primary insurer before being reported
   to the reinsurer
2. The long-tailed nature of certain types of reinsurance
3. The use of bordereau reporting, where losses are only reported on a
   quarterly or more infrequent basis

Question 34

Define a “homogeneous risk group (HRG).”

Answer 34

Obligations that are managed together and have similar risk characteristics
such as underwriting policies, claims settlement patterns, product features,
etc.

Question 35

When separating data into HRGs (homogeneous risk groups) for the purposes of estimating unpaid losses, actuaries should consider…?

Answer 35

CVS PR

• Consistency of the coverage triggered by the losses in the group
• Length of time to report the claim once an insured event has occurred (i.e.
  reporting patterns)
• Length of time to settle the claim once it is reported (i.e. payment patterns)
• Average settlement value (i.e. severity)
• Volume of losses in the group

Question 36

Briefly describe “credibility.”
Briefly describe the balance between homogeneity and credibility.

Answer 36

Credibility is a measure of the predictive value in a given application that the
actuary attaches to a particular set of data.

• Actuaries can increase homogeneity by dividing data into smaller and smaller groups.
• However, credibility decreases as data volume decreases.
• The goal is to divide the data into homogeneous groupings without compromising
  credibility.

Question 37

Eight Variables That Might Affect the Pattern of Claim Report Lags to the
Reinsurer and the Development of Individual Case Amounts (listed in priority order)

Answer 37

LOB, CC, PAT, CB

1. Line of business: property, casualty, ocean marine, etc.
2. Type of contract: facultative, treaty, finite
3. Type of reinsurance cover: quota share, surplus share, excess per risk, excess per occurrence, aggregate excess, etc.
4. Primary line of business for casualty
5. Attachment point for casualty
6. Contract terms: flat-rated, retro-rated, sunset clause, etc.
7. Type of cedant: small, larger, or excess and surplus
8. Broker

Question 38

Describe the losses and premiums used under accident year aggregation for
estimating unpaid losses.

Provide three advantages and one disadvantage to using accident year data
for estimating unpaid losses.

Answer 38

Losses – Grouped according to the date of occurrence
Premiums – CY EP are used

Three advantages are
1) easy to achieve,
2) easy to understand, and
3) become reliably estimable sooner than UWY data
- since AY data represents losses occurring over a shorter time frame.

One disadvantage is
the potential mismatch between losses and premiums
(the matching of CY EP and AY losses is only approximate)

Question 39

Describe the losses and premiums used under underwriting year aggregation
for estimating unpaid losses.

Provide one advantage and two disadvantages to using underwriting year
data for estimating unpaid losses.

Answer 39

Losses & premiums – Grouped according to the data in which the reinsurance contract was incepted

One advantage is
the exact match of losses and premiums.

Two disadvantages are
1) takes longer for data to mature and
2) can be difficult to isolate the effect of a single large event.

Question 40

Example That Shows Underwriting Year Losses Extending Over Three
Calendar Years (Before Considering Development)

Answer 40

Question 41

advantage of UWY aggregation

this is especially important when…, such as…
Why UWY > AY aggregation in this case?

Answer 41

advantage: the exact match of losses and premiums.

This is especially important when UW or pricing changes occur, such as:

A&E, CP
1) a shift in attachment points or limits
2) a new emphasis on certain classes of business or regions
3) a change in the types of ceding company
4) an increase or decrease in the price

Why UWY > AY aggregation in this case?
- All of the changes above can lead to changes in ELR and loss dev patterns
- IF we were using AY aggregation, changes such as the ones above could lead to significant heterogeneity in the data

Question 42

Two Ways in Which Underwriting Year Results are Allocated to Accident
Year

Answer 42

1. Based on how premium is earned over the contract period
2. When the reinsurer receives detailed loss data including loss dates and
   policy effective dates, the reinsurer can allocate underwriting year results
   to accident year more precisely than using earned premium

Question 43

Reserving actuaries working with reinsurers typically rely on the following data

Answer 43

1) Paid losses
2) Case reserves (set by the cedant)
3) Additional case reserves (set by the reinsurer)
4) Written premium
5) Earned premium

Question 44

Explain why reserving actuaries working with reinsurers are often unable to
calculate triangles of average claim values or count-based ratio triangles.

what do they rely on instead?

