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Package Policy Reserving

Package Policy Reserving. Casualty Loss Reserve Seminar Prepared by: Brian Z. Brown, FCAS, MAAA Consulting Actuary Milliman, Inc. Monday – September 13, 2005 10:30 a.m. – 12:00 p.m. Package Policy Reserving Issues. Lack of Credibility Lack of Homogeneity Indivisible Premium

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Package Policy Reserving

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  1. Package Policy Reserving Casualty Loss Reserve Seminar Prepared by: Brian Z. Brown, FCAS, MAAA Consulting Actuary Milliman, Inc. Monday – September 13, 2005 10:30 a.m. – 12:00 p.m.

  2. Package Policy Reserving Issues • Lack of Credibility • Lack of Homogeneity • Indivisible Premium • Odd Exposures • Construction Defect • Mold • Products • State Differences • Type of Risk

  3. Package Policy Reserving Issues Lack of Credibility • Need to use external sources • LDFs • ISO • Annual Statements • Others • Loss Ratios • Pricing Analysis • Competitors – Annual Statements • Older years adjusted to current rate and loss cost levels

  4. Package Policy Reserving Issues Lack of Homogeneity • Differences by type of risk • Large versus small • Deductible / non-deductible • Products / non-products • Construction defect exposure • State • Etc.

  5. Package Policy Reserving Issues Industry Statistics - CMP • Loss ratio differences by type of Company

  6. Package Policy Reserving Issues Industry Statistics • Observations • Loss ratio variability increases with size of insurer. • Results more cycle-driven for larger insurers.

  7. Package Policy Reserving Issues Industry Statistics - CMP • Total Reserves to Earned Premium by Type of Company

  8. Package Policy Reserving Issues Reserves to Earned Premium • Observations • Smaller insurers have lower reserves relative to premium – maybe related to higher percentage of property exposure and longer tailed general liability exposure • Some large insurers have significant IBNR relative to case • Construction Defect • Products

  9. Package Policy Reserving Issues

  10. Package Policy Reserving Issues Payout Pattern • Observations • Larger insurers have slower payout patterns

  11. Package Policy Reserving Issues Observations • Larger insurers results are more difficult to project • Higher loss ratio variability • More IBNR needs • Slower payout pattern • More difficult exposures

  12. Package Policy Reserving Issues Indivisible Premium • One premium charge frequently for property / liability • Analyze partial loss ratios • Property / Liability • Further refinements • Products / non-products • Construction defect / non-construction defect

  13. Package Policy Reserving Issues Odd Exposures • Construction Defect • Long tail • Difficult to assign accident / policy year • Additional insured exposure • Significant legal • A mess • Mold • Products

  14. Package Policy Reserving Issues State Differences Source: Annual Statement Statutory Exhibit of Premiums and Losses

  15. Package Policy Reserving Issues Loss Ratios Source: Annual Statement Statutory Exhibit of Premiums and Losses

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