Actuary Answer too High
What to Do When the Actuary’s Answer is Too High
Timothy C. Mosler, FCAS, MAAA February 25, 2016
Agenda • • • • • • •
Tim Mosler’s Background Disclaimer Basics of Reserve/Funding Analysis 3 Reactions When the Client Disagrees Loss Development Illustration Summary exhibit examples Common Issues – Case Reserve Strengthening – Declining Loss Cost in Recent Years – Aggressive Settlements
• Questions
1
Tim Mosler Background • Education – B.S. in Mathematics from Florida Atlantic – ACAS in May 2003, FCAS in May 2004
• Experience – National Council on Compensation Insurance (1996 ‐ 2001) – Towers Watson (2001 – 2014) – Pinnacle Actuarial Resources (2014 ‐ ) – Hundreds of discussions with clients about reserve analysis results!
2
Disclaimer • This presentation is not intended to imply that any actuarial study is producing a result that is too high. • The best estimate of reserves or funding in any given situation requires a formal actuarial analysis and an actuary’s best estimate should be their own independent opinion. • This presentation is focused on allowing the user of an actuary’s report to understand the actuary’s opinion and potentially help to refine the opinion.
3
Reserve/Funding Analysis at 12/31/2015 • Hypothetical self‐insurance program – Self‐Insures a portion of its liability lines • Examples ‐ Auto liability, General liability, and Workers compensation
– Retention = $500,000 per claim – Fiscal year runs 1/1 – 12/31
• Typical results provided by the actuary – Indicated Reserves at 12/31/2015 – Projected Funding for 2016 – Possibly projections for future years
4
Reserve/Funding Analysis at 12/31/2015 • Actuarial Analysis – Segregates data by accident period – Ultimate losses are estimated for each accident period • Based on a series of projection methods
– Indicated Reserves = Ultimate losses minus paid through 12/31/2015 – 2016 Funding = Ultimate loss estimate for 2015 (and possibly older years) with an adjustment for trend
5
Client Reactions to Actuarial Results • Agree with the actuary – Client may or may not have their own opinion
• Disagree with the actuary – leads to three basic options – Accept the result anyway – Ask the actuary to change or to provide additional scenarios – Challenge the actuary The remainder of the presentation assumes that, at least initially, there is disagreement and the client believes (or would like) a lower answer
6
Option 1 ‐ Accept the Result • Could be the best option if – The financial effect is small – Time is limited – There is a high level of trust in the actuary
• May still be best to get an explanation from the actuary
7
Option 2 ‐ Ask the Actuary to Change • Re‐review of the selections – There is a reasonable range of indications – There is a range for each actuarial assumption that goes into creating the indication – Asking creates a dilemma for the actuary
• Explicitly provide a range – Does not affect income after the first year unless the point in the range changes • Year 1 – Reserve indication increases by $5M. Client only increase $2M • Year 2 – Reserve indication increases by $5M again. Now, client also has to increase $5M or go lower in the range.
8
Option 3 ‐ Challenge the Actuary • Some combination of – Stating that the answer is higher than expected – Gathering data or requesting data from the actuary – Identifying how the data conflicts with the actuary’s recommended reserve – Asking the actuary to revisit the selections in the analysis.
