Patrik: reinsurance
Reinsurance loss reserving problems
6.The size of an adequate loss reserve compared to surplus is greater for a reinsurer
7.Because of the heterogeneity in coverage and reporting requirements, reinsurers often have data coding and IT systems problems
4.Because of the heterogeneity stated in 3), industry statistics are not very useful
5.The reports the reinsurer receives may be lacking some important information
2.There is a persistent upward development of most claim reserves
1.Claim report lags to reinsurers are generally longer, especially for casualty excess losses
The report lag may also be lengthened by an undervaluation of serious claims by the cedant, because claims must be seen as reportable, then flow through pipeline to reinsurer
Certain mass tort claims may have extreme delays in discovery or reporting to cedant
There seems to be a tendency to underreserve ALAE
Economic and social inflation
3.Claims reporting patterns differ greatly by reinsurance line, by type of contract and specific contract terms, by cedant, and possibly by intermediary
Most loss reserving methods require the existence of large, homogeneous bodies of data
Even when there exist larger aggregates of similar exposure, there is extreme fluctuation in historical loss data
The heterogeneity of reinsurance coverages and specific contract terms creates a situation where the actuary never has enough information and finds it difficult to comprehend what is being covered and what is the true exposure to loss
Components of a reinsurer's loss reserve
Problems 1 through 6 act to increase the size of an adequate loss reserve and also make it more uncertain
The US Tax Reform Act required the discounting of loss reserves for income tax purposes. This discounting eliminated the implicit margin for adverse deviation that had been built into previous insurance loss reserves simply by not discounting
2.Reinsurer additional reserves on additional claims
3.Actuarial estimate of future development on components 1 & 2
4.Actuarial estimate of pure IBNR
5.Discount for future investment income
6.Risk load
1.Case reserves reported by the ceding companies
Because of the long-tailed nature of much of their exposure and its heterogeneity and the uncertainty of their statistics, this component is theoretically more important for reinsurers than for primary insurers
A general procedure to calculate reinsurance loss reserves
2.Analyze the historical development patterns. If possible, consider individual case reserve development and the emergence of IBNR claims separately
3.Estimate the future development. If possible, estimate the bulk reserves for IBNER and pure IBNR separately
1.Partition the reinsurance portfolio into reasonably homogeneous exposure groups that are relatively consistent over time with respect to mix of business (exposures)
Reasonably homogeneous exposure categories for this purpose follow closely the categories used for pricing
Variables used for partitioning LCC PAT CI (essayer de regrouper ceux qui vont avoir un payement pattern similaire)
Line of business
Type of contract (facultative, treaty, finite or “financial”)
Type of reinsurance cover
Primary line of business—for casualty
Attachment point—for casualty (a partir de quand on couvre dans un xs)
Contract terms
Type of cedant
Intermediary
For suitably homogeneous categories of exposure, expected reinsurance claim development patterns are very stable
Claim Report and Payment Lags
For analyzing and understanding reinsurance claims development patterns, it is useful to consider the inverse of the usual CL age-to-ultimate development factors—we call the factor inverses “lags”. This view produces a time lag curve, y=Rlag(t) , where t measures time
This view also helps us fit smooth curves to the often chaotic tails of claims development data and compute values at intermediate points
Methods for short-tailed exposure categories
Many reinsurers reserve property business by setting IBNR equal to some percentage of the premium earned in the latest year
For some proportional treaties, summary loss reporting may assign claims by underwriting year instead of by accident year. If the reinsurer’s claims accounting staff records the reported claims likewise, the loss statistics for each false “accident” year may show great development because of future occurring accidents
Methods for medium-tailed exposure categories
We’ll assume medium-tailed means almost full settlement within five years and average aggregate dollar claim report lag of one to two years
For surety exposure, it is usually a good idea to consider losses gross of salvage, and, separately, salvage recoveries. The gross losses are reported fairly quickly, but the salvage recoveries have a longer tail
A useful IBNR estimation is to use the CL method
It is sometimes true that paid loss development is more stable than reported loss development
Methods for long-tailed exposure categories
We’ll assume long-tailed means average aggregate claims dollar report lag is over two years and not fully settled until many years
The standard CL method is sometimes used for long-tail exposures. But, the problem is that for very long-tailed lags, the resulting IBNR estimates for recent years is extremely variable, depending upon the few reported or paid claims to date
Alternative methodes
BF Method
Cape cod
It is very dependent upon the selected loss ratio
The estimate for each accident year does not reflect the particular to-date reported losses for that year, unless the selected loss ratio is chosen with this in mind
A problem with this method is that the IBNR by year is highly dependent upon the rate-level adjusted premium by year. Adjust the ERPP to on-level premiums so that the loss ratio for each AY would be comparable.. This is equally a problem with the BF method
Advantage : Ultimate ELR for all years combined is
calculated from the overall experience (not
judgmentally selected)
Les avantages et desavantage de chaque c'est vraiment important