Odomirok - Schedule P Flashcards
What are the most important uses of Schedule P?
DT-RAPID
- Development of Reserves over time attributable to specific years & lines
- Trends in frequency and severity
- -
- Calculate RBC loss-sensitive discount
- Evaluate Adequacy recorded reserves
- Determine Payment patterns for discounting
- Observe split between actuarial reserves (IBNR) and case reserves
- Disclosures for SAO**
What are the parts of Schedule P?
7
- Part 1: tables of everything by accident year as of current evaluation (losses, expenses, premiums, claim counts). Matches the Balance Sheet
- Parts 2 to 4: Triangles of losses components (ultimates in Part 2, paids in Part 3, IBNR in Part 4).
- Part 5: triangles of claim count (Reported, Oustanding, Closed with Payment).
- Part 6: triangles of earned premium (Direct and Ceded)
- Part 7: tables & triangles for loss-sensitive contracts
Parts 1 to 4 - Summary plus LOB splits, Part 5-7 no summary,
How do you calculate Case Reserves from Schedule P
Case Reserve = Part 2 (Total) - Part 3 (Paid) - Part 4 (Bulk IBNR)
- The total loss dollars minus paid and bulk equals the case reserve.
How do you calculate the current year paid loss from Schedule P?
(Cumulative Paid in CY) - (Cumulative Paid in CY-1)
The difference in cumulative paid from one year to the next is the incremental paid (ie CY Paid)
How do you calculate case incurred using schedule P?
2 Ways!
Σ(chg in case in CY) + Σ(paid in CY)
(the change in case reserve + change in paid equals the case incurred)
or
Σ(chg Part 2 Ultimate Loss) - Σ(chg Part 4 Bulk IBNR)
(the change in ultimate loss - change in bulk IBNR equals paid plus case reserve which is equal to incurred)
How do you calculate average case reserve per outstanding claim and how is used to asses reserve adequancy?
= (Part 2 - Part 3 - Part 4) / Part 5 Section 2
The numerator gives case reserves, while Part 5 Section 2 has oustanding claims counts.
If Increasing: Using an unadjusted reported method, then historical link ratios may overstate reserves
If Decreasing: Using an unadjusted reported method, then historical link ratios may understate reserves
How do you calculate claim closure rate and how is used asses reserves
Two Ways
* (Part 5, Section 3 - Part 5, Section 2) / Part 5, Section 3)
* The numerator (Total minus outstanding) gives claims closed with or without payment and Section 3 is the total reported claims
* Part 5, Section 1 / Part 5 Section 3
* This gives the claims closed with payment ratio.
How is used? If claim closure rate is decreasing (increasing) then use of unadjusted development factor method will underestimate (overestimate) unpaid claims
Example: If the ratio is decreasing then this implies less dollars have been settled than historically and that link ratio’s would underestimate reserves.
How do you calculate the Claim Outstanding Ratio and how is it used?
Part 5, Section 2 / Part 5, Section 3
- If the ratio is increasing then an unadjusted development factor method will underestimate unpaid claims.
- Also, longer claims are open then there is a greater chance for adverse development requiring additional reserves
How is Average Unpaid Oustanding Calculated?
(Part 2D - Part 3D) / (Part 5D, Section 2)
(so basically total - paid = outstanding (case + bulk)
If these amounts are decreasing then an unadjusted reported method would understate reserves (since history had more oustanding per claim)
Opposite if increasing.
How do you calculate Claims Closed with Pay as a Percent of Total Reported Claims
(Part 5D, Section 1) / (Part 5D, Section 3)
if claim closure rate is decreasing then unadjusted triange would yield understatement of reserves.
How do you calculate the Paid to Incurred Ratio and how is it used to assess reserves?
(Part 3D) / (Part 2D)
If it is increasing and then it could mean you are under-reserved as the reserves to paid is low. However, need more info as there could be a change in claim practices.
How is Paid to Case Incurred Ratio calculated and what does it mean for reserves?
(Part 3D) / (Part 2D - Part 4D)
Paid divided by (Total - Bulk)
If this ratio is changing then it could indicate a change in case reserve strength (stronger/weaker) or a change in settlement practices (faster/slower), either of which could have an impact when calculating reserves.
If you are using Schedule P to assess to reserves, what would you want to know about the companies business before proceeding?
- Mix of business
- Claim settlement practices
- Reserving practices
- Rapid premium growth/shrinkage
- Retentions
- Policy limits
- Intercompany pooling
- Definition of claim count
- Commutations
How is Intercompany pooling handled for Schedule P?
Schedule P Gross: Equals the total Gross Reserves for all companies times the participation rate the specific company
* Gross Reserves Each Company = Total Direct Loss and LAE x Pool %
Schedule P Net The Net Reserve for an individual company is equal to the Total Net Reserves (Total Gross - Total Ceded) for all Companies in pool times the participation rate for the individual company.
* Net Reserves Each Company = Total Net Loss and LAE x Pool %
How is Intercompany pooling handled for non-Schedule P?
Gross
Lead Company A Gross: Lead Company A Direct + ∑Non Lead Company Net (Assumed)
* Where Net is after losses ceded to outside reinsurer.
Non-Lead Company B Gross: Non-Lead Company B: Company B (direct) + (total net) x (B pool %)
Lead Company A and NonLead Company B
