Property & Casualty Reserving IASA 2019 Southern California - PowerPoint PPT Presentation

Property & Casualty Reserving IASA 2019 Southern California Jing Liu, FCAS, MAAA Chris Cortner, ACAS, MAAA, CPCU December 12, 2019

About Today’s Presenters • Jing Liu , FCAS, MAAA • Consulting Actuary • San Ramon, CA • Chris Cortner , ACAS, MAAA, CPCU • Consulting Actuary • San Ramon, CA 1

Outline of Presentation • IBNR: Covering the losses . . . All of them • Projecting Ultimate Losses: Basic Reserving Methodologies • But what if… • Just to be safe (Confidence levels) • Actual vs. Expected Development • Industry State and Trends 2

Components of Losses • Paid Loss: Indemnity + Expenses - Recoveries – A hard auditable amount • Case Reserves: Adjuster estimates of value of individual claims – A hard auditable amount • IBNR Reserves: a financial reserve estimated by actuary; re- estimated periodically – A soft, fungible amount calculated in bulk – A moving target 3

Necessity of IBNR: Lags • Property/Casualty insurance business is characterized by lags (which give rise to need for IBNR) Date of Occurrence Injuries Manifest Report Date Adjusting, Investigation, Healthcare Providers, Employers, Body Shops, Attorneys, Depositions, Negotiations, Trial, Settlement Closed Date 4

IBNR Components • IBNR => Incurred but not reported • Sources of IBNR: – Pure IBNR • Late reported claims – IBNER (Incurred but not enough reported) • Case reserve development • Reopened cases • Claims in transit: pipeline claims 5

Why is IBNR Important? • Accrual accounting requires posting of liability for all events that have occurred and are reasonably determinable • How many claims have occurred? • What is the ultimate value of such claims? • Estimate IBNR using a variety of means • IBNR is “real” & “significant” 6

Projecting Ultimate Losses • Losses develop (change) over time – Depending on line, view (gross/net of recoveries), point in time and case reserving practices, losses can develop upward or downward – Periodic snapshots allow us to view a pattern to use in estimating • Homogeneity and Credibility – Grouping of losses by development behavior – Coverage trigger – Mix of business – Credibility 7

Projecting Ultimate Losses • Things change – Underlying business – Loss prevention/safety – Legal environment – Claims handling – Self-insurance/funding program • How to react to changes – A Track & Field Example 8

1,500 Meter Race • Runner has a long-run history of running this distance at 4:00 minutes • In current competition, split time after first 375 meters is 1:15 • What is your estimate of final time? – 4:00 ignore all intermediate information – 5:00 projected value is 4X first lap time – 4:15 add “expected” time from long -run history to intermediate information – Other? 9

1,500 Meter Race • Time after 750 meters is 2:15 • Now, what is your estimate of final time? – 4:00 ignore all intermediate information – 4:30 projected value is 2X first lap time – 4:15 add “expected” time from long -run history to intermediate information – 3:30 reflects “trend” in improved time for each lap – Other? • How would this information change your estimates? 10

Projecting Ultimate Losses • What if the first point were 375 meters in a marathon? – Partial information of time after 375 meters represents less than 0.1% of final race time – Outdoor conditions may have considerable impact (temperature, precipitation, etc.) – Uncertainty in forecasting much greater early in the life of the “event” 11

Basic reserving methodology Reporting Patterns Reported Losses (Cumulative Payments + Case Reserves) for Policy Period 2008 25,000 20,000 15,000 10,000 5,000 0 12 24 36 48 60 72 84 96 108 120 Months of Maturity Cumulative Paid Losses Case Reserves 12

Basic reserving methodology Reported Loss Triangle Reported Losses By Policy Period At Annual Evaluations Policy Period 12 24 36 48 60 72 84 96 108 120 2008 10,000 15,000 17,550 19,305 20,463 20,873 20,873 20,873 20,873 20,974 2009 11,500 17,020 19,403 20,955 22,003 22,223 22,667 22,894 23,123 2010 16,200 24,138 28,000 30,240 31,450 32,079 32,399 32,723 2011 17,500 26,775 30,256 32,071 33,995 33,995 33,995 2012 16,000 24,000 28,080 29,765 31,253 31,566 2013 14,000 20,860 23,989 25,668 26,952 2014 14,500 21,895 24,960 26,708 2015 14,500 22,040 25,566 2016 15,000 22,200 2017 15,500 13

Reporting Patterns Reported Losses (Cumulative Payments + Case Reserves) for Policy Period 2008 25000 x 1.00 x 1.06 x 1.02 x 1.00 x 1.00 x 1.00 20000 x 1.10 x 1.17 x 1.50 15000 10000 5000 0 12 24 36 48 60 72 84 96 108 120 Months of Maturity Cumulative Paid Losses Case Reserves 14

