Asbestos Reserving Issues and Trends Kevin Madigan, MHL/Paratus September 23, 2002.
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Transcript of Asbestos Reserving Issues and Trends Kevin Madigan, MHL/Paratus September 23, 2002.
![Page 1: Asbestos Reserving Issues and Trends Kevin Madigan, MHL/Paratus September 23, 2002.](https://reader035.fdocuments.us/reader035/viewer/2022070605/5a4d1af47f8b9ab0599805b8/html5/thumbnails/1.jpg)
Asbestos Reserving Issues and Trends
Kevin Madigan, MHL/Paratus
September 23, 2002
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The 5 Stages of Loss
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The 5 Stages of Loss
DenialAnger
BargainingDepressionAcceptance
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The 5 Stages of Loss
DenialAnger
BargainingDepressionAcceptance
At which stage is the insurance industry?
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Easy to focus on the insane aspects of the litigation and to lose sight of painful facts.
Plaintiffs bar loves these cases because they are easy.
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EDITORIAL COMMENTS
Underwriting catastrophe
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EDITORIAL COMMENTS
Underwriting catastrophe“Asbestos has caused more cancer in the workplace than all other substances combined”
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EDITORIAL COMMENTS
Underwriting catastrophe“Asbestos has caused more cancer in the workplace than all other substances combined”
Smoking Gun DocumentsExpected and Intended?
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EDITORIAL COMMENTS
Underwriting catastrophe“Asbestos has caused more cancer in the workplace than all other substances combined”
Smoking Gun DocumentsExpected and Intended?
Kelly-Moore sues Dow and Union CarbideSubrogation?
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More CommentsPeripheral Defendants
“We were lazy”
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More CommentsPeripheral Defendants
“We were lazy”
Brake linings can be up to 50% asbestos by composition
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More CommentsPeripheral Defendants
“We were lazy”
Brake linings can be up to 50% asbestos by composition
Plaintiffs getting less money even though solvent defendants paying more
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More CommentsPeripheral Defendants“We were lazy”
Brake linings can be up to 50% asbestos by composition
Plaintiffs getting less money even though solvent defendants paying more
Senate hearings; Cheney & Halliburton
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Lawyerso Plaintiffs o Defendantso Policyholders’ Coverage Counsel o Bankruptcy Expertso Primary vs. Excess Carriers’ Coverage Counsel o Reinsurance Disputes
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Evaluating LiabilitiesBenchmarks – what to do “in a pinch”
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Evaluating LiabilitiesBenchmarks – what to do “in a pinch”
• Survival Ratios (Ratio of reserves to average annual paid losses)
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Evaluating LiabilitiesBenchmarks – what to do “in a pinch”
• Survival Ratios (Ratio of reserves to average annual paid losses)
• IBNR to Case Ratios
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Evaluating LiabilitiesBenchmarks – what to do “in a pinch”
• Survival Ratios (Ratio of reserves to average annual paid losses)
• IBNR to Case Ratios• Implied LDFs
![Page 19: Asbestos Reserving Issues and Trends Kevin Madigan, MHL/Paratus September 23, 2002.](https://reader035.fdocuments.us/reader035/viewer/2022070605/5a4d1af47f8b9ab0599805b8/html5/thumbnails/19.jpg)
Evaluating LiabilitiesBenchmarks – what to do “in a pinch”
• Survival Ratios (Ratio of reserves to average annual paid losses)
• IBNR to Case Ratios• Implied LDFs• Market Share Methods
![Page 20: Asbestos Reserving Issues and Trends Kevin Madigan, MHL/Paratus September 23, 2002.](https://reader035.fdocuments.us/reader035/viewer/2022070605/5a4d1af47f8b9ab0599805b8/html5/thumbnails/20.jpg)
Evaluating LiabilitiesBenchmarks – what to do “in a pinch”
• Survival Ratios (Ratio of reserves to average annual paid losses)
• IBNR to Case Ratios• Implied LDFs• Market Share Methods
None of these really do the trick
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Evaluating LiabilitiesMore appropriate method(s)
Understand the legal environment and the way all of the pieces fit together. The actuary has to synthesize a large volume of qualitative and quantitative data.
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Evaluating LiabilitiesMore appropriate method(s)
1. DETAILS
2. DETAILS
3. DETAILS
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Evaluating LiabilitiesMore appropriate method(s)• Talk and LISTEN, LISTEN, LISTEN to Claims
professionalsThey know more about this than most of us ever will
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Evaluating LiabilitiesMore appropriate method(s)• Talk and LISTEN, LISTEN, LISTEN to Claims
professionals• Gather information
Nature of exposure and available insurance
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Evaluating LiabilitiesMore appropriate method(s)• Talk and LISTEN, LISTEN, LISTEN to Claims
professionals• Gather information• Use modeling skills to analyze the source of the
exposure
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Evaluating LiabilitiesMore appropriate method(s)• Talk and LISTEN, LISTEN, LISTEN to Claims
professionals• Gather information• Use modeling skills to analyze the source of the
exposure• Produce distributions of IBNR
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Evaluating LiabilitiesMore appropriate method(s)Exposure Analysis – GROSS basis
DirectAssumed (traditional) reinsuranceRetrocessional Cover
Analyze Ceded Losses SeparatelyCollectibility IssuesCommutations
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Evaluating LiabilitiesDirect Insurance
o Ground-Up analysis of insured’s liabilitieso stochastic if possible
o Future Frequency and Severityo How Many More Years?
o Allocation to past Policy Yearso Knowledge of performing coverageso Primary vs. Excesso Number of Occurrenceso Push through insurance program to calculate GROSS
liabilitieso Insolvents, SIRs, “bare years”o Products vs. Non Products (Limits!)o Pure IBNRo Lots of judgment
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Evaluating LiabilitiesAssumed Reinsurance
o Ground-Up is harder to pull off due to data issues (e.g. coverage)
o Top-down analysis of Gross liabilitieso Cedant reserving and reporting patternso Source of loss to cedant (original insureds)o Recent Annual Average “billings” – paid and caseo Prior consumption of coverageo Known, but unreported, potential riskso Lots of judgment
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Evaluating LiabilitiesRetrocessional Cover
o Two optionso Exhaustive and expensive studyo Understand the mechanics and participants and do a
bulk studyo Lots of judgment
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Evaluating Liabilities
• Talk and LISTEN to Claims professionals, then apply modeling skills to produce distributions of IBNR.
![Page 32: Asbestos Reserving Issues and Trends Kevin Madigan, MHL/Paratus September 23, 2002.](https://reader035.fdocuments.us/reader035/viewer/2022070605/5a4d1af47f8b9ab0599805b8/html5/thumbnails/32.jpg)
Evaluating Liabilities
• Talk and LISTEN to Claims professionals, then apply modeling skills to produce distributions of IBNR.
• Thin data & lots of uncertainty.
![Page 33: Asbestos Reserving Issues and Trends Kevin Madigan, MHL/Paratus September 23, 2002.](https://reader035.fdocuments.us/reader035/viewer/2022070605/5a4d1af47f8b9ab0599805b8/html5/thumbnails/33.jpg)
Evaluating Liabilities
• Talk and LISTEN to Claims professionals, then apply modeling skills to produce distributions of IBNR.
• Thin data & lots of uncertainty. • Get fact AND opinion from knowledgeable
people, and use it to model the situation