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Exam 6 > Part 8 (Odomirok 15) (***) > Flashcards

Part 8 (Odomirok 15) (***) Flashcards

*** Structure of Schedule P | *** What data is contained in each Part

1
Q

What is the most important schedule in the Annual Statement?

A

Schedule P

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2
Q

Parts of Schedule P

A

Part 1: Loss & LAE
Part 2: Historical net incurred loss & DCC estimates
Part 3: Historical net paid loss & DCC
Part 4: Historical net IBNR for loss & DCC
Part 5: Historical claim counts
Part 6: Historical earned premium
Part 7: Loss and premium data on loss sensitive contracts

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3
Q

Schedule P Part 1

A

Loss & LAE

Premiums shown are by Calendar Year
Losses are by Accident Year
Loss Information is net of salvage/subrogation (Col 10 is just for information)
AAO expenses are not associated with individual claims, reserves are not segmented into case and IBNR
Totals are sums from all other columns
Net is Direct and assumed - ceded

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4
Q

How are premiums shown in S.P/P.1

A

By Calendar Year

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5
Q

How are losses shown in S.P/P.1

A

By Accident Year generally, but depends on policy type

Occurrence: Accident Year
Claims Made: Report Year
Tail: Policy Year
Fidelity & Surety: Discovery Year
- Fidelity: Cover losses due to fraud of a particular party
- Surety: Responsible for debt of a different party

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6
Q

How is LAE split

A

Defense & Cost Containment (DCC): Defense, litigation, and medical cost containment
Adjusting and Other (A&O): All other expenses associated with adjusting and recording claim

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7
Q

How is LAE shown

A

DCC is shown by Accident Year
A&O is assigned “in any justifiable way”
- Preferred way is in proportion to the number of claims reported, closed, or outstanding each year

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8
Q

Case & IBNR Reservers in Part 1 of Schedule P are what

A

Net of tabular discount

and

Gross of non tabular discount
- Until columns 32&33; and Net in 35 & 36

and

Net of intercompany pooling

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9
Q

Claim counts in Schedule P in part 1 are on what?

Since they are on this method, what can be calculated?

A

on a direct and assumed basis

Frequency trends, based on the ratio of claim count to prem can be calculated
- Trends may be distorted as claim counts is not developed to ultimate
- trends calculated based on premium will be distorted by rate changes

Severity trends, based on the ratio of d&a loss to claim counts can be calculated
- Not developed to ultimate
- Mix of business may be changing over time affecting severity
- Policy Limits may increase, also increasing severity
- Reinsurance attachment points & limits
- The way claims are counted (occurrence, claimants)

Avg cost of open claims = Case Reserves / Number claims outstanding
- Typically increases overtime. But then after a certain point will start decreasing when insurance company starts making payments

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10
Q

Schedule P Part 2-4 contained what

A

Loss triangles of each line

Part 2 = Net incurred loss & DCC
Part 3 = Net paid loss & DCC
Part 4 = Net Bulk & IBNR for loss & DCC

  • In this case incurred includes IBNR for this
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11
Q

What can be derived from Schedule P Part 2-4

A

Triangles of Case Reserves
Case reserves = Part 2 - Part 3 - Part 4

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12
Q

What are the issues with determining LDFs from Schedule P data

A
  • Instructions to complete Schedule P are not completely comprehensive
    • So may be different from company to company
  • Internal pooling or reinsurance arrangements may not be obvious
  • Distortions due to changes in pool participations; or Communications
  • Schedule P has 10 AYs of data, but development may occur later
  • Losses and DCC are combined, potentially hiding trends in either component
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13
Q

Schedule P Part 4

A

Represents the bulk & IBNR reserves for all AYs prior to the ten most recent

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14
Q

How to calculate Schedule P Part 4

A

Column before the right most column can be derived from the prior year’s part 4 by adding the year and prior in previous together.

For most right column, current year’s Part 1, in addition to the current tabular discount amount.

Part 1 Col 15 (D&A Bulk & IBNR Loss) - Part 1 Col 16 (Ceded Bulk & IBNR loss) + Part 1 Col 19 (D&A Bulk & IBNR DCC) - Part 1 Col 20 (Ceded Bulk & IBNR DCC) + Tabular Discount

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15
Q

Schedule P Part 3

A

Shows payments that have been made on the reserves since a valuation date with all prior AYs combined.

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16
Q

How to calculate Schedule P Part 3

A

Columns before the right most column can be derived from prior year’s part 3.