Answer 44

Detailed claim count and exposure information is often not available.

Instead rely on interviews w/ management of the reinsurer and cedant to understand changes in the underlying experience

Question 45

Identify four issues associated with bordereau reporting.

Answer 45

Four issues with bordereau reporting include:
1. How data are cumulated by the cedant and absorbed by the reinsurer
2. Potential infrequency of bordereau reporting. The more infrequent the reporting,
the greater the lag in reporting and the longer the payment pattern
3. The creation of a bordereau is often manual and time intensive
4. The loss detail on a bordereau is not nearly as detailed as the claim files of the cedant

Question 46

is ULAE included or excluded from reinsurance?

Answer 46

usually excluded

Question 47

Three Approaches for Dealing with ALAE in Terms of Reinsurance
Coverage

Answer 47

1. Included with the claim amount when determining excess of loss coverage
2. Included on a pro-rata basis. The ratio of the excess portion of the loss to
   the total loss is used to determine the reinsurance coverage for ALAE
3. Not included in the reinsurance coverage

For #2:
Ceded L&LAE = (Total L - Retained L) + (Total L - Retained L)/(Total L)*(Total LAE)
Ceded LAE = Ceded Loss / Gross Loss x Gross ALAE

Question 48

Two Approaches for Dealing with Multiple Currencies

Answer 48

Two approaches are as follows:
1. Separate the data by currency, convert each current to a common currency using “point-in-time” exchanges rates, and then combine the common currency data
2. Aggregate losses based on the cedant’s currency of origin (used when writing catastrophe reinsurance in a region with numerous countries and currencies)

Question 49

Explain why it is advantageous to use a single “point-in-time” exchange rate
when converting data to a single currency.

Answer 49

It avoids the influence of changes in exchange rates over time.

Question 50

Approach for Dealing with Large Losses When Projecting Ultimate Losses
for Reinsurers

Answer 50

• Exclude the large losses from the initial ultimate loss projection.
• Once the initial projection is complete, add a case-specific projection for the reported portion of large losses and smoothed provision for the IBNR portion of large
  losses.

Question 51

Generally, recoveries such as … on the underlying primary policies are applied … ceding losses to the reinsurer

Answer 51

Generally, recoveries such as deductibles, salvage and subrogation on the underlying primary policies are applied BEFORE ceding losses to the reinsurer

i.e. reinsurance is generally appplied to a subject loss AFTER recoveries (ded, s&s)

Question 52

salvage

subrogation

Answer 52

salvage - the sale of damaged property by the insurer after indemnifying the insured for a loss (e.g. You get in a car crash totaling your car. The insurer pays you the original value of the car to make you whole and then sells the totaled car for scrap to partially offset the loss)

subrogation - after a primary insurer indemnifies an insured for an insurable loss caused by a third party, the insurer can sue the third party and collect damages to offset the loss

Question 53

An actuary working for a reinsurer may experience greater challenges in understanding the impact of operational changes on the estimation of unpaid claims. A big reason for this is…

actuaries working w/ reinsurers must also understand…

Answer 53

actuary must understand operational changes occurring at cedants AND reinsurers

legal and economic environment changes that might impact the loss experience of cedants (ex. tort reform)

Question 54

Identify three potential operational changes for a reinsurer that are
important for the reserving actuary to understand.