9
Loss Development Illustration
10
Incurred Loss Development Through 12/31/2007 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
11
Incurred Loss Development Through 12/31/2008 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
12
Incurred Loss Development Through 12/31/2009 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
13
Incurred Loss Development Through 12/31/2010 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
14
Incurred Loss Development Through 12/31/2011 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
15
Incurred Loss Development Through 12/31/2012 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
16
Incurred Loss Development Through 12/31/2013 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
17
Incurred Loss Development Through 12/31/2014 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
18
Incurred Loss Development Through 12/31/2015 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
19
Loss Development Projection of Recent Years $16.0
$14.0
$12.0
Millions
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
2014 Proj
2015 Proj
20
Projection of Recent Years Based on BF Method $16.0
$14.0
$12.0
Millions
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
2014 Proj
2015 Proj
21
Sample Ultimate Loss and Reserve Summary Hypothetical Client Development of Undiscounted Unpaid Loss & ALAE
Accident Year
Selected Ultimate Loss & ALAE
Paid Loss & ALAE
Case Loss & ALAE Reserves
Indicated IBNR Reserves
2007 2008 2009 2010 2011 2012 2013 2014 2015
$10,530,802 9,650,319 11,416,531 12,855,939 10,176,011 13,396,963 6,901,419 7,229,633 12,874,821
$10,530,802 9,566,616 10,627,500 11,192,425 7,185,818 9,261,710 3,803,451 2,535,051 4,042,315
$0 14,170 17,658 277,880 1,144,545 740,088 685,482 461,103 2,820,659
$0 69,534 771,373 1,385,633 1,845,649 3,395,165 2,412,486 4,233,480 6,011,848
$0 83,704 789,031 1,663,514 2,990,194 4,135,253 3,097,968 4,694,582 8,832,507
Total
$95,032,440
$68,745,687
$6,161,586
$20,125,167
$26,286,753
Unpaid Reserves
22
Sample Claim Count Summary Hypothetical Client Summary of Claim Counts
Accident Year
Closed Claims
Open Claims
Reported Claims
IBNR Claims
Ultimate Claims
2007 2008 2009 2010 2011 2012 2013 2014 2015
1,082 624 590 1,148 972 839 876 483 279
0 11 8 16 54 49 117 154 701
1,082 635 598 1,164 1,026 888 993 637 980
0 0 0 0 0 2 2 7 55
1,082 635 598 1,164 1,026 890 995 644 1,035
Total
6,893
1,110
8,003
66
8,069
23
Case Reserve Changes ‐ Scenario 1 • Scenario 1: Consistent adjustment to a large set of claims across all years – Example ‐ Case reserves didn’t account for or consistently understated several components of the final costs. Now they are better reflections of the final cost
• It’s expected that IBNR will now be lower relative to the case reserves. What if the actuary has it at the same level or higher? • Data to review: – Average case reserves = Total case reserves / Total O/S claim count in this year’s report and last year’s report • If the case reserve strengthening was significant, this average will be significantly higher
– Incurred development factors or just the factor for the latest year – if the actuary agrees that there was strengthening, then it should be lower
24
Case Reserve Strengthening $14.0
$12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
25
Case Reserve Changes ‐ Scenario 1 (cont’d) • Actuarial Concern is that the strengthening masks the real change in experience • Possible Resolutions – BEST ‐ Provide data before and after the case reserve adjustment, actuary creates indications based on both data sets – Adjustment to historical incurred loss development factors – More reliance on paid indications
26
Case Reserve Changes ‐ Scenario 2 • Scenario 2: There was a review of the large open claims in older years that lead to several case reserves being adjusted higher. Claims staff (or the TPA) indicates that there’s a higher degree of confidence in the case reserves now. In the actuarial report, the IBNR is now higher but we thought it would be lower. • Harder to challenge than Scenario 1
27
Case Reserve Changes ‐ Scenario 2 (Cont’d) • Actuarial Concerns – The strengthening sounds like normal loss development – isn’t the case reserve always a best estimate based on current information? – Several claims in more recent years could have the same development as they get older. Should the development factors be higher? – 2 ways to look at a significant change in the level of case reserves: Average Case Reserve
Optimistic View
Pessimistic View
Significantly Higher than Prior Analysis
Case reserves are overstated – we need less IBNR
Claims are more serious than we thought – we need more IBNR
Significantly Lower than Prior Analysis
Claims are less serious than we thought – we need less IBNR
Case reserves must be understated – we need more IBNR
28
Case Reserve Changes ‐ Scenario 2 (Cont’d) • Data to Review and/or Provide – Same two items – • Average case reserves = Total case reserves / Total O/S claim count across years – If this is significantly higher, it supports that the case reserve increase was atypical.
• Incurred development factors or just the factor for the latest year – Are they significantly higher than in the prior analysis?
– Important additional item – provide qualitative information on the claims and the uniqueness of the case reserve adjustment for those claims •
Possible Resolutions – Adjustment to give less weight to the years affected by the strengthening – More reliance on paid indications
29
Effective Loss Control • Example – Several loss control initiatives have been effective with significant reductions in the number of claims incurred. • The actuary continues to give significant weight to older years experience in the projection of the recent years.