For right most column, all from Part 1
(D&A - ceded) paid loss + (D&A - ceded) paid DCC
Col 4 - 5 + 6 - 7

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17
Q

How and when to derive Schedule P Part 2

A

Derive after deriving part 3 first

Prior year row: Ending reserves of each year end (based on the schedule P from previous year) and paid losses from the corresponding Prior Years row of part 3

For right most column use current year’s part 1 and 3
- Cumulated paid losses + Reserves
- Reserves are derived from the current Part 1: Col 24 - (21 - 22)
- - Gross up for tabular discounts

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18
Q

Schedule P Part 5 and the 3 parts

A

Shows 10 years of claim counts on a direct plus assumed basis, grouped by AY

Has 3 sections
- Cumulative number of claims closed with loss payment
- Number of claims outstanding
- Cumulative number of claims reported

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19
Q

What metrics can be calculated using S.P/P.5 data

A
  • Claim Closure rate
  • Closed with pay ratio
  • Claim frequency
  • Avg Claim severities
  • Reasonableness Tests
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20
Q

Claim closure rate

A

Closed Claims / Total Reported Claims

Claims - All claims or closed with payments

This can be used to identify if claim settlement rate has changed
- This can distort chain ladder method

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21
Q

Closed with Pay (CWP) Ratio

A

Closed with Pay (CWP) / Total Closed Claims

  • A decrease may seem good, but could mean there will be an increase in reopened claims in future
22
Q

Claim Frequency

A

Claim Count (Part 5) / Earned Prem (Part 1)

  • EP may be distorted by rate changes
23
Q

Claim Severities different metrics and what it tells us

A
  • Avg Closed Claim Severity
  • Avg Case O/S Severity
  • Avg Reported Claim Severity

Used to see if strengthening or weakening of case reserves and if reserving method needs to be changed.

24
Q

Avg Closed Claim Severity

A

Net Paid Loss & DCC (Part 3) / D&A Claims CWP (Part 5 Sec 1)

Numerator includes payments on both open and closed claims, but denominator is only closed

25
Q

Avg Case O/S Severity

A

Net Case O/S Loss & DCC / D&A Open Counts

26
Q

Avg Reported Claim Severity

A

Net Reported Loss & DCC / D&A Reported Counts

27
Q

Reasonableness Tests: Unpaid Data

A

Avg Claim Frequency

Avg Ultimate Severity

Avg Unpaid Claim Severity

28
Q

Avg Claim Frequency

A

Ultimate Claim Count by AY / Corresponding EP

Increasing - More claims? Concern
Decreasing - Less claims? Volatility or changes in business practice?

29
Q

Avg Ultimate Severity

A

Ultimate Loss & DCC by AY / Ultimate Claim Counts

  • How much did each claim cost on average during the year
30
Q

Avg Unpaid Claim Severity

A

Unpaid Loss & DCC by AY / Unpaid Claim Counts

  • Include no payments and partial payments
31
Q

Schedule P Part 6

A

Shows the Cumulative EP by exposure year for the last ten years, valued as of 12/31

Exposure year is like Calendar year, but if changes from audits, retrospective rating, or lags occur, the premium will change in that exposure year.

32
Q

How can Part 1 be generated from Part 6 in Schedule P

A

Corresponding value from the left most diagonal of Part 6 plus and adjustments to prior exposure years that arise during the calendar year.

33
Q

Schedule P Part 7

A

Provides policy year premium and loss information on loss sensitive contracts

Optional

34
Q

Parts of Schedule P Part 7

A

Part A: Primary Contracts (Direct Business)
Part B: Reinsurance Contracts (Assumed Business)

35
Q

Schedule P Part 7 Part Sections

A

Both Parts, A&B have sections

  • Section 1: Net Loss and 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 same format as Part 2)
  • Section 3: loss & DCC IBNR on loss sensitive contracts (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
36
Q

Schedule P Part 7 Part Section 1

A

Net Loss and LAE unpaid and NWP on loss sensitive contracts, relative to all contracts, for each Schedule P line

37
Q

Schedule P Part 7 Part Section 2

A

incurred loss & DCC on loss sensitive contracts (in same format as Part 2)

38
Q

Schedule P Part 7 Part Section 3

A

loss & DCC IBNR on loss sensitive contracts (same format as Part 4)

39
Q

Schedule P Part 7 Part Section 4

A

net earned premiums on loss sensitive contracts (in the same format as part 6)

40
Q

Schedule P Part 7 Part Section 5

A

triangle of net reserves for premium adjustments & accrued retrospective premiums for each of the last ten years that the policies were issued

41
Q

Schedule P Interrogatory 1

A

Extended reporting endorsements if offered and how they report DDR reserve.

42
Q

Schedule P Interrogatory 2

A

IF LAE is being defined as DCC and A&O

43
Q

Schedule P Interrogatory 4

A

If reserves are net of non-tabular discounts

44
Q

Schedule P Interrogatory 6

A

If insurer reports claim counts per claim or claimant

45
Q

Schedule P Interrogatory 7 (most important interrogatory)

A

Any changes or anything special that the user needs to be aware of if relying on Schedule P data to asses the adequacy of recorded loss & LAE reserves

46
Q

Intercompany Pooling

A

Structure in which a group of affiliated companies share exposure

47
Q

Schedule P is the only exhibit that does not treat the pooling arrangement as what

A

reinsurance

  • Other exhibits will double count the cessions of intercompany pooling
  • On a net basis, the numbers will be the same
48
Q

If there is a change in the intercompany pooling percentage, how is Schedule P restated

A

retroactively to reflect the updated pooling percentage

49
Q

What is an alternative structure to Intercompany pooling

A

Intercompany reinsurance

50
Q

Intercompany Reinsurance

A

One affiliated company reinsures an affiliate

  • Accounted for the same way as third party reinsurance
  • Harder to administer compared to intercompany pooling
  • Need multiple unpaid claim analysis compared to pooled basis

Exam 6 (31 decks)

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