Answer 54

1. Systems modernization efforts such as the implementation of new policy
   administration systems and claims administration systems
2. The increased use of analytics and big data to influence pricing, marketing, and underwriting
3. Acquisitions and divestitures made by ceding companies

Question 55

Reporting lags

loss data for reinsurers lags those of cedants b/c…

reporting lags can be esp bad for … reinsurance where …

to lessen the impact of reporting lags, reinsurers often…

Answer 55

the losses must first be reported and investigated by the cedant before being reported to the reinsurer

excess of loss reins where it can take time to realize that a claim will exceed the retention threshold

put reporting requirements in reinsurance contracts
ex: a contract might state that a claim must be reported to the reinsurer once it reaches a specified dollar amount

Question 56

Describe the Reinsurance Association of America’s (RAA) biannual loss
study.

Answer 56

• Includes historical loss development patterns by accident year for reinsurers
  writing casualty excess reinsurance for auto liability, general liability, and medical
  malpractice
• Organizes patterns separately by treaty and facultative business and five ranges
  of attachment points
• Discusses how loss development patterns have changed over the last few years
  and provides possible reasons for those changes
• Discusses how loss development has varied depending on the business being
  considered

Question 57

Describe the external reinsurance data provided by Best’s Aggregates &
Averages.

Answer 57

Based on the non-proportional loss data found in Schedule P.

It has the following limitations:
* An experience period of ten year, which is not typically long enough for excess of loss reinsurance
* The segmentation is not granular enough
* The combined experience may not reflect the experience of an individual reinsurer

Question 58

Describe an issue with external reinsurance data found using internet
searches.

Answer 58

Internet searches typically provides highly aggregated data which is unlikely
to be sufficient for estimating unpaid losses for a single reinsurer.

Question 59

Four General Reasons External Data May Not Be Useful for a Reinsurer

Answer 59

External data may not be useful for a reinsurer due to differences in the following:
1. Reinsurance contract terms and conditions
2. Mix of assumed business
3. Types of reinsurance
4. Underwriting processes

Question 60

2 basic approaches for determining unpaid losses

actuaries typically use … approach since…

Answer 60

2 basic approaches:
1) project ult losses and unpaid losses on a gross of reins basis and net of reins basis.
- Then subtract the two to estimate ceded unpaid losses
2) project ult losses and unpaid losses on a gross of reinsurance basis and ceded basis.
- Then subtract the two to estimate net of reinsurance unpaid losses

actuaries typically use the first approach since ceded data often have limited credibility due to the following:
- higher volatility from large claims and catastrophe events
- frequent changes in terms and conditions (es. attachment points, limits, etc.) that result in less homogeneous data

Question 61

3 methods actuaries typically use to estimate unpaid losses

Answer 61

1) development method
2) expected method
3) BF method

Question 62

3 key assumptions of the development method

Answer 62

1) losses recorded to date will continue to develop in a similar manner in the future
2) for an immature year, the losses or premiums observed thus far tell the actuary something about the losses or premiums yet to be observed
3) claims processing, mis of business, policy limits and reinsurance coverage is consistent throughout the experience period

Question 63

A major difference in projecting ultimate losses for primary insurance and reinsurance is that…

this makes sense b/c…

Answer 63

reinsurance data tends to be far less credible due to volume, volatility and heterogeneity of the data

This makes sense given the nature of the losses associated with excess of loss reinsurance

Question 64

Four Considerations When Selecting Age-to-Age Factors

Answer 64

1. Smooth progression of individual age-to-age factors and average factors across development periods
2. Stability of age-to-age factors for the same development period
3. Credibility of the experience
4. Changes in patterns and applicability of the historical experience

Question 65

The expected method is often used in the following situations

Answer 65

1) entering a new LOB or new region
2) changes in strategy, operations, or the environment make historical data no longer indicative of the future
3) immature years where development factors are highly leveraged, in which case the development method is not appropriate
4) data are unavailable for other method

Question 66

key assumption of the expected method

Answer 66

actuary can better estimate unpaid losses based on an “a priori” estimate than from loss experience observed to date

Question 67

how does BF method address the disadvantages of the development and expected method