30
Effective Loss Control Illustration $14.0
$12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
31
Effective Loss Control Projection $14.0
$12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
2014 Proj
2015 Proj
32
Effective Loss Control Projection with the BF Method $14.0
$12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
2014 Proj
2015 Proj
33
Effective Loss Control • Actuarial concern: The little claims have been eliminated but the more serious claims are left. There will be higher development. Accident Year Before Loss Control Claim Count
Average Initial Reserve
Average Total Ultimate Initial Reserve
Accident Year After Loss Control
Total Claim Ultimate Count
Average Initial Reserve
Average Total Ultimate Initial Reserve
Total Ultimate
1,000
1
1
1,000
1,000
100
1
1
100
100
1,000
5
5
5,000
5,000
100
5
5
500
500
1,000
10
11
10,000
11,000
100
10
11
1,000
1,100
100
50
100
5,000
10,000
100
50
100
5,000
10,000
21,000
27,000
400
6,600
11,700
LDF =
1.29
LDF =
1.77
3,100
Loss Amounts are in $000’s
34
Effective Loss Control • Data to review or request: – Average unpaid per O/S claim – (Increase in paid) divided by (the decrease in case reserves) • It’s a one year approximation of the unpaid to case ratio
– Trend assumption in the BF method – Trend implied by actual experience • Actual experience has a downward trend, but BF method probably assumes a positive trend
• Potential resolutions – Slightly more weight to loss development methods instead of BF methods – Movement on the trend to reflect the favorable experience – Enhanced analysis • Primary layer and excess layer • Lost‐time and medical only 35
Settlement • Example ‐ Concerted effort to settle claims earlier in their development. – It seems like the actuary’s report is not reducing the reserve enough to reflect how few claims there are now.
• Actuarial Concern: – Less serious claims are the ones that get settled. The remaining claims are serious and will have higher development.
36
Settlement • Data to review: – Closed Claim Count divided by Reported Claim Count by year compared to the year at the same age in last year’s report • AY 2015 has 75% closed at 12/31/2015 and AY 2014 had 60% closed at 12/31/2014 demonstrates settlement efforts were effective
– Average unpaid (case + IBNR) per O/S claim
• Possible resolutions: – Less reliance on methods based exclusively on paid losses – Use of methods that are based directly on case reserves or open claim counts
37
Thank You for Your Time and Attention
Tim Mosler [email protected] 678‐894‐7254
Commitment Beyond Numbers
38
Timothy C. Mosler, FCAS, MAAA February 25, 2016
Agenda • • • • • • •
Tim Mosler’s Background Disclaimer Basics of Reserve/Funding Analysis 3 Reactions When the Client Disagrees Loss Development Illustration Summary exhibit examples Common Issues – Case Reserve Strengthening – Declining Loss Cost in Recent Years – Aggressive Settlements
• Questions
1
Tim Mosler Background • Education – B.S. in Mathematics from Florida Atlantic – ACAS in May 2003, FCAS in May 2004
• Experience – National Council on Compensation Insurance (1996 ‐ 2001) – Towers Watson (2001 – 2014) – Pinnacle Actuarial Resources (2014 ‐ ) – Hundreds of discussions with clients about reserve analysis results!
2
Disclaimer • This presentation is not intended to imply that any actuarial study is producing a result that is too high. • The best estimate of reserves or funding in any given situation requires a formal actuarial analysis and an actuary’s best estimate should be their own independent opinion. • This presentation is focused on allowing the user of an actuary’s report to understand the actuary’s opinion and potentially help to refine the opinion.
3
Reserve/Funding Analysis at 12/31/2015 • Hypothetical self‐insurance program – Self‐Insures a portion of its liability lines • Examples ‐ Auto liability, General liability, and Workers compensation
– Retention = $500,000 per claim – Fiscal year runs 1/1 – 12/31
• Typical results provided by the actuary – Indicated Reserves at 12/31/2015 – Projected Funding for 2016 – Possibly projections for future years
4
Reserve/Funding Analysis at 12/31/2015 • Actuarial Analysis – Segregates data by accident period – Ultimate losses are estimated for each accident period • Based on a series of projection methods
– Indicated Reserves = Ultimate losses minus paid through 12/31/2015 – 2016 Funding = Ultimate loss estimate for 2015 (and possibly older years) with an adjustment for trend
5
Client Reactions to Actuarial Results • Agree with the actuary – Client may or may not have their own opinion
• Disagree with the actuary – leads to three basic options – Accept the result anyway – Ask the actuary to change or to provide additional scenarios – Challenge the actuary The remainder of the presentation assumes that, at least initially, there is disagreement and the client believes (or would like) a lower answer
6
Option 1 ‐ Accept the Result • Could be the best option if – The financial effect is small – Time is limited – There is a high level of trust in the actuary
• May still be best to get an explanation from the actuary
7
Option 2 ‐ Ask the Actuary to Change • Re‐review of the selections – There is a reasonable range of indications – There is a range for each actuarial assumption that goes into creating the indication – Asking creates a dilemma for the actuary
• Explicitly provide a range – Does not affect income after the first year unless the point in the range changes • Year 1 – Reserve indication increases by $5M. Client only increase $2M • Year 2 – Reserve indication increases by $5M again. Now, client also has to increase $5M or go lower in the range.
