Post on 14-Dec-2015
the CAS Spring meeting 2006International Reserving Practices(GS4)
Loss Reserving in Japan
Junji FURUKI FIAJ
The Institute of Actuaries of Japan
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Agenda
Non-life market in Japan Regulation and Accounting Loss reserving (before revisions) Loss reserving (after revisions) Role of Actuaries
the CAS Spring meeting 2006International Reserving Practices(GS4)
Non-life market in Japan
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World premium volume ranking
# Country PV(US$Mln) WT(%)
1 United States 603,018 43.2
2 Germany 106,261 7.6
3 Japan 105,587 7.6
4 United Kingdom 105,241 7.5
5 France 65,811 4.7
6 Italy 46,728 3.4
7 Canada 40,232 2.9
8 Spain 32,311 2.3
9 Netherlands 27,064 1.9
10 Australia 23,714 1.7
World 1,395,218 100.0
Swiss Re, sigma No.2/2005
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Non-life insurers in Japan
# Company DNP(JP\Bln) WT%
1 Tokio M & Nichido 2,143 24.5
2 Sompo Japan 1,626 18.6
3 Mitsui Sumitomo 1,626 18.6
4 Nippon Koa 892 10.8
5 Nissay Dowa 381 10.2
6 Aioi 943 4.3
7 Nisshin 168 4.2
8 Fuji 368 2.7
9 Kyoei 234 1.9
10 Secom 62 0.7
Total of domestic insurers 8,763 100.0
Hoken Kenkyujo, Insurance 2005
License #
Domestic 23
Foreign 15
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Operating LinesLines DNP(JP\Bln) (Saving type)
Voluntary Automobile 3,532 (8)
Compulsory Automobile 1,190
Personal accident 1,496 (865)
Fire 1,475 (364)
General liability 386
Marine & Inland transit 270
Movables comprehensive 116 (0)
Workers Compensation 71 (6)
Pecuniary 42 (2)
Contractors 37
Others 148
Total 8,763 (1,246)
Hoken Kenkyujo, Insurance 2005
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AssetsItem Amt (JP\Bln) WT(%)
Cash and eq. 2,349.5 7.2
Bonds 9,386.5 28.8
Stocks 9,100.2 28.0
Foreign securities 4,496.3 13.8
Other securities 674.7 2.1
Loans 2,853.9 8.8
Real estate 1,255.9 3.9
Other assets 2,418.9 7.4
Total assets 32,536.1 100.0
GIAJ, Fact Book 2005
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Liabilities & EquitiesItem Amt (JP\Bln) WT(%)
Underwriting Reserves 22,714.5 69.8
(Outstanding Loss Reserves) (2,844.6) (8.7)
(Premium Reserves) (19,869.9) (61.1)
(Others) (-) (-)
Other Liabilities 3,232.0 9.9
Total Liabilities 25,946.6 79.7
Equities 6,589.5 20.3
Total Liabilities & Equities 32,536.1 100.0
GIAJ, Fact Book 2005
the CAS Spring meeting 2006International Reserving Practices(GS4)
Insurance Regulation and Accounting
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Insurance Regulation
Financial Services Agency (FSA) Insurance Business Law (IBL)
Enforcement Regulations Official Notifications Supervisory Guidelines
Other laws Law concerning non-life insurance rating
organization Automobile liability security law Law concerning earthquake insurance
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Change of Regulation
Former IBLs (before 1996) Tight administrative frameworks Uniformity in terms & pricing
(personal lines)
Revised IBLs (enacted 1996) Solvency margin scheme Personal lines Rating relaxations…and other deregulations
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Ongoing changes
Program for Further Financial Reform FSA’s initiative; 2004~2006 From Pre Review to Post Monitoring Improve in the corporate governance
International standard-setting activities IAIS IASB
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Insurance Accounting
SAP = GAAP SAP / ruled in IBLs TAP / Special Taxation Measures Law
Toward IFRS? GIAJ Studying IFRS4 phase II
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Recent revisions of SAP FY2005
New calculation methods of UP and Cat reserve for risks of natural disasters
FY2006 Statistical estimation of IBNR
reserve Future cash flow analysis & test
FY2007 Stress test & Liability adequacy test
on medical and nursing care products
the CAS Spring meeting 2006International Reserving Practices(GS4)
Loss reserving (prior revisions)
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Prior loss reserves - Recognition
Two items Case reserve … outstanding loss IBNR reserve … not yet & not enough
Reinsurance deduction Estimated amount to be collected
from reinsurance can be deducted Allocated unpaid loss adjustment
expenses are included
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Prior loss reserves - Estimation
Case reserve Case estimate
IBNR reserve Target lines and applicable formulae
were placed in the Official Notification Tax Code permits IBNR reserve for all
lines and provides similar formulae
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Prior loss reserves - IBNR formulae
IBNR reserve takes greater amount between…
Personal Accident
WC
Medical, Nursing
General Liability
Life Re
Overseas Travel
Current year’s earned
premium ×8%
An average of run off results in relation to
Case reserves
An average of run off results in relation to
Case reserves
Current year’s earned
premium ×3%
BIL PDL
PD Misc.
