Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

exam 7 > Patrik > Flashcards

Patrik Flashcards

1
Q

name 7 reinsurance loss reserving problems

Patrik - Reinsurance

A

1-claim report lags to reinsurers are longer
2-persistent upward development of most claim reserves
3-reporting patterns differ greatly
4-industry statistics aren’t very useful
5-reports to reinsurers lack important info
6-data coding and IT systems problems
7-ratio of adequate loss reserve to surplus is greater for a reinsurer

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

what is the reporting pipeline for reinsurance losses?

Patrik - Reinsurance

A

1-claim is reported to cedant
2-claim filters through cedant’s report system to its reinsurance department
3-claim travels through an intermediary before finding its way to the reinsurer
4-claim appears in reinsurer’s claim system

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

what are two reasons (besides the lengthy reporting pipeline) that cause claim report lags to reinsurers to be longer?

(Patrik - Reinsurance)

A

1-serious claims tend to be under-reserved (modal reserving practices) -> extends reporting pipeline because it takes longer for claims to exceed reinsurance threshold
2-mass tort claims (e.g. asbestos-related injuries) may have extreme delays in discovery or in reporting to the cedant

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

what 3 things cause persistent upward development of most claim reserves?

(Patrik - Reinsurance)

A

1-economic and social inflation
2-tendency of claims adjusters to reserve at modal values
3-tendency to under-reserve ALAE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

what are 5 ways claims reporting patterns can differ?

Patrik - Reinsurance

A 
1-reinsurance line
2-type of contract
3-specific contract terms
4-cedant
5-intermediary
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

why are differing claims reporting patterns a problem for reinsurance loss reserving?

(Patrik - Reinsurance)

A
  • exposures tend to be heterogeneous
  • traditional reserving methods require large volumes of homogeneous data
  • even with large amounts of similar exposure, low frequency and length report lag may cause extreme fluctuation in historical loss data
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

what reinsurance industry statistics are available?

Patrik - Reinsurance

A

every two years, the Reinsurance Association of America (RAA) publishes a summary of casualty excess reinsurance loss development statistics

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

what should be considered when using reinsurance industry statistics?

(Patrik - Reinsurance)

A
  • heterogeneity of exposure
  • reporting differences by company
  • incomparable Schedule P’s because the Annual Statement does not properly categorize reinsurance exposures into homogeneous groups
  • most reinsurer’s loss reserves are aggregated into one LOB (excess casualty)
  • ISO LD statistics by line are not applicable to reinsurance reserving w/o significant adjustments to the data - these may increase the indicated growth
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

what information might the reports received by the reinsurer be lacking?

(Patrik - Reinsurance)

A
  • only summary claim information instead of detailed (or insufficient detail)
  • data reported by CY/UWY instead of AY
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

what can cause data coding and IT systems problems?

Patrik - Reinsurance

A
  • heterogeneity in coverage
  • reporting requirements
  • business grows faster than ability of reinsurers’ data systems to handle and produce reports requested by marketing, u/w, claims, accounting, and actuarial staffs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

how is the larger ratio of loss reserve to surplus problematic?

(Patrik - Reinsurance)

A

-many managers refuse to believe magnitude of loss liabilities coming from the actuary (especially with such a long tail)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

what does the U.S. Tax Reform Act of 1986 require?

Patrik - Reinsurance

A

-discounting of loss reserves for income tax purposes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

why might the U.S. Tax Reform Act of 1986 be a problem?

Patrik - Reinsurance

A
  • discounting losses means insurers no longer have an implicit risk margin built into their loss reserve estimates
  • buffer flows into profits and is taxed sooner, decreasing assets and increasing companies’ risk level
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

what are the six components of reinsurer’s loss reserve?

Patrik - Reinsurance

A

1-case reserves reported by ceding companies
2-reinsurer’s additional reserves on individual claims
3-actuarial estimate of future development on components 1 and 2
4-actuarial estimate of pure IBNR
5-discount for future investment income
6-risk load

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

in what form/basis are case reserves reported by the ceding companies?

(Patrik - Reinsurance)

A

individual claim basis (excess contracts) or in bulk summary form (proportional contracts)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

what is IBNER?

Patrik - Reinsurance

A

actuarial estimate of future development on the reported and additional case reserves

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

what is the discount for future investment income component of a reinsurer’s loss reserve?

(Patrik - Reinsurance)

A

credit for future investment income on assets supporting certain types of claims, such as WC permanent total cases, auto PIP annuity claims, and medical professional liability claims

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

what is the risk load component of a reinsurer’s loss reserve?

(Patrik - Reinsurance)

A
  • adverse deviation loading, used to keep reserves at a conservative level
  • sometimes loaded implicitly through conservative assumptions, sometimes accounted for explicitly
  • more important for insurers due to long-tailed nature of their exposure
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

what is the first step in the reinsurer’s procedure for setting reserves?

