Schedule P Flashcards
Schedule P provides
detail about loss & LAE reserves
Schedule P helps
support and provide disclosure for SAO, show how reserves have developed over time, source of payment patterns for tax discounting, show split between case and IBNR, provide historical claim count data, provide data to calc RBC loss sensitive discount
Schedule P can be used by
outside parties to assess reserve adequacy
Schedule P Part1
summary of all LoBs combined and separate schedules by line
- typically 10 AYs plus prior years but certain lines only 2 AYs
- EP are shown by CY so they do not change in subsequent years
- S&S: paid losses are always net of S&S received and unpaid can be recorded net or gross
- case & IBNR: net of tabular discount and both gross and net of non tabular whereas in BS reserves are net of all discount
LAE is divided into DCC & A&O
- DCC: defense, litigation and medical cost containment; in AS needs to be assigned to AY in accordance with associated loss
- A&O: all expenses associated with adjusting and recording the claim other than those included in DCC; in AS needs to be assigned in any justifiable way
Schedule P Part2-4
loss triangles of each line
Net incurred loss & DCC
Net paid loss & DCC
Net bulk & IBNR reserves for loss & DCC
- data net of S&S and reinsurance and contains 10 years
- case reserves = part2-part3-part4
- data is gross of discounting so will not reconcile with part1 if company discounts but can be reconciled by adjusting for tabular discount which is disclosed in notes to financial statements
Schedule P Part5
10 years of claim counts on direct + assumed basis grouped by AY for certain LOBs
Cumulative # CWOP
Outstanding
Cumulative # reported
Schedule P Part6
cumulative prem earned for last 10 years valued as of 12/31
- prem may change at future valuations due to factors: prem audits, retrospective rated policies, lags in reporting
- differences between Part1 bc part1 is fixed whereas part6 will reflect adj to exposure year prem
Schedule P Part7
provides prem and loss info on loss sensitive contracts on policy year basis; optional since only completed by companies that are using loss sensitive adjustment to RBC
claim count data can be used to analyze/identify
Changes in loss
Changes in claim settlement or reserving philosophy
when analyzing trends, important to account for changes in
MOB
Policy limits
Reinsurance attachment points & limits
Way company counts claims
issues with actuarial projections using part2-4
-issues: various allocations, internal pooling or reinsurance arrangements may have impact on data and may not be obvious, only 10 years of data but long tailed may develop later than 10, includes participation in pools or associations, commutations will distort, data combines loss & DCC, cannot really understand any observed trends
hindsight tests from part2 of Schedule P
how company’s ultimate projection has changed over past year and past 2 years
claim closure rates
-claim closure rates = closed claims/total reported claims = (rptd-outstanding)/reported
Identify changes in claim settlement rate
Closing early adv = min chance claim will develop adversely and allow insured to receive treatment, repair, or recover from loss
Important to monitor because changes will distort loss proj methods
Can reduce due to: reduction in staff, growth in book without increase in staff, surge in claims from CAT
claim freq
claim freq=claim counts/EP; exposure is preferable because EP can be distorted from rate changes
CWP ratios
CWP ratios = CWP/total closed
average claim severities
Avg closed = net paid/closed with pay counts
Avg CO = net CO/open counts
Avg rptd = net reported/reported counts
Can review to identify trends
Changes during first few years of development important since biggest impact on indicated reserves
reasonableness tests using Schedule P
checks on unpaid claim estimates
Avg claim freq = ult claim count by AY/corresponding EP
Avg ult sev = ult loss by AY/ult claim counts
Avg unpaid sev = unpaid loss / unpaid claims
Intercompany pooling & Schedule P
diff to intercompany reinsurance; gross and net losses are combined and then distributed to each company based on pooling %
- intercompany reinsurance is accounted for as 3rd party reins
- sched P is only exhibit that does not treat pooling arrangement as reinsurance
Newly rptd claims during CY
Newly rptd claims during CY= cumulative rptd @ t– cumulative rptd@ t-1
Total claims closed during CY
Total claims closed during CY = open @t-1 + newly rptd claims during CY - open @t
= - (open @t - open @t-1) + (cumulative rptd @ t– cumulative rptd@ t-1)
Freq trend drivers
speedup claim setup in claim system, increase in nuisance claims, shortened statute of limitation, deteriorating BOB, change in type of claims, new business strategy, change in reins structure, change in policy limit, rate deteriorating, change in claim count def
Severity trend drivers
(decrease)
improved claims process identifies simpler lower severity claims and closes them earlier, increase in S&S, increase in reins coverage, more CWOP, claims closed faster which drives down ALAE, change in claim count def
prior rows for EP are relatively small because
incremental
