Transcript Download Handout 1

Managing A Loss Reserving
Department and Communicating
Results
Patrick N. Tures
Vice President Actuarial & Strategic Information
You want to
manage the
department
which
calculates
loss
reserves?
You sure?
The right approach will take
you the distance…safely.
Managing Loss Reserving
• Fully Define the Task At Hand
– Begin with the end in mind, and then map the route
– Organic process, will change with each review
• Goals/Objectives
– Indicated reserves/adequacy position
– Annual Statement needs
• Statement of Actuarial Opinion
• Allocation of reserves
– Working document for interaction with rating agencies
Managing Loss Reserving
• Three Cornerstones
– Solid Staff
• Well balanced skill sets
• Diversity of actuarial knowledge and experience
• Character: ethical & non-territorial
– Solid Data
• It is imperative to reconcile with accounting data
• Credibility vs. Homogeneity
• It is vital to recognize the input of the claim and underwriting
disciplines as a data source for each review.
– Solid Process
• Automated – but exterminate the “goldbugs”
• Efficiency and flexibility are silent pillars of success
Managing Loss Reserving
• More Key Points on Process and Data
– Proper Documentation
• Flow chart with all data sources
• Maintain a log of data and/or analysis anomalies
– Controls
• Balancing to accounting systems should be clear
• Dates (Closing dates of different systems, etc.)
– Tools
• Reserving package (ReservePro) offers all the traditional
approaches and simplifies maintaining data.
• In-house development tailors the exercise to the needs of the
organization.
• Methodology and “Groups of Data”
» Start with what is best for the reserve answer
» If more detail is needed, allocate
Well…tell me, is it enough?
It is enough...right?
Communicating the Findings
• Bringing all of the work together into a formal,
written, reserve report facilitates a coherent,
readable distribution of findings.
• Numerical exhibits should be subject to extreme
scrutiny:
– For actuaries, a complex exhibit is a work of art.
– For everyone else, it is a thorny tangle you wouldn’t
want to touch even with gloves on.
Communicating the Findings
Who Needs to Know What?
• Board of Directors
– One page CLEAR numeric summary of reserve
adequacy
– Short written summary putting the numerical
summary into words should accompany the numerical
report
– Full reserve report should made available
Reserve Adequacy Summary
06/30/04 Reserve Review
Skimper Insurance Company
Carried
Indicated
Adequacy
Adequacy %
(1)
Direct Loss Bulk & IBNR
286,445,635
306,445,668
(20,000,033)
-6.5%
(2)
Direct ALAE Bulk & IBNR
126,335,447
134,665,891
(8,330,444)
-6.2%
(3)
Direct ULAE IBNR
34,651,986
34,998,776
(346,790)
-1.0%
(4)
Direct S&S (anticipated)
65,446,889
59,776,446
5,670,443
9.5%
(5)
Direct Total IBNR {(1)+(2)+(3)-(4)}
381,986,179
416,333,889
(34,347,710)
-8.3%
(6)
Direct Case
405,668,554
405,668,554
(7)
All Direct Reserves {(5) + (6)}
787,654,733
822,002,443
(34,347,710)
-4.2%
(8)
All Ceded Case & IBNR
78,664,995
69,445,661
9,219,334
13.3%
(9)
All Net Case & IBNR {(7) - (8)}
708,989,738
752,556,782
(43,567,044)
-5.8%
Communicating the Findings
Who Needs to Know What?
• Executives/Reserve Committee
–
–
–
–
–
Board of Directors’ exhibits
Results Segmented Between Actual and Expected
Detailed Claim Analysis
Formula IBNR implications
Nagging Issues such as asbestos and mold.
Actual v. Expected
Actual V. Expected Loss Development
4/1/2004 to 6/30/2004
25,000
20,000
15,000
10,000
Actual
Umb
Pkg
Prop
WC
GL
CA-PD
CA-Li
HO
PA-PD
0
PA-Li
5,000
Expected
Communicating the Findings
Who Needs to Know What?
• Underwriting Management
– No need to communicate the overall reserve position of the
company
– Ultimate Loss Ratios
– Highlight changes and drivers where applicable
Communicating the Findings
Who Needs to Know What?
• Claim Department
– Detailed Claim Analysis
• Delineate between pure IBNR development and case movements
• Demonstrate frequency and severity trends simply, clearly
– Tracking Loss Development
• Which claim types are moving?
• Hone in on changes in older years.
Pure IBNR v. Case Development
C ase Dev.
Analysis of Loss Development - All Lines
Pure IBNR
(12/31/XX to 12/31/XX+1)
25,000
(Thousands)
20,000
15,000
10,000
5,000
0
1998
1999
2000
2001
2002
Frequency Trends
Lost Time
Medical Only
0.05
0.09
0.04
0.08
0.04
0.07
0.03
0.06
0.03
0.05
0.02
0.04
0.02
0.03
0.01
0.02
0.01
0.01
0.00
0.00
1998
1999
2000
2001
Accident Year
2002
2003
Med Only
Frequency
Lost Time
Frequency
Workers Compensation Onlevel Frequency
Severity Trends
y = 2567e0.0905x
R2 = 0.6899
General Liability Claim Severity
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1994
1995
1996
1997
1998
1999
Accident Year
2000
2001
2002
2003
Development Tracker-1
Development Tracker
Calendar Year 2004 Development
Line
(Multiple Items)
State
(All)
Agency
(All)
Handler
(All)
Data
AY
Grand Total
Sum of Current
Sum of Year End
Sum of Change
1995
175,164,934
175,164,934
-
1996
135,596,468
135,596,468
-
1997
125,671,149
125,671,149
-
1998
169,062,042
169,657,562
(595,520)
1999
157,783,918
158,623,463
(839,544)
2000
221,992,060
223,927,916
(1,935,855)
2001
267,939,452
262,321,650
5,617,802
2002
256,861,408
249,479,726
7,381,682
2003
249,581,713
239,288,814
10,292,899
1,759,653,144
1,739,731,681
19,921,463
Development Tracker-2
Development Tracker
Calendar Year 2004 Loss Development
Line
WC
State
(All)
Agency
(All)
Handler
(All)
Data
AY
Grand Total
Sum of Current
Sum of Year End
Sum of Change
1995
31,321,785
31,321,785
-
1996
23,342,145
23,342,145
-
1997
19,446,209
19,446,209
-
1998
23,219,776
23,416,447
(196,671)
1999
29,790,341
30,545,098
(754,758)
2000
42,208,587
42,778,278
(569,691)
2001
56,479,229
57,556,759
(1,077,530)
2002
66,790,836
67,582,598
(791,762)
2003
81,164,933
80,349,197
815,736
373,763,840
376,338,516
(2,574,676)
Development Tracker-3
Development Tracker
Calendar Year 2004 Loss Development
Line
WC
State
WI
Agency
(All)
Handler
(All)
Data
AY
Grand Total
Sum of Current
Sum of Year End
Sum of Change
1998
1,183,185
1,229,512
(46,327)
1999
1,320,914
1,610,423
(289,509)
2000
8,924,859
9,065,112
(140,253)
2001
9,190,894
10,029,226
(838,332)
2002
17,521,301
18,567,325
(1,046,024)
2003
26,209,978
26,031,817
64,351,133
66,533,416
178,161
(2,182,283)