(Patrik - Reinsurance)

A

partition the portfolio into reasonably homogeneous exposure groups, with a relatively consistent mix of business over time

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

what are the four highest-priority segments by which the reinsurance portfolio might be partitioned?
(in order of priority)

(Patrik - Reinsurance)

A
  1. LOB: property, casualty, 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, cat, etc.
  4. Primary LOB - for casualty
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

what are the four lower-priority segments by which the reinsurance portfolio might be partitioned?
(in order of priority)

(Patrik - Reinsurance)

A
  1. Attachment point - for casualty
  2. Contract terms: flat-rated, retro-rated, sunset clause, share of loss adjustment expense, claims-made vs. occurrence coverage, etc.
  3. Type of cedant: small, large, or E&S (excess & surplus)
  4. Intermediary
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

what are other considerations regarding EXPOSURES when partitioning reinsurance loss data?

(Patrik - Reinsurance)

A
  • within each category, exposure should be refined by contract type (treaty vs. facultative) and retention type (per-occurrence vs. aggregate excess)
  • unique claims types should be separate (e.g. asbestos, pollution)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

what are other considerations regarding TREATY CASUALTY exposures when partitioning reinsurance loss data?

(Patrik - Reinsurance)

A
  • treaty casualty excess exposure should be segregated by attachment point range and by primary LOB (different report lags)
  • treaty casualty proportional exposure should be similarly segregated (share of ground-up or share of excess?)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

what are other considerations regarding FACULTATIVE exposures when partitioning reinsurance loss data?

(Patrik - Reinsurance)

A

facultative casualty exposure should be split between primary programs (ground-up exposure) and non-primary programs (excess exposure)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

what is the second step in reinsurers’ procedure for setting loss reserves?

(Patrik - Reinsurance)

A
  • analyze historical development patterns

- if possible, consider individual case reserve development and emergence of IBNR claims separately

26
Q

what is the third step in reinsurers’ procedure for setting loss reserves?

(Patrik - Reinsurance)

A
  • estimate future development

- if possible, estimate bulk reserves for IBNR and IBNER separately

27
Q

why should claim development patterns be studied over long time periods?

(Patrik - Reinsurance)

A
  • due to extreme variability in year-to-year reinsurance data
    • but only as long as expected patterns are reasonably stable from year-to-year
28
Q

what are claim report/payment lags? (mathematically)

Patrik - Reinsurance

A

inverse of the usual chain-ladder development factors

29
Q

what are claim report/payment lags used for?

Patrik - Reinsurance

A
  • used to create a graph with time in years on x-axis and lag percentage on y-axis
  • resembles probability CDF, can be interpreted as the probability that any particular claims dollar will be reported to the reinsurer by time t
30
Q

why is it useful to consider a probability CDF based on claim lags?

(Patrik - Reinsurance)

A

statistics can be calculated from this curve (such as expected value and standard deviation) to compare one claim pattern to another

31
Q

define a short-tailed exposure

(Patrik - Reinsurance)

A

any exposure for which losses are reported and settled quickly

32
Q

what are four short-tailed reinsurance exposures?

Patrik - Reinsurance

A
  • treaty property proportional
  • treaty property catastrophe
  • treaty property excess
  • facultative property
33
Q

what are two methods for reserving for short-tailed reinsurance exposures

(Patrik - Reinsurance)

A

1-set IBNR equal to some percentage of latest-year EP
2-reserve up to a selected loss ratio (especially for new LOBs), where the selected loss ratio is larger than the one computed from reported non-cat claims

34
Q

what should be done if losses are summarized by U/W year, when reserving for short-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

-percentage estimates should be used to allocate losses to true accident years to avoid overstating AY loss development

35
Q

define a medium-tailed exposure

(Patrik - Reinsurance)

A

any exposure for which:

  • claims are almost completely SETTLED within FIVE years
  • average aggregate claims dollar REPORT LAG of ONE to TWO years
36
Q

what are 3 examples of medium-tailed reinsurance exposures?

Patrik - Reinsurance

A
  • treaty property excess higher layers (takes a long time to penetrate the layer)
  • construction risks (discovery period can be long)
  • surety (salvage recoveries tend to have a long tail)
37
Q

what is a method used to reserve medium-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

standard chain-ladder (CL) method

38
Q

what is an advantage of the CL method to reserve medium-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

-strongly correlates future development with an overall lag pattern and with the claims reported for each AY

39
Q

what is a disadvantage of using the CL method to reserve medium-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

IBNR is so correlated with reported claims that estimates are not very credible for recent, immature years

(possible to use paid losses rather than reported to increase stability, but could backfire for immature years with very few paid losses)

40
Q

define a long-tailed exposure

(Patrik - Reinsurance)

A

any exposure for which

  • aggregate claims dollar REPORT LAG is over TWO years
  • claims are not SETTLED for MANY years
41
Q

what are three long-tailed reinsurance exposures?

