Post on 20-Jan-2016
description
Bill Burns — Vice President & Actuary
CLRS
September 11, 2006
Managing A Loss Reserving Department and Communicating Results
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Introduction
Actuarial profession is lacking in management literature
Hundreds of papers on quantitative techniques but only a handful (if that) on managing the loss reserving projects
Gregory Alff — 1993
This session will focus on managing the loss reserving process not the people
3 September 11, 2006
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The Big Day arrives and you find yourself in charge of the Loss Reserving Department…
Where do you start?
4 September 11, 2006
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Come prepared with a list of questions: Do I have the right staff?
How often do reserve reviews have to be done?
How much time does it take to do a review (in man-hours)?
What are the responsibilities of the individual staff members?
Do I have enough staff?
5 September 11, 2006
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Staff Evaluation
Technical skills
Knowledge of company operations
Verbal and written communication skills
Inter-personal skills
Management experience
Professional credentials
6 September 11, 2006
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How often are reserve reviews needed?
Depends on company
Size
Public vs private
Management’s needs/wishes
All lines — 2x year
“Major” lines — 4x year
Roll-forward at year-end (especially if a large complex company)
7 September 11, 2006
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How long does a review take? Depends on
Staff (size, abilities, etc.)
Quality of data
Depth of analysis
Complexity of book of business
Reinsurance program
Goal: Streamline the process as much as possible so you devote your resources to analysis and not data issues
Don’t make every time the first time
8 September 11, 2006
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Typical Department Structure
Chief Actuary
Reserving
PricingCorporat
e
Assistant
Actuaries
Actuarial
Assistants
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Responsibilities — Actuarial Assistants
Students (< 4 exams, 3 – 5 years experience)
“Ground Level”
Gather, scrub and balance data
Generate initial indications
Reserving package
In-house spreadsheets
Produce reports for management
Form and maintain relationships with peers in other departments
10 September 11, 2006
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Responsibilities — Assistant Actuaries
Seasoned students to new ACAS, FCAS
“5,000 Foot View”
Check work of actuarial assistants
Challenge assumptions and conclusions (“Smell Test”)
Propose alternative methods
Present results to chief actuary
Bring along your staff!
11 September 11, 2006
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Responsibilities — Chief Actuary
Seasoned ACAS, FCAS
Thick skin a must
Scar tissue optional
“10,000 Foot View”
Final word on reserve estimates (point and range)
Communicates results to senior management and B of D
Might write and sign opinions
12 September 11, 2006
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Communicating Results — Where are we?
Analysis is done and Chief Actuary has blessed the numbers
A formal report has been produced
The chief actuary now has to talk to a C-level executive (CEO, COO, CFO)
13 September 11, 2006
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Formal Report
Not a mystery novel
Conclusions upfront and in plain sight
If the reader wants to go further tell him/her where to find the information
14 September 11, 2006
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Formal report should include
Executive summary with conclusions
Breakdown by business segment reviewed, e.g.
Core business by line
Assumed business
ULAE
Methods and key assumptions
Data reconciliation
Tie in with prior analyses
15 September 11, 2006
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But formal reports can be hundreds of pages long
Do you really plan to give the entire report to a C-level executive?
What about reports you might have to give to:
Board of Directors
Department heads
Reinsurers
Regulators
Rating agencies
Each will have their own hot buttons as to what is important
16 September 11, 2006
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Rules of Thumb
Know your audience
K.I.S.S.
Avoid “Information Pollution”
As Pat Tures so eloquently put it:
“For actuaries a complex exhibit is a work of art. For everyone else it is a thorny tangle you wouldn’t want to touch even with gloves on.”
17 September 11, 2006
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XYZ Insurance CompanyProfit Center - Core Business
LOB: All
Loss Reserve Position as of 12/31/XX ($000)
Gross Net
Ult Loss & LAE 150,000 125,500
Paid Loss & LAE 110,000 91,000
Req'd Reserves 40,000 34,500
Carried Reserves 36,000 29,000
Red/(Def) (4,000) (5,500)
% Red/(Def) -11.1% -19.0%
18 September 11, 2006
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XYZ Insurance CompanyProfit Center - Core Business
LOB: Commercial Auto
Loss Reserve Position as of 12/31/XX ($000)
Gross Net
Ult Loss & LAE 30,000 27,500
Paid Loss & LAE 22,500 20,800
Req'd Reserves 7,500 6,700
Carried Reserves 7,200 6,300
Red/(Def) (300) (400)
% Red/(Def) -4.2% -6.3%
19 September 11, 2006
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XYZ Insurance CompanyProfit Center - Core Business
LOB: Personal Auto
Loss Reserve Position as of 12/31/XX ($000)
Gross Net
Ult Loss & LAE 35,000 19,500
Paid Loss & LAE 19,500 5,700
Req'd Reserves 15,500 13,800
Carried Reserves 16,800 12,700
Red/(Def) 1,300 (1,100)
% Red/(Def) 7.7% -8.7%
20 September 11, 2006
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XYZ Insurance CompanyProfit Center - Core Business
LOB: Workers' Compensation
Loss Reserve Position as of 12/31/XX ($000)
Gross Net
Ult Loss & LAE 85,000 78,500
Paid Loss & LAE 68,000 64,500
Req'd Reserves 17,000 14,000
Carried Reserves 12,000 10,000
Red/(Def) (5,000) (4,000)
% Red/(Def) -41.7% -40.0%
21 September 11, 2006
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Company XYZ - Workers' Compensation Frequency Trend
4.00
4.50
5.00
5.50
6.00
6.50
7.00
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
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Company XYZ - Workers' Compensation Severity Trend
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06
23 September 11, 2006
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Summary Loss reserving process is vital to the proper
management of insurance companies
A properly and adequately staffed actuarial department is the most critical component in the process
Your success will depend upon:
The value of the information you provide
How you present this information
Your track record
Communicate effectively and document your work