Odomirok 15 Flashcards

1
Q

List some uses of Schedule P (in addition to being used by outside parties to assess the reserve adequacy)

A
  • 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 & severity, and changes in claims handling & reserving
  • Provides the data to calculate the RBC loss sensitive discount
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2
Q

List the parts of Schedule P

A
  • Part 1: loss & LAE experience as of 12/31 of the current year.
  • Part 2: historical net incurred loss & DCC estimates
  • Part 3: historical net paid loss & DCC
  • Part 4: historical net IBNR for loss & 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
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3
Q

How are losses in Part 1 grouped

A
  • Occurrence policies: Accident Year
  • Claims Made policies: Report Year
  • Tail policies: Policy Year
  • Fidelity & Surety policies: Discovery Year
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4
Q

2 components of LAE

A
  1. Defense & Cost Containment (DCC)
  2. Adjusting and Other (A&O)
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5
Q

List some examples of DCC

A
  • surveillance expenses
  • fixed amounts for medical cost containment
  • litigation management expenses (eg audit of bills)
  • LAE for pools, if reported by AY
  • fees & salaries for appraisers, private investigators, hearing representatives, reinspectors, fraud inspectors; if working in defense of a claims
  • fees & 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)
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6
Q

List some examples of A&O

A
  • fees of adjusters & settling agents
  • LAE for pools, if reported by CY
  • fees & 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
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7
Q

How was LAE historically segmented

A
  • Allocated Loss Adjustment Expenses (ALAE): expenses that can be allocated to a specific claim
  • Unallocated Loss Adjustment Expenses (ULAE): expenses that can not be allocated to individual claims
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8
Q

How are S&S expenses recorded

A
  • Paid losses are recorded net of S&S received
  • Unpaid losses can be net or gross of anticipated S&S
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9
Q

How are tabular & non tabular discounts treated in Part 1

A
  • Net of tabular discount
  • Gross of non tabular discounts (until columns 32 & 33) and Net (in columns 35 & 36)
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10
Q

List 2 things that the claim count data from Schedule P can be used to identify/ analyze

A
  1. changes in losses
  2. changes in claims settlement or reserving philosophy
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11
Q

What types of changes should actuaries look out for, when analyzing trends

A
  • Mix of business (type of exposure, geography)
  • Policy limits
  • Reinsurance attachment points & limits
  • The way that the company counts its claims
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12
Q

How is discounting reflected in Parts 2-4

A

Data is gross of all discounting.

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13
Q

Issues with using the information in Parts 2 to 4 to develop losses

A
  • 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
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14
Q

What changes should be considered when using the information in Parts 2 to 4 to develop losses

A
  • Retentions
  • Claims settlement & reserving
  • Business mix
  • Underlying exposures
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15
Q

Formula to populate the right most column of the Prior Years Row of Part 3

A

It equals the Part 3 2nd right most column, plus the following from Part 1:
D&A loss - ceded loss + D&A DCC - ceded DCC = Col 4 - 5 + 6 - 7

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16
Q

3 sections of Part 5

A
  1. Cumulative number of claims closed with loss payment
  2. Number of claims outstanding
  3. Cumulative number of claims reported
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17
Q

What inconsistency should users be aware of when comparing Part 5 data of different companies

A

Some companies record counts on a per claim basis, whereas others record them on a per claimant basis.

18
Q

List some metrics that can be derived from the claim count data (in addition to other data from the Annual Statement)

A
  • Claim closure rates
  • CWP ratios
  • Claim Frequency
  • Avg Claim Severity
19
Q

Formula for closure rate

A

Closed claims / total reported claims

20
Q

2 advantages of closing claims early

A
  1. Minimize chance that the claim will develop adversely
  2. Allow to insured to receive medical treatment/ repair property damage/ recover from loss
21
Q

3 reasons that settlement rates may reduce

A
  1. Reduction in staff
  2. Growth in the book without a corresponding increase in staff
  3. Surge in claims from a catastrophe
22
Q

Expected impact to ultimate loss projection if a slow down in settlement rates is not reflected

A

This will result in an understated projection.

23
Q

CWP ratio equation

A

CWP claims / total closed claims

24
Q

Claims Frequency equation

A

Claim Counts (from Part 5) divided by Earned Premiums (from Part 1)

25
Average Claim Severity formula
Net paid loss & DCC (from Part 3) / direct and assumed claims closed with payment (from Part 5, Section 1)
26
Average Case Outstanding Severity formula
Net case outstanding loss and DCC (Part 2 - 3 - 4) / direct and assumed open counts (Part 5, Section 2)
27
Average Reported Claim Severity formula
Net reported loss & DCC (from Part 2 - 4) / direct & assumed reported counts (Part 5, Section 3)
28
Factors that may cause loss trends
* Inflation * Law changes * One time catastrophic claims * Changes in deductibles/ retentions * Internal factors
29
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
30
List some reasons that premiums in Part 6 may change over time
* Premium audits * Retrospective rated policies * Lags in reporting/ accounting for premiums
31
When would an insurer populate Part 7
Only if it is using the loss sensitive adjustment to RBC
32
List the 2 parts of Part 7
* Part A: Primary Contracts (direct business) * Part B: Reinsurance Contracts (assumed business)
33
List the five sections of each part of Part 7
* Section 1: net loss & LAE unpaid and NWP on loss sensitive contracts, relative to all contracts, for each Schedule P line * Section 2: incurred loss & DCC on loss sensitive contracts, in the same format as Part 2 * Section 3: loss & 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 & accrued retrospective premiums for each of the last ten years that the policies were issued
34
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.
35
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 o ered the endorsement for free (or at a reduced rate) * The remaining parts are about how the company reports the DDR
36
Main purpose of Interrogatory 1
Ensure that the ERE coverage has been reserved for.
37
What topics does Interrogatory 2 cover
Asks if the LAE is being defined as DCC and A&O
38
What topics does Interrogatory 4 cover
Asks for disclosure about whether the reserves are net of non-tabular discounts.
39
What topics does Interrogatory 6 cover
Whether the insurer reports claim counts per claim or per claimant.
40
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 & LAE reserves