Patrik - Reinsurance

A
  • treaty casualty excess (longest lags excluding asbestos, pollution, etc.)
  • treaty casualty proportional
  • asbestos, pollution, etc.
42
Q

what is the first step when reserving for long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

-separate exposures into more homogeneous groups based on guidance from marketing, U/W, claims, and accounting personnel

43
Q

what are considerations for reserving for asbestos, pollution, other health hazard, and other mass tort reinsurance claims?

(Patrik - Reinsurance)

A
  • must be analyzed separately
  • no claims for long periods followed by gigantic claims
  • cannot use traditional reserving methods
  • must rely on complex reserving models
44
Q

what are six methods for reserving for long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A 
1-standard CL (not good for immature years)
2-BF method
3-Stanard-Buhlmann (Cape Cod) method
4-simple credibility IBNR estimate
5-other credibility procedures
6-alternative estimation methodologies
45
Q

what is one advantage and two disadvantages of using the BF method for reserving long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

ADVANTAGE: correlates future development for each year with an exposure measure (reinsurance premium * selected loss ratio)
DISADVANTAGES:

46
Q

what is one advantage and two disadvantages of using the BF method for reserving long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

ADVANTAGE: correlates future development for each year with an exposure measure (reinsurance premium * selected loss ratio)
DISADVANTAGES:

47
Q

what is a key innovation of the stanard-buhlmann (CC) method for reserving long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

-ultimate expected loss ratio for all years combined is estimated from the overall reported claims experience, instead of being selected judgmentally (as in BF method)

48
Q

what is a disadvantage of the SB method for reserving long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

IBNR by year is dependent upon rate-level adjusted premium

49
Q

what is the term ARPP(k) * Rlag(k) known as?

Patrik - Reinsurance

A

“used-up premium” for year k

50
Q

what can be done when reserving long-tailed reinsurance exposures if we don’t have complete confidence in rate-level premium adjustments?

(Patrik - Reinsurance)

A

weight the CL and SB methods together using a credibility factor

51
Q

when does a simple credibility estimate put more weight on the SB vs. CL methods?

(Patrik - Reinsurance)

A
  • more weight to the SB estimate for immature years

- more weight to the CL estimate for older years where the cumulative rate-level adjustments are less reliable

52
Q

what are two other credibility procedures that could be used when reserving long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

1-weight together IBNR estimates based on reported claims and paid claims
2-use ELR inherent in the underlying pricing of the exposure in lieu of or in conjunction with the SB ELR

53
Q

what are benefits of weighting together IBNR estimates based on reported AND paid claims?

(Patrik - Reinsurance)

A
  • reported claims include case reserves that vary over time depending on the claims adjuster setting the reserve
  • paid claims tend to be more stable IF you have sufficient data and believe the data to have a consistent expected payment pattern
  • weights based on relative claim report and payment lags for each year
54
Q

how would you go about using the ELR inherent in the underlying pricing of the exposure in lieu/conjunction with the SB ELR?

(Patrik - Reinsurance)

A
  • use these a priori ELR estimate as BF ELR estimates, calculate BF IBNR
  • weight this a priori IBNR against CL IBNR (Benktander)
55
Q

what are alternative estimation methodologies when reserving for long-tailed exposures?

(Patrik - Reinsurance)

A
  • stochastic reserving models

- claim count/severity model

56
Q

what is an advantage and a disdvantage of stochastic reserving models for reserving long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

ADVANTAGE: more information and insight unavailable with traditional methods
DISADVANTAGE: tend to be complicated and “black boxish”, making them difficult to interpret and explain to management

57
Q

what is an advantage of using a claim count/severity model to reserve long-tailed reinsurance exposures?

(Patrik - Reinsurance)

A

can build models for various lag distributions, and then connect them with models for the dollar reserving and the payments on individual claims

58
Q

what is the benefit of monitoring and testing quarterly claims run-off against predictions?

(Patrik - Reinsurance)

A

provides early warning of problems

59
Q

how can predictions be tested for short and medium-tailed lines?

(Patrik - Reinsurance)

A

past AY run-off can be compared with previous year-end reported open reserves and IBNR reserves

60
Q

what are possible different meanings if more claims emerge than expected? (3)

(Patrik - Reinsurance)

A
  • is it purely random?
  • does it indicate that the beginning IBNR was too small?
  • were the lags too short?
61
Q

what are three differences between primary company loss reserving and reinsurance reserving?

(Patrik - Reinsurance)

A
  • less information
  • longer report and settlement timing delays
  • low frequency and high severity claims

exam 7 (21 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions