4 phases approach for reserving
Exploratory analysis of the dataApply appropriate techniques for estimating unpaid claimsEvaluate conflicting results of the various methodsMonitor projections of clm dvpmt over subsequent calendar periods
Sources of data
Larges insr often solely rely on internal data (may use ext for new lob/terr)Small insr have small volume w. less credibilityExamples of external sources: ISO, NCCI, RAA, Best
Uses of external data
Tail devpmt factorsTrend ratesECREvaluating and reconciling results of various methods
Key characteristics when evaluating cred of data
Consistency of coverage triggeredVolume of clm cntAbility to develop appropriate COSettlement or pmt patternsLikelihood of clm reopeningSeverity
Determination of size criteria for large clms
Nbr of clms over tresholdSize of clm relative to policy limitsSize of clm relative to reins limitsCred of internal data regarding large claimsAvailability of relative external data
Verification of data
Consistency w. financial statement dataConsistency w. prior dataData reasonablenessData definitions
Aggregation by CY
Transactional dataCY rpd = pd + beg - endPrimary used for aggregation of exposuresAdv: no dvpmt, readiliy availableDis: inability to address issue of dvpmt
Aggregation by AY
CY exposures often used w. AY claimsAdv: grouping easy to achieve and understand; shorter time frame than PY; track economic or regulatory chgDis: mismatch btwn clms and exposures; can mask chg in retention
Aggregation by PY
Clms extend over a 24 mths periodAdv: true match btwn clms and exposures; track uw or pricing chgDis: extended time frame; difficult to isolate and understand affect of a single large event
Aggregation by RY
Claims-made coverages is dependent on rpt dateUsed to estimate value of know clmsAdv: nbr clms is fixedDis: only measures dvpmt on know clms
Ratio of Pd to Rpt
Test for chgs in CO adequacy, settlement patternsDownward trend in ratio could be result ofDecreasing paid claimsIncreasing case adequacy
Ratio of closed to rpt clm cnt
Measures chg in settlement rate of clmsChgs in ratio could be due toLarge caTChg in guidelines for establishment of a clmRestructuring of clm field officesIntroduction of new call center