Reported Loss Age-to-Age Factors Reported Losses By Policy Period At Annual Evaluations Policy 12 24 36 Period 2008 10,000 15,000 17,550 Reported Loss Age-to-Age Factors By Policy Period 2009 11,500 17,020 19,403 2010 16,200 24,138 28,000 Policy 12 - 24 24 - 36 36-48 Period 2011 17,500 26,775 30,256 2008 1.50 1.17 1.10 2012 16,000 24,000 28,080 2009 1.48 1.14 1.08 2013 14,000 20,860 23,989 2010 1.49 1.16 1.08 2014 14,500 21,895 24,960 2011 1.53 1.13 1.06 2015 14,500 22,040 25,566 2012 1.50 1.17 1.06 2016 15,000 22,200 2013 1.49 1.15 1.07 2017 15,500 2014 1.51 1.14 1.07 2015 1.52 1.16 2016 1.48 15

Reported Loss Age-to-Age Triangle Reported Loss Age-to-Age Factors By Policy Period Policy Period 12-24 24-36 36-48 48-60 60-72 72-84 84-96 96-108 108-120 120+ 2008 1.50 1.17 1.10 1.06 1.02 1.00 1.00 1.00 1.00 2009 1.48 1.14 1.08 1.05 1.01 1.02 1.01 1.01 2010 1.49 1.16 1.08 1.04 1.02 1.01 1.01 2011 1.53 1.13 1.06 1.06 1.00 1.00 2012 1.50 1.17 1.06 1.05 1.01 2013 1.49 1.15 1.07 1.05 2014 1.51 1.14 1.07 2015 1.52 1.16 2016 1.48 16

Reported Loss Age-to-Age Triangle Reported Loss Age-to-Age Factors By Policy Period Policy Period 12-24 24-36 36-48 48-60 60-72 72-84 84-96 96-108 108-120 120+ 2008 1.50 1.17 1.10 1.06 1.02 1.00 1.00 1.00 1.00 2009 1.48 1.14 1.08 1.05 1.01 1.02 1.01 1.01 2010 1.49 1.16 1.08 1.04 1.02 1.01 1.01 2011 1.53 1.13 1.06 1.06 1.00 1.00 2012 1.50 1.17 1.06 1.05 1.01 2013 1.49 1.15 1.07 1.05 2014 1.51 1.14 1.07 2015 1.52 1.16 2016 1.48 Selected 1.50 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 17

Reported Loss Age-to-Age Triangle Reported Loss Age-to-Age Factors By Policy Period Policy Period 12-24 24-36 36-48 48-60 60-72 72-84 84-96 96-108 108-120 120+ 2008 1.50 1.17 1.10 1.06 1.02 1.00 1.00 1.00 1.00 1.00 2009 1.48 1.14 1.08 1.05 1.01 1.02 1.01 1.01 1.00 1.00 2010 1.49 1.16 1.08 1.04 1.02 1.01 1.01 1.00 1.00 1.00 2011 1.53 1.13 1.06 1.06 1.00 1.00 1.01 1.00 1.00 1.00 2012 1.50 1.17 1.06 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2013 1.49 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2014 1.51 1.14 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2015 1.52 1.16 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2016 1.48 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 Selected 1.50 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 18

Reported Loss Age-to-Ultimate Factors Reported Loss Age-to-Age Factors By Policy Period Policy Period 12-24 24-36 36-48 48-60 60-72 72-84 84-96 96-108 108-120 120+ 2008 1.50 1.17 1.10 1.06 1.02 1.00 1.00 1.00 1.00 1.00 2009 1.48 1.14 1.08 1.05 1.01 1.02 1.01 1.01 1.00 1.00 2010 1.49 1.16 1.08 1.04 1.02 1.01 1.01 1.00 1.00 1.00 2011 1.53 1.13 1.06 1.06 1.00 1.00 1.01 1.00 1.00 1.00 2012 1.50 1.17 1.06 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2013 1.49 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2014 1.51 1.14 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2015 1.52 1.16 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2016 1.48 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 Selected 1.50 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 Age to Ultimate 1.00 1.00 Factor 19

Reported Loss Age-to-Ultimate Factors Reported Loss Age-to-Age Factors By Policy Period Policy Period 12-24 24-36 36-48 48-60 60-72 72-84 84-96 96-108 108-120 120+ 2008 1.50 1.17 1.10 1.06 1.02 1.00 1.00 1.00 1.00 1.00 2009 1.48 1.14 1.08 1.05 1.01 1.02 1.01 1.01 1.00 1.00 2010 1.49 1.16 1.08 1.04 1.02 1.01 1.01 1.00 1.00 1.00 2011 1.53 1.13 1.06 1.06 1.00 1.00 1.01 1.00 1.00 1.00 2012 1.50 1.17 1.06 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2013 1.49 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2014 1.51 1.14 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2015 1.52 1.16 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 2016 1.48 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 Selected 1.50 1.15 1.07 1.05 1.01 1.01 1.01 1.00 1.00 1.00 Age to Ultimate 1.00 1.00 1.00 Factor 20