Schedule P Flashcards
Functions of Schedule P
DT-RAPID (go downtown on rapid transit)
D - Development of reserves over time attributable to specific years & lines - (2,3,4)
T - Trends in frequency & severity (1,2,5)
R - Calculate RBC loss-sensitive discount (7)
A - Evaluate Adequacy of recorded reserves (2,5)
P - Determine Payment patterns for discounting (3)
I - Observe split between actuarial reserves (IBNR) and case reserves (4,5)
D - Disclosures for SAO (1)
Organization of Schedule P
- 1 - tables of everything by accident year (losses, expenses, premiums, claim counts)
- 2,3,4 - triangles of losses (Ultimates, Paids, IBNR)
- 5 - triangles of claim counts (Closed with payment, Outstanding, Reported)
- 6 - triangles of earned premium
- 7 - tables & triangles for loss-sensitive contracts
Schedule P Parts 2/3/4 Formulas
Case Reserves = Part 2 - Part 3 - Part 4
Paid in CY = Cumulative Paid in CY - Cumulative Paid in CY-1
Case Incurred in CY = Sum(Change in Case in CY) + Sum(Paid in CY)
Prior Year Row Calculations
- Start with Part 3
- Calculate CY+1 column
- Back out (NEW prior, CY-1) from entire 1st row
- Calculate Unpaid triangle [Part 2 - Part 3]
- Apply Step 1 to Unpaid triangle
- New Part 2 = Unpaid triangle + New Part 3 triangle
Cautions when using Schedule P to assess reserve adequacy
- Talk to people!: talk to management to understand what’s going on at the company
- 10: maximum # of years of data in P exhibits; problem for long-tailed lines
- Pooling
Internal pooling can distort data
Participation in voluntary/involuntary pools can distort data (many pools report IBNR as case reserves) - Commutations: can cause a sudden increase in net reserves
- DCC: Parts 2,3,4 include DCC, so you can’t separate DCC trends from loss trends
- Preparation of Schedule P: person preparing Schedule P has certain amount of choice regarding allocations & presentations
Intercompany Pooling Calculations
Schedule P
Gross Reserves: Total Direct Loss & LAE * Pool %
Net Reserves: Total Net Loss & LAE * Pool %
Non-Schedule P:
Gross Reserves:
* Lead internally assumes everything from non-lead companies
* Non-lead internally re-assume their pool % from A’s gross amounts
Net Reserves:
* Same as Schedule P