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Trend Sources and Techniques,
A Comparison of US and European Methods
Trending of Premium and Claims
A Reinsurer’s Perspective
FIT FOR PURPOSE
London CARe Seminar
15th September 2009
Slide 1
Niranjan Nathan
Head of Actuarial Pricing
Property and Casualty, Swiss Re UK
Trending Premiums
Rate change indices
Though
need to be
wary…..
Accident
Year
2003
2004
2005
2006
2007
2008
Ave. Earned
Prem
378
373
372
366
365
369
Extract from EMB Motor
Insurance Industry Report as
at 31 December 2008

Slide 2
Rate indices are often used in the UK to rebase historic
premiums to policy period
Trending Premiums
Need to be wary….
Client Rate Indicated Rate Changes Versus
Average Premium Movement
2007 to 2008
25.0%
Different index
may be needed
for different
purposes
(e.g QS vs XoL)
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
80% of clients indicated
rate changes are higher
than average premium shift
-15.0%
-20.0%
-25.0%
Slide 3
0%
20%
40%
60%
80%
100%
Trending Premiums
Further thoughts
Slide 4

No equivalent of rate filing process in the UK

LR volatility impact in “sticky” jurisdictions?

Further this may be the source of some subtle
methodology differences
Claims Trending
Not straightforward
Slide 5

Loss volatility

Claim development pattern

Past “one off” legal shifts
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Different trends for different claim sizes

FGU trends with censored data

BUT: need to make best estimate…
Application of Claims Inflation
The danger of long term assumptions
40%
35%
Bodily injury claims inflation
30%
25%
20%
15%
10%
5%
0%
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 9
Year 10
Inflatio n
Geared reinsurance layer inflatio n
A nnual claims inflatio n, based o n average trend
Reinsurer annual claims inflatio n (geared), based o n average trend
110%
Adequacy of loss estimates
105%
100%
95%
90%
85%
80%
75%
Slide 6
70%
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Application of Claims Inflation
Average claim size trends

Beware of mixing trends in average claim sizes with fixed
deductibles / observation points
Year 1
Slide 7
Year 2
Measurement of trends
Where to look?
Different
inflation
measurements
will reflect
calendar
versus accident
year trends
Slide 8
Application of claims inflation

Accident year trending projection
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Development year trending projection
– Need to ensure measurement basis is consistent with
projection basis
– Different Trends by different claim type / size

Slide 9
No explicit trending projections
Conclusion
Slide 10

Both US and UK actuaries are logical

Ensure indexes are fit to purpose

Ensure application is fit to index