Siewert Flashcards
Five advantages of a high deductible program
Achieves price flexibility while passing risk to larger insureds
Reduces residual market charges and premium taxes
Cash flow advantages to insured
Provides incentives for loss control while protecting them from large losses
Allows “self-insurance” without subjecting insureds to state requirements
Why index limits for inflation?
Keeps proportion of deductible/excess losses constant about the limit from year to year
Two methods for indexing limits
Fit a line to average severities over long-term history
Use an index that reflects movement in annual severity changes
How a distributional model works
Models development process by determining distribution parameters that vary over time. Once parameters are determined, we can calculate severity relativities. Comparison over time results in LDFs
Three methods for estimating the parameters of a distributional model
Method of moments
MLEs
Minimize chi-square between actual and expected severity relativities
Why development for losses excess of agg limits decrease more rapidly over time with smaller deductibles than larger
Agg limits only cover losses under the deductible. Since most of later development occurs in layers of loss above the deductible, aggregate level is reached sooner for smaller deductibles
Two ways to handle ALAE under high deductible program
Account manages expense itself
ALAE is treated as loss and subjected to applicable limits
Two advantages and two disadvantages for loss ratio method (Siewert)
A1) Can be used with no/immature data
A2) Loss ratio estimates can be tied to pricing
D1) Ignores actual experience
D2) May not properly reflect account charcteristics
Two advantages and one disadvantage of implied development method
A1) Provides estimate of excess losses at early maturities even when no emergence
A2) LDFs for limited losses are more stable
D) Does not explicitly recognize loss development
One advantage and two disadvantages of direct development method
A) Explicitly recognizes loss development
D1) XSLDFs highly leveraged/volatile
D2) If no losses emerged, no IBNR
Two advantages and one disadvantage of credibility-weighting method
A1) Gives ability to tie to pricing early where XS losses not yet emerged
A2) Provides more stable estimates over time
D) Ignores actual experience to the extent of the complement of credibility
Two advantages of distributional model
Provides consistent LDFs
Allows for interpolation among limits, years