Automobile
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Prior loss reserves - features
Exposures has been NOT excessive Not synchronized with Profit Cycle
(JP\Bln; +addition, -release)
GIAJ, Fact Book 2005
-300
-200
-100
-
100
200
300
400
1991 1993 1995 1997 1999 2001 2003
Net profit
Loss reserves
the CAS Spring meeting 2006International Reserving Practices(GS4)
Loss reserving (post revisions)
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New loss reserves - stables
Recognition of reserves Case reserve IBNR reserve
Estimation of Case reserve Case estimate
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New loss reserves - changes
IBNR reserves shall be estimated by actuarial and statistical method (principle)
Screening for short cut calculations of IBNR reserves
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Screening of IBNR Reserves
Domestic direct
Foreign direct
Domestic reinsurance
Foreign reinsurance
Tail length measure
Paid loss incurred in recent two
years / All paid loss
Materiality measure
The unit’s paid loss / All paid
loss
Statistical method
Formula method
<90%
>=90% <1%
>=1%
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Reserving method
Formula method An average of run off results in
relation to Case reserves Incurred loss/12 for assumed business
Statistical method Not stated in IBLs Chain-Ladder, Bornhuetter-Ferguson,
etc.
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Disclosure of Loss Reserves
IAIS supervisory standard No.9 “Standard On Disclosures Concerning Technical
Performance And Risks For Non-life Insurers And Reinsurers” (Oct. 2004)
In the past balance sheet… Net presentation Gross and reinsurance items the note
FY2006 or later, we will provide… Claims development and Run off Results
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Claims Development Long-tailed lines
Automobile, General Liability and Personal Accident Disclose past five years
Accident year 1997 1998 1999 2000 2001Loss reserves and paid loss at the
end of the accident year 680 790 823 920 968
One year later 673 785 840 903
Two years later 692 776 845
Three years later 697 771
Four years later 702
Estimate of cumulative loss 702 771 845 903 968
Cumulative payments 695 572 396 232 90
Loss reserves 7 199 449 671 878
Example of the Claims development triangle (unit arb.)
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Run off Results All businesses except CALI and EQ The run off results is the difference between…
the loss reserves at the beginning of the period, and the sum of the paid loss during the year on account of claims
incurred in previous years and the loss reserves at the end of the year for such outstanding claims
Fiscal year
Beginning loss reserves
Accidents incurred in previous periodsRun off resultsPaid loss Loss reserves
1999 50 40 △90
2000 110 60 55 △5
2001 120 60 55 5
2002 120 65 60 △5
2003 120 60 50 10
Example of the Run off results (unit arb.)
the CAS Spring meeting 2006International Reserving Practices(GS4)
Role of Actuaries
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Role of actuaries (prior revisions)
There was little role in loss reserves estimations Case reserves were case estimate IBNR reserves were ruled by IBLs
Actuaries laid weight rather on premium reserves of long-term policies
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Role of actuaries (post revisions)
Active role in estimation Statistical and actuarial estimation of IBNR
reserves
Expanded appointed actuary system to verify appropriateness of loss reserves to submit the actuarial opinion to the board of direc
tors to follow actuarial practice standards prepared by t
he “designated corporation”
31The practice standards for the appointed actuaries
Standards for Non-life actuaries IAJ launched the working group to
draft the practice standards in 2005
Topics Loss reserves, policyholder dividend,
future cash flow analysis…
Principle basis
the CAS Spring meeting 2006International Reserving Practices(GS4)
Thank you for listening
http://www.actuaries.jp http://www.sompo-japan.co.jp