Answer 67

• the development method can produce volatile and unreliable estimates in immature AYs w/ large CDFs since a small change in reported or paid losses can lead to a large change in projected ultimate losses
• the expected method ignored actual reported or paid losses to date
• the BF blends the two methods by adding actual reported or paid losses to expected unreported or unpaid losses to project ultimate losses

Question 68

when running any of the 3 methods, there are key differences in assumptions btwn primary insurance and reinsurance

• similar LOB, LDFs
• similar LOB, tail factors
• loss trend factors
• premium on-level factors
• adj for changes such as tort and product reform

Answer 68

• similar LOB, LDFs in the earlier maturity age intervals are often higher for reins than for pri insurance due to reporting lags
• similar LOB, tail factors are often higher due to reporting lags and the nature of large claims associated w/ XOL reinsurance
• loss trend factors tend to be higher for XOL reins than primary ins
• premium on-level factors - there is less precision in premium OLFs that adj for rate changes. Detailed rate change info is often difficult to obtain for reinsurers due to the unique nature of reinsurance arrangements
• adj for changes such as tort and product reform are less common in reinsurance reserving

Question 69

Contrast the volatility one might expect to see in age-to-age factors and
projected IBNR losses in the following situations:
* Primary insurance and reinsurance for a similar type of business
* Proportional and non-proportional reinsurance for the same line of
business
* Property reinsurance excluding catastrophe and property
reinsurance catastrophe

Answer 69

Primary insurance and reinsurance for a similar type of business
Expect to see greater volatility in age-to-age factors and projected IBNR losses for
reinsurance than for primary insurance

Proportional and non-proportional reinsurance for the same line of business
Expect to see greater volatility in age-to-age factors and projected IBNR losses for nonproportional than for proportional insurance

Property reinsurance excluding catastrophe and property reinsurance catastrophe
Expect to see greater volatility in age-to-age factors and projected IBNR losses for property reinsurance catastrophe than for property reinsurance excluding catastrophe

Question 70

Explain why paid loss age-to-age factors often experience greater volatility
than reported age-to-age factors at early maturities.

Answer 70

Due to the longer time frame for claims settlement, which in turn produces
lower paid loss volume at early maturities.

Question 71

Explain why non-proportional reinsurance typically experiences greater
volatility in age-to-age factors than proportional reinsurance.

Answer 71

Proportional reinsurance attaches on a ground-up basis, whereas nonproportional
reinsurance is excess of loss coverage. Ground-up losses are
more stable than excess losses.

Question 72

Explain why cumulative development factors are typically greater for nonproportional
reinsurance than for proportional reinsurance.

Answer 72

There are typically delays associated with non-proportional reinsurance. For
example, the claim will not be reported to the reinsurer until the it exceeds
the primary reinsurer’s retention.

Question 73

Provide an approach for developing reserves for total Property losses,
assuming the losses include catastrophes.

Answer 73

1. Set reserves for each individual catastrophe event based on ground-up
   assessments from the claims team or a catastrophe model
2. Project non-catastrophic losses using traditional methods such as the loss
   development method
3. Add the catastrophe reserves to the non-catastrophic reserves to obtain
   the total reserves

Question 74

Briefly describe why a constant paid-to-reported ratio in an age-to-age
interval does not necessarily mean that there are no changes in claims
operations.

Answer 74

Changes in settlement practices (captured by the numerator) might offset
changes in case outstanding adequacy (captured by the denominator),
resulting is a constant ratio.

Question 75

Briefly describe what typically happens from a market perspective once a
company breaches a stop-loss limit.

Answer 75

It is common for the reinsurer to increase the price or the attachment point
of the stop-loss coverage. Furthermore, multiple breaches of a stop-loss limit
may make it difficult for a ceding company to secure stop-loss coverage in the
future.

Question 76

stop loss - ceded and net loss formula

Answer 76

Question 77

stop loss reinsurance can help a ceding company to …

Answer 77

protect its capital

Question 78

ult loss with CAT adj formula

Answer 78