TIA Section A - Odomirok 15 Flashcards
List some uses of schedule P (in addition to being used by outside parties to assess the reserve adequacy)
- supports and provides disclosure for the SAO
- shows how reserves have developed over time and indicates where the development is coming from
- provides the source of payment patterns to be used in the tax discounting calculations
- shows the split between case reserves and IBNR
- provides historical claim count data to help review trends in frequency, severity as well as changes in claims handling and reserving
- provides the data to calculate the RBC loss sensitive discount
List the parts of Schedule P
Part 1: loss and LAE experience as of 12/31 of the current year
Part 2: historical net incurred loss and DCC estimates
Part 3: historical net paid loss and DCC
Part 4: historical net IBNR for loss and DCC (before tabular discount)
Part 5: historical claim counts (closed with payment, open and reported)
Part 6: historical earned premium
Part 7: loss and premium data on loss sensitive contracts
How are losses in Schedule Part 1 grouped
- occurrence policies: accident year
- claims made policies: report year
- tail policies: policy year
- fidelity and surety policies: discovery year
Two components of LAE
- defense and cost containment DCC
- adjusting and other A&O
List some examples of DCC
- surveillance expenses
- fixed amounts for medical cost containment
- litigation management expenses (audit bills)
- LAE for pools of reported by AY
- fees in salaries for appraisers, private investigators, hearing representatives, re-inspectors, fraud inspectors; if working in defense of claims
- attorney fees incurred due and duty to defend
- cost of engaging experts if not included in losses
List some examples of A&O
- fees of adjusters and settling agents
- LAE for pools if reported by CY
- Fees and salaries for appraisers, private investigators, hearing representatives, reinspectors, fraud inspectors; if working in the capacity of an adjuster
- attorney fees incurred in determination of coverage
How was LAE historically segmented
- allocated loss adjustment expenses (ALAE): expenses that can be allocated to a specific claim
- unallocated loss adjustment expenses (ULAE): expenses that cannot be allocated to individual claims
How are S&S expenses recorded in Schedule P
- paid losses are recorded net of S&S received
- unpaid losses can be net or gross of anticipated S&S
How are tabular and non-tabular discounts treated in Part 1
- net of tabular discount
- Gross of non-tabular discounts and Net
List two things that the claim count data from schedule P can be used to identify or analyze
- changes in losses, i.e. frequency and severity
- changes in claims settlement or reserving philosophy
What types of changes should actuaries look out for when analyzing trends involving claim counts.
- mix of business (type of exposure, geography)
- policy limits
- reinsurance attachment points and limits
- The way that the company counts it’s claims
How is discounting reflected in Parts 2-4
Data is gross of all discounting.
Issues with using information in Parts 2-4 to develop losses
- various allocations in the creation of schedule P are based on the interpretation of the person completing it
- internal pooling or reinsurance arrangements that may have an impact on the data set may not be very obvious by looking exclusively at schedule P
- schedule P includes business from participation in voluntary and involuntary pools and/or associations: many of these pools record IBNR as case reserves/ The level of participation in the pool may have changed over time
- schedule P only contains 10 accident years of data, but long tail lines may experience development late than 10 years
- commutations will distort the reserves
- The data combines losses and DCC potentially hiding trends in either component
What changes should be considered when using the information in Parts 2-4 to develop losses
- Retentions
- claim settlement and reserving
- business mix
- underlying exposures
Formula to populate the right most column of the prior years row of Part 3
It equals the Part 3 second right most column, plus the following from Part 1:
D&A loss - ceded loss + D&A DCC - ceded DCC = Col 4 - 5 + 6 -7
Three sections of Part 5
- Cumulative number of claims closed with loss payment
- Number of claims outstanding
- Cumulative number of claims reported
What inconsistency should users be aware of while comparing Part 5 data of different companies
Some companies record counts on a per claim basis, whereas others record them on a per claimant basis.
List some metrics that can be derived from the claim count data (in addition to other data from the annual statement)
- Claim closure rates
- CWO ratios
- Claim Frequency
- Avg Claim Severity
Formula for closure rate
Closed claims
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Total reported claims
Two advantages of closing claims early
- minimize chance that the claim will develop adversely
- allow the insured to receive medical treatment, repair property damage, recover from loss
Three reasons that settlement rates may reduce
- Reduction in staff
- Growth in the book without a corresponding increase in staff
- Surge in claims from a catastrophe
Expected impact to ultimate loss projection if a slow down in settlement rates is not reflected
This will result in an understated project
CWP ratio equation
CWP claims
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Total closed claims
Claims frequency equation
Claim counts (from part 5) divided by earned premiums (from part 1)