8
Option 3 ‐ Challenge the Actuary • Some combination of – Stating that the answer is higher than expected – Gathering data or requesting data from the actuary – Identifying how the data conflicts with the actuary’s recommended reserve – Asking the actuary to revisit the selections in the analysis.
9
Loss Development Illustration
10
Incurred Loss Development Through 12/31/2007 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
11
Incurred Loss Development Through 12/31/2008 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
12
Incurred Loss Development Through 12/31/2009 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
13
Incurred Loss Development Through 12/31/2010 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
14
Incurred Loss Development Through 12/31/2011 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
15
Incurred Loss Development Through 12/31/2012 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
16
Incurred Loss Development Through 12/31/2013 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
17
Incurred Loss Development Through 12/31/2014 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
18
Incurred Loss Development Through 12/31/2015 $12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
19
Loss Development Projection of Recent Years $16.0
$14.0
$12.0
Millions
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
2014 Proj
2015 Proj
20
Projection of Recent Years Based on BF Method $16.0
$14.0
$12.0
Millions
$10.0
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
2014 Proj
2015 Proj
21
Sample Ultimate Loss and Reserve Summary Hypothetical Client Development of Undiscounted Unpaid Loss & ALAE
Accident Year
Selected Ultimate Loss & ALAE
Paid Loss & ALAE
Case Loss & ALAE Reserves
Indicated IBNR Reserves
2007 2008 2009 2010 2011 2012 2013 2014 2015
$10,530,802 9,650,319 11,416,531 12,855,939 10,176,011 13,396,963 6,901,419 7,229,633 12,874,821
$10,530,802 9,566,616 10,627,500 11,192,425 7,185,818 9,261,710 3,803,451 2,535,051 4,042,315
$0 14,170 17,658 277,880 1,144,545 740,088 685,482 461,103 2,820,659
$0 69,534 771,373 1,385,633 1,845,649 3,395,165 2,412,486 4,233,480 6,011,848
$0 83,704 789,031 1,663,514 2,990,194 4,135,253 3,097,968 4,694,582 8,832,507
Total
$95,032,440
$68,745,687
$6,161,586
$20,125,167
$26,286,753
Unpaid Reserves
22
Sample Claim Count Summary Hypothetical Client Summary of Claim Counts
Accident Year
Closed Claims
Open Claims
Reported Claims
IBNR Claims
Ultimate Claims
2007 2008 2009 2010 2011 2012 2013 2014 2015
1,082 624 590 1,148 972 839 876 483 279
0 11 8 16 54 49 117 154 701
1,082 635 598 1,164 1,026 888 993 637 980
0 0 0 0 0 2 2 7 55
1,082 635 598 1,164 1,026 890 995 644 1,035
Total
6,893
1,110
8,003
66
8,069
23
Case Reserve Changes ‐ Scenario 1 • Scenario 1: Consistent adjustment to a large set of claims across all years – Example ‐ Case reserves didn’t account for or consistently understated several components of the final costs. Now they are better reflections of the final cost
• It’s expected that IBNR will now be lower relative to the case reserves. What if the actuary has it at the same level or higher? • Data to review: – Average case reserves = Total case reserves / Total O/S claim count in this year’s report and last year’s report • If the case reserve strengthening was significant, this average will be significantly higher
– Incurred development factors or just the factor for the latest year – if the actuary agrees that there was strengthening, then it should be lower
24
Case Reserve Strengthening $14.0
$12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
25
Case Reserve Changes ‐ Scenario 1 (cont’d) • Actuarial Concern is that the strengthening masks the real change in experience • Possible Resolutions – BEST ‐ Provide data before and after the case reserve adjustment, actuary creates indications based on both data sets – Adjustment to historical incurred loss development factors – More reliance on paid indications
26
Case Reserve Changes ‐ Scenario 2 • Scenario 2: There was a review of the large open claims in older years that lead to several case reserves being adjusted higher. Claims staff (or the TPA) indicates that there’s a higher degree of confidence in the case reserves now. In the actuarial report, the IBNR is now higher but we thought it would be lower. • Harder to challenge than Scenario 1
27
Case Reserve Changes ‐ Scenario 2 (Cont’d) • Actuarial Concerns – The strengthening sounds like normal loss development – isn’t the case reserve always a best estimate based on current information? – Several claims in more recent years could have the same development as they get older. Should the development factors be higher? – 2 ways to look at a significant change in the level of case reserves: Average Case Reserve
Optimistic View
Pessimistic View
Significantly Higher than Prior Analysis
Case reserves are overstated – we need less IBNR
Claims are more serious than we thought – we need more IBNR
Significantly Lower than Prior Analysis
Claims are less serious than we thought – we need less IBNR
Case reserves must be understated – we need more IBNR
28
Case Reserve Changes ‐ Scenario 2 (Cont’d) • Data to Review and/or Provide – Same two items – • Average case reserves = Total case reserves / Total O/S claim count across years – If this is significantly higher, it supports that the case reserve increase was atypical.
