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
__________________
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
__________________
Total closed claims
Claims frequency equation
Claim counts (from part 5) divided by earned premiums (from part 1)
Average claim severity formula
Net paid loss and DCC (from part 3)
__________________________________
Direct and assumed claims closed with payment (from part 5 section 1)
Average case outstanding severity formula
Net case outstanding loss and DCC
_______________________________
Direct and assumed open accounts
Average reported claim severity formula
Net reported loss and DCC
______________________________
Direct and assumed reported counts
Factors that may cause loss trends
- inflation, law changes
- one time catastrophic claims
- changes in deductibles/retention
- internal factors
List some metrics that can be calculated from the Schedule P Part 5 data to perform reasonableness checks on the unpaid claim estimates (by comparing actual to expected)
- average claim frequency = Ultimate claim count by AY/corresponding EP
- average ultimate severity = Ultimate loss and DCC by AY/ Ultimate claim counts
- average unpaid claim severity = unpaid loss and DCC by AY/ unpaid claims
List some reasons that premium in schedule P part 6 may change over time
- Premium audits
- Retrospective rated policies
- Lags in reporting/accounting for premiums
When would an insurer populate Schedule P Part 7
Only if it is using the loss sensitive adjustment to RBC
List the two parts of Schedule P Part 7
Part A: Primary Contracts (direct business)
Part B: Reinsurance Contracts (assumed business)
List five sections of each part of Schedule P - Part 7
Section 1: net loss and LAE unpaid and NWP on lost sensitive contracts, relative to all contracts, for each Schedule P line
Section 2: incurred loss and DCC on loss sensitive contracts, in the same format as part 2
Section 3: loss and DCC IBNR on loss sensitive contracts, in the same format as part 6
Section 4: net earned premiums on loss sensitive contracts, in the same format as part 6
Section 5: triangle of net reserves for premium adjustments and accrued retrospective premiums for each of the last ten years that the policies were issued
Briefly describe Schedule P Interrogatories
Series of seven questions that the insurer needs to answer, that add insight to the other information reported in Schedule P
What topics does Interrogatory 1 cover
Extend reporting endorsements (EREs) arising from death, disability or retirement (DDR)
There are six parts:
- the first asks whether the insurer offered the endorsement for free or at a discount
- the remaining parts are about how the company reports DDR
Main purpose of Interrogatory 1
Ensure that the ERE coverage has been reserved for.
What topics does the Interrogatory 2 cover
Asks if the LAE is being defined as DCC and A&O
What topics does Interrogatory 4 cover
Asks for disclosure about whether the reserves are net of non-tabular discounts
What topics does Interrogatory 6 cover
Whether the insurer reports claim counts per claim or per claimant
What topics does the Interrogatory 7 cover
Asks if there are any changes or anything special that the user needs to be aware of if they rely on the schedule P data to assess the adequacy of recorded laws in LAE reserves
