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4 phases approach for reserving
- Exploratory analysis of the data
- Apply appropriate techniques for estimating unpaid claims
- Evaluate conflicting results of the various methods
- Monitor projections of clm dvpmt over subsequent calendar periods
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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 credibility
- Examples of external sources: ISO, NCCI, RAA, Best
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Uses of external data
- Tail devpmt factors
- Trend rates
- ECR
- Evaluating and reconciling results of various methods
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Key characteristics when evaluating cred of data
- Consistency of coverage triggered
- Volume of clm cnt
- Ability to develop appropriate CO
- Settlement or pmt patterns
- Likelihood of clm reopening
- Severity
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Determination of size criteria for large clms
- Nbr of clms over treshold
- Size of clm relative to policy limits
- Size of clm relative to reins limits
- Cred of internal data regarding large claims
- Availability of relative external data
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Verification of data
- Consistency w. financial statement data
- Consistency w. prior data
- Data reasonableness
- Data definitions
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Aggregation by CY
- Transactional data
- CY rpd = pd + beg - end
- Primary used for aggregation of exposures
- Adv: no dvpmt, readiliy available
- Dis: inability to address issue of dvpmt
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Aggregation by AY
- CY exposures often used w. AY claims
- Adv: grouping easy to achieve and understand; shorter time frame than PY; track economic or regulatory chg
- Dis: mismatch btwn clms and exposures; can mask chg in retention
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Aggregation by PY
- Clms extend over a 24 mths period
- Adv: true match btwn clms and exposures; track uw or pricing chg
- Dis: extended time frame; difficult to isolate and understand affect of a single large event
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Aggregation by RY
- Claims-made coverages is dependent on rpt date
- Used to estimate value of know clms
- Adv: nbr clms is fixed
- Dis: only measures dvpmt on know clms
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Ratio of Pd to Rpt
- Test for chgs in CO adequacy, settlement patterns
- Downward trend in ratio could be result of
- Decreasing paid claims
- Increasing case adequacy
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Ratio of closed to rpt clm cnt
- Measures chg in settlement rate of clms
- Chgs in ratio could be due to
- Large caT
- Chg in guidelines for establishment of a clm
- Restructuring of clm field offices
- Introduction of new call center
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