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Importance of accurately estimating unpaid claims
- Internal management
- Influences pricing
- Influences decision making
- UW - increase business, exit market
- Strategic - reinsurance needs
- Financial - capital management
InvestorsCan cause misstated balance sheet - Misleading financial metrics
- RegulatorsRely on financial statements to supervise
- Misstatement of true financial position can delay regulators intervation
- OthersState Law
- NAIC
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Ranges of unpaid clm estimates
- Different methods produce varying estimates
- Balance sheet requires point estimate (some require 75% confidence level)
- Actuarial central estimate: expected value over the range of reasonably possible outcomes
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Define Insurer
Risk bearer for P&C exposures
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Define Reserves
- Amount booked in a financial statement
- Actuary's estimate of the obligation for future payment resulting from clms due to past events
- Carried reserve: amt rpt in a published statement
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5 components of unpd clm estimate
- Case outstanding on know clms
- Prov for future dvpmt on know clms
- Estimate for reopened clms
- Prov for clms INBR
- Prov for clms in transit
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Claims professionals
- Employee of insr (large insr)
- Third-Party clms administrators (TPA) (small to mid-sized, handle specific book of clms)
- Independent adjuster (IA) (individual clm or grp, specific type of clm, region, disaster)
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Approaches to establish CO
- Best estimate of ultimate value
- Set at policy limit
- Seek advice of legal council on probabilities (set at mode or mean)
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CY vs AY Incurred Losses
- CY Inc L = Pd + Ending - Beginning
- AY Inc L = Pd + End
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