Schedule P

Question 1

Schedule P provides

Answer 1

detail about loss & LAE reserves

Question 2

Schedule P helps

Answer 2

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

Question 3

Schedule P can be used by

Answer 3

outside parties to assess reserve adequacy

Question 4

Schedule P Part1

Answer 4

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

Question 5

LAE is divided into DCC & A&O

Answer 5

• 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

Question 6

Schedule P Part2-4

Answer 6

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

Question 7

Schedule P Part5

Answer 7

10 years of claim counts on direct + assumed basis grouped by AY for certain LOBs

Cumulative # CWOP

Outstanding

Cumulative # reported

Question 8

Schedule P Part6

Answer 8

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

Question 9

Schedule P Part7

Answer 9

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

Question 10

claim count data can be used to analyze/identify

Answer 10

Changes in loss

Changes in claim settlement or reserving philosophy

Question 11

when analyzing trends, important to account for changes in

Answer 11

MOB

Policy limits

Reinsurance attachment points & limits

Way company counts claims

Question 12

issues with actuarial projections using part2-4

Answer 12

-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

Question 13

hindsight tests from part2 of Schedule P

Answer 13

how company’s ultimate projection has changed over past year and past 2 years

Question 14

claim closure rates

Answer 14

-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

Question 15

claim freq

Answer 15

claim freq=claim counts/EP; exposure is preferable because EP can be distorted from rate changes

Question 16

CWP ratios

Answer 16

CWP ratios = CWP/total closed

Question 17

average claim severities

Answer 17

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

Question 18

reasonableness tests using Schedule P

Answer 18

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

Question 19

Intercompany pooling & Schedule P

Answer 19

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 3^rd party reins
• sched P is only exhibit that does not treat pooling arrangement as reinsurance

Question 20

Newly rptd claims during CY

Answer 20

Newly rptd claims during CY= cumulative rptd @ t– cumulative rptd@ t-1

Question 21

Total claims closed during CY

Answer 21

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)

Question 22

Freq trend drivers

Answer 22

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

Question 23

Severity trend drivers

(decrease)

Answer 23

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

Question 24

prior rows for EP are relatively small because

Answer 24

incremental