Patrik

Question 1

Components of Reinsurer’s loss reserve

Answer 1

1. Case reserves reported by ceding companies
2. Reinsurer additional reserves on individual claims
3. Actuarial estimate of future development on 1 &2
4. Actuarial estimate of pure IBNR
5. Discount for future investment income
6. Risk load
   - adverse deviation loading to keep reserves at conservative level

Question 2

Stanard-Buhlmann (Cape Cod)

Answer 2

Question 3

earned risk PP

Answer 3

earned risk PP = EP*(1-expenses % for treaty)

Question 4

modification made to earned risk PP to get adj prem

Answer 4

current rate level

Question 5

we want all prem to be on same level because

Answer 5

combining all years to calc single ELR

Question 6

advantage of CC vs BF

Answer 6

ultimate ELR for all years combined is estimated from overall reported claims experience, instead of being selected judgmentally like BF

Question 7

advantage of CC vs CL

Answer 7

more stable in most recent AYs & when fluctuations in reported losses

Question 8

disadvantage of CC

Answer 8

IBNR by year is dependent on rate level adj prem which may be difficult to obtain

Question 9

Simple Credibility IBNR estimate

Answer 9

-gives more weight to SB estimate for immature years and gives more weight to CL for older years where cuml. rate level adjs are less reliable

Question 10

If more claims emerge than expected, what does it mean?

Answer 10

• purely random?
• does it indicate that beginning IBNR was too small?
• were the lags too short?
• thought 80% done, but only 70% done

Question 11

Claim report lags to reinsurers are generally longer

Answer 11

• lengthy reporting pipeline = reported to cedant, claim filters through cedant’s report system to reinsurance department, claim travels through intermediary, claim appears in reinsurer’s system
• serious claims tend to be under reserved (modal)
• mass tort claims may have extreme delays in discovery or in reporting to cedant

Question 12

Persistent upward development of most claims reserves

Answer 12

• economic and social inflation
• tendency of claims adjusters to reserve at modal values
• tendency to under reserve ALAE

Question 13

Claims reporting patterns differ greatly by reinsurance line, by type of contract, by specific terms, by cedant, and possibly intermediary

Answer 13

• exposures assumed by reinsurers tend to be heterogeneous
• traditional reserving methods require large volumes of homogeneous data
• even when reinsurers have large amounts of similar exposure, low freq and lengthy report lags may cause extreme fluct. in hist data

Question 14

industry statistics are not very useful

Answer 14

• no breakdown of reinsurers’ exposures into homo. Groups
• severity of development increases with attachment point
• industry data heterogeneity may be caused be aggreg, of cedant LOBs into 1 LOB for reinsurance reporting
• RAA data only distributed once every 2 years

Question 15

Reports reinsure receives may be lacking important info

Answer 15

• proportional covers require only summary claims info
• often data by CY instead of AY
• info tends to be insufficient even when ind. claims reporting
• reinsurer’s exposure is not completely measured in most recent year

Question 16

Because of heterogeneity in coverage and reporting requirements, reinsurers often have data coding and IT systems problems

Answer 16

-business grows faster than ability of reinsurer’s data systems to handle and produce reports

Question 17

US tax reform act of 1986

Answer 17

• requires discounting of loss reserves for income tax purposes
• no longer have implicit risk margin built into loss reserve estimates

Question 18

Claim development is extremely difficult

Answer 18

• reinsurance contract are unique
• significant fluct. during development because of single large claims

Question 19

Reinsurance loss reserving problems: 8 problems

Answer 19

1. Claim report lags to reinsurers are generally longer
2. Persistent upward development of most claims reserves
3. Claims reporting patterns differ greatly by reinsurance line, by type of contract, by specific terms, by cedant, and possibly intermediary
4. Because of heterogeneity in 3, industry statistics are not very useful
5. Reports reinsure receives may be lacking important info
6. Because of heterogeneity in coverage and reporting requirements, reinsurers often have data coding and IT systems problems
7. Size of adequate loss reserve compared to surplus is greater for reinsurer
8. US tax reform act of 1986

Question 20

ultimate loss ratio for CC

Answer 20

Question 21

predicted reported loss development using CL

Answer 21

Question 22

examining difference between actual and predicted loss as percentage of expected loss development -> what does it mean

Answer 22

if loss development is higher than expected and is consistently hgiher than expected for all AYs, this could be pure randomness or report pattern from Gamma is too short

*could continue to watch development over next few quarters

Question 23

considerations to appropriately partition BoB for loss reserving purposes

Answer 23

goal is to partition into reasonably homogeneous exposure groups with consistent mixes of business

first groups should be split out by LOB since prop, WC, and GL will all have very different development patterns

book should be split out by type of contract and cover

Question 24

if asbestos is covered

Answer 24

those exposures should be split out

Question 25

casualty excess contracts should be partitioned by attachment point because

Answer 25

treatues with different retention will develop very differently

Question 26

level of partioning depends on

Answer 26

how big the book is because its important that each partition has enough experience and exposures to be credible

Question 27

most important variables for partitioning

Answer 27

LOB

type of contract

type of reinsurance cover

primary line of business for casualty

attachment point for casuality

Question 28

if short-tailed exposure treaties

Answer 28

should use methods that are reasonably accurate and not too time intensive or costly

if treaties are still in current year, it would be appropriate to set IBNR as percentage of EP or reserve to a selected LR

Question 29

if long-tailed exposure treaties

Answer 29

if old, CL may be approriate

CC also appropriate and doesn’t rely on selected LR like BF

should discuss with claims and UW where asbestos fall under these treaties if they are from the 80’s

Question 30

why would management have hard time believing loss estimates?

Answer 30

because of different technical problems that make reinsurance reserving more uncertain and difficult than primary insurance reserving, size of adequate loss reserve will be larger compared to surplus

few reported losses so far that have hit the casualty excess contract

***convince of the need to adequately set reserves even if there aren’t signifiant reported losses to date