Reserving Policy And Practice Flashcards
Ibnr and ibner claims costs
Actuaries also assess for how much the claims will account for ibnr and ibner.
How does claims reserving work
Individual claims are case estimated to establish likely eventual cost. Actuaries also monitor overall level of case reserves by reguarly projecting their total ultimate claims cost as a whole. May recommend adjustment + or neg to aggregate claims reserves. Allows for some claims settling at nil and others higher than expected
Senior mgnt involvement
Review claims reserves quarterly Decide to increase or reduce them based on analysis of the general level of case reserves, too low, too high, just right Consider claims trends, costs, future inflation, claim frequency, legislative changes They may wish to reserve additional capital to deal with potential rise in industrial claims
Movement of reserves - frequency
Claims reserves will move frequently in order to ensure acceptable balance between prudence and cost as well as reflecting the ongoing intimation, estimation and settlement of claims
Reserving -portfolios -personal motor
Personal motor is a high vol product and actuaries will monitor closely the number of claims intimated each month, if the number reduces (due to backlogs, sickness or holidays) actuaries are likely to INCREASE the allowance for ibnr claims in the motor claims reserves until productivity resumes
Forecasting claims
Claims analysed at class level to ensure dataset is representative and as large as possible, short and long tail and asbestos claims may be projected seperately. Claims of this analysis are done so on an accident years basis, relating to the period of exposure rather than when the claim cost incurred, ensures claims inflation/ judicial guidelines are consistent for the claims selected
Claims development triangles
Useful for identifying patterns in the development measures progression from yr to yr. Short long tail, specific groups by accident yr. Triangles can be created to show; The number of claims intimated The value of paid claims only or The value of incurred claims plus os estimates
Typical reserving pattern
Account under reserved at first Over reserved at a certain point Then as large claims settle, the ultimate cost emerges
Actuaries use the following methods for validity and robustness;
Projection of loss ratios Burning costs Number and costs of claims (Selection methods determined by the nature, size and maturity of the claims data set in question)
Bornhuetter-Ferguson method
Example of a combination of reserving methods; combines a loss ratio projection in the early years of development with increasing weight being given to the paid or incurred claims development pattern over time. It utilises an accounts anticipated final loss ratio and its typical loss ratio development pattern to arrive at the ultimate cost and an appropriate claims reserve for each year of development. As years pass and the actual claims experience becomes better developed the calculation of the ultimate claims cost becomes increasingly based on the actual experience rather than the anticipated loss ratio
Stochastic methods -examine the randomness or variability of the incidence and cost of claims.
Necessary if account newly established or relatively immature For long established accounts, actuaries must consider different claims scenarios to reflect: underlying trends in exposure. Catastrophe claims (the incidence and cost of floods) and Latent claims eg; disease claims arising from modern industrial processes), unrecognised as yet.
Value of claims now and at settlement- Inflation presents partcular challenges
The cost of settling bodily injury claims is 10% per annum and continues to outstrip rates of general inflation. The time value of money can sometimes discount this but the high inflation for bodily injury claims cannot compensate for prevailing investment returns # side note property damage claims settle quicker
Accident year data - when to use it
On accounts which are changing rapidly as they are more easily understood using accident yr data and should be planned- monitored on that basis. Actuaries use accident yr data to project ultimate costs as all the claims share a common period of exposure
Claims data considerations
Quality and consistency: Are the data comparable Have all claims risen from the same or similar coversges On accounts with claims experience, has anything significant changed in the period¿ Have the claims been handled- presented in a consistent manner Have all claims been updated to a common point in time
Types of data monitoring claims triangles
Differences in intimated claims Incurred claims costs, actual and projected using link ratios Average claim triangle Claim frequency Burning cost (actual and projected incurred claims costs divided by exposure units)