• Incurred development factors or just the factor for the latest year – Are they significantly higher than in the prior analysis?
– Important additional item – provide qualitative information on the claims and the uniqueness of the case reserve adjustment for those claims •
Possible Resolutions – Adjustment to give less weight to the years affected by the strengthening – More reliance on paid indications
29
Effective Loss Control • Example – Several loss control initiatives have been effective with significant reductions in the number of claims incurred. • The actuary continues to give significant weight to older years experience in the projection of the recent years.
30
Effective Loss Control Illustration $14.0
$12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
31
Effective Loss Control Projection $14.0
$12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
2014 Proj
2015 Proj
32
Effective Loss Control Projection with the BF Method $14.0
$12.0
$10.0
Millions
$8.0
$6.0
$4.0
$2.0
$0.0 0
12
24
36
48
60
72
84
96
108
Months of Development 2007
2008
2009
2010
2011
2012
2013
2014
2015
2014 Proj
2015 Proj
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Effective Loss Control • Actuarial concern: The little claims have been eliminated but the more serious claims are left. There will be higher development. Accident Year Before Loss Control Claim Count
Average Initial Reserve
Average Total Ultimate Initial Reserve
Accident Year After Loss Control
Total Claim Ultimate Count
Average Initial Reserve
Average Total Ultimate Initial Reserve
Total Ultimate
1,000
1
1
1,000
1,000
100
1
1
100
100
1,000
5
5
5,000
5,000
100
5
5
500
500
1,000
10
11
10,000
11,000
100
10
11
1,000
1,100
100
50
100
5,000
10,000
100
50
100
5,000
10,000
21,000
27,000
400
6,600
11,700
LDF =
1.29
LDF =
1.77
3,100
Loss Amounts are in $000’s
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Effective Loss Control • Data to review or request: – Average unpaid per O/S claim – (Increase in paid) divided by (the decrease in case reserves) • It’s a one year approximation of the unpaid to case ratio
– Trend assumption in the BF method – Trend implied by actual experience • Actual experience has a downward trend, but BF method probably assumes a positive trend
• Potential resolutions – Slightly more weight to loss development methods instead of BF methods – Movement on the trend to reflect the favorable experience – Enhanced analysis • Primary layer and excess layer • Lost‐time and medical only 35
Settlement • Example ‐ Concerted effort to settle claims earlier in their development. – It seems like the actuary’s report is not reducing the reserve enough to reflect how few claims there are now.
• Actuarial Concern: – Less serious claims are the ones that get settled. The remaining claims are serious and will have higher development.
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Settlement • Data to review: – Closed Claim Count divided by Reported Claim Count by year compared to the year at the same age in last year’s report • AY 2015 has 75% closed at 12/31/2015 and AY 2014 had 60% closed at 12/31/2014 demonstrates settlement efforts were effective
– Average unpaid (case + IBNR) per O/S claim
• Possible resolutions: – Less reliance on methods based exclusively on paid losses – Use of methods that are based directly on case reserves or open claim counts
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Thank You for Your Time and Attention
Tim Mosler [email protected] 678‐894‐7254
Commitment Beyond Numbers
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