Transcript Document 7720459

Reserving in
Mergers and Acquisitions
CAS Loss Reserve Seminar
New Orleans, Louisiana
Robert S. Bennett, FCAS
September 11, 2001
OdysseyRe
INTRODUCTION
•Directing integration of loss reserving functions of two
reinsurers
•Reinsurer “A”
•Established in 1984
•Loss reserve mix predominantly claims made business
•Minimal mass tort exposure
•Reinsurer “B”
•Established in early 1900’s
•Loss reserves mix of occurrence/claims made exposure
•Significant mass tort exposure
DISCUSSION ISSUES
•Similarities/differences in books of business
•Claims handling and case reserving practices
•Reserving systems and methods
•Reconciliation of reserving assumptions
•Understanding legacy issues ( Mass Tort, Ceded
Reinsurance )
•Audit firm issues
SIMILARITIES/DIFFERENCES IN
BOOKS OF BUSINESS
•Reinsurance loss experience is aggregation of segments
of reinsured company loss exposure
•Loss development varies by reinsured company
•All ‘Excess Casualty’ books of business are not the same
•Working layer versus high excess
•‘Main Street’ versus Excess and Surplus Lines
CLAIMS HANDLING AND CASE
RESERVING PRACTICES
•Historical loss data reflects two (at least) reinsurance
claim department philosophies
•Case reserving practices
•Claims audit strategy
•Additional case reserves (ACRs)
•Integrated department reflects mix of past claim
department practices
RESERVING SYSTEMS AND METHODS
•Multiple databases
•Varying levels of detail and data quality
•Loss Reserve projection methodologies
•Report year versus accident year analysis
•Reliance on Paid, Incurred, BF, Other methods
•Estimating Tail factors
RECONCILIATION OF RESERVING
ASSUMPTIONS
•Reconciliation of loss picks between companies
• Requires review of associated expense ratios
•Justification for differences
•Tail factors
•Impacted by underwriting at time business was written
•Justification for differences
UNDERSTANDING LEGACY ISSUES
•Mass Tort Issues
•Each reinsurance company’s mass tort exposure is unique
•Those most familiar may not be with the merged
organization
•Ceded Reinsurance
•Each reinsurance company’s ceded program is unique
•Those most familiar may not be with the merged
organization
AUDIT FIRMS ISSUES
•After you understand all the new issues you get to
explain it all to your audit firm
•Audit firm familiar with only one of the merged companies