Discussion Points – Part I - Schedschd.ws/hosted_files/2016falleducationalforum/9d/Pooling...
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Building blocks of an actuarial report How actuarial conclusions are derived Estimated outstanding losses Funding levels 1 Discussion Points – Part I
Transcript of Discussion Points – Part I - Schedschd.ws/hosted_files/2016falleducationalforum/9d/Pooling...
Building blocks of
an actuarial report
How actuarial
conclusions are derived
Estimated outstanding
lossesFunding levels
1
Discussion Points – Part I
Pooling and Self-Insurance are…Insurance Mechanisms
Pay generally fixed premium up front for a promise to pay claims later Claims will not be known for a while and are subject to variation
Risk: the deviation or variability around an expected outcome
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Balancing Formula
premium + inv income = losses + expenses
fixed fixed minimal variable
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Actuarial Report2 Time Perspectives
2015201420132012Prior
Outstanding losses
…2019201820172016
Projected funding
December 2015
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GASB 10: Determination of Liability
(Source: GASB Statement No. 10, Paragraph 22)
1. Liability for unpaid claim costs, including Incurred But Not Reported (IBNR) claims
2. Liability should be based on: • The estimated ultimate cost
(including effects of inflation and other societal and economic factors);
• Past experience adjusted for current trends; and • Other factors that would modify past experience.
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Actuarial Process
• Collect data• Organize and summarize claims and exposure
data§ Check for reasonability and consistency
• Perform analysis§ Estimate ultimate losses using actuarial methods
• Draw conclusions§ Outstanding liabilities§ Projected funding
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Claim Period Self-Insured Retention
1997 to 2000 $200,000
2001 to 2008 $250,000
2009 to 2010 300,000
2011 to 2013 350,000
2014 to 2015 500,000
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
1997 2000 2003 2006 2009 2012 2015
History of Self-Insured Retentions
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Data Is King!
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• GIGO§ …garbage in, garbage out…
• Review the losses§ Look for anomalies, large claims§ Keep an eye for trends – types of new losses,
recurring claims, etc.• Reconcile loss runs to data in actuarial report
§ Reasonability tests§ Adjustments – deductibles, SIR limits, etc.
Claim Data
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• Details§ Claim number§ Location§ Department§ Claim type
• Loss amounts§ Paid losses§ Case reserves
• Dates
§ Valuation§ Accident§ Report§ Close
• Additional info§ Expenses§ Recoveries§ Deductibles
Components of Incurred Losses
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• Paid losses§ Cumulative total payments
• Case reserves§ Value assigned by a claims adjuster of amount yet to
be paid• Incurred losses
§ = Paid losses + case reserves
$0
$5
$10
$15
$20
$25
$30
$35
$40
to 1
999/
00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
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2010
/11
2011
/12
2012
/13
2013
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2014
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15 17 14 17 15
22 20 22 24 26 20 20 18
14
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1 1
0
2 1
1 2
3 3
5
2 3 4
6
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Mill
ions
Paid Case Reserves
Incurred Losses by Accident Year
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Loss development
Bornhuetter-Ferguson analysis
Frequency/severity
Loss rate analysis
Actuarial Methods
Select ultimate losses based on appropriate methods and actuarial judgment
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Claim Period
Paid at 6/30/15
Age at 6/30/15
Paid Factor to Ultimate
Estimated % Paid
Estimated Ultimate
2009/10 $26,296,803 72 1.346 74% $35,408,541
2010/11 19,823,128 60 1.434 70% 28,426,728
2011/12 20,083,311 48 1.549 65% 31,103,822
2012/13 17,564,656 36 1.758 57% 30,875,497
2013/14 14,184,753 24 2.417 41% 34,284,576
2014/15 6,347,584 12 6.284 16% 39,889,520
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Paid Loss Development
Loss Triangle,Excerpt of Paid Loss Development
Claim Months of DevelopmentPeriod 12 24 36 48 60 72 … Ultimate
2000/012001/022002/032003/042004/052005/062006/072007/082008/092009/10 26,297 2010/11 19,823
2011/12 20,083 2012/13 17,565 2013/14 14,185 2014/15 6,348
Diagonal represents the latest valuation
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Loss Triangle,Excerpt of Paid Loss Development
Claim Months of DevelopmentPeriod 12 24 36 48 60 72 … Ultimate
2000/01 2,637 6,735 9,264 10,632 11,456 12,139 2001/02 2,977 7,763 10,749 12,077 12,962 13,859 2002/03 2,456 6,435 8,978 10,086 10,897 11,624 2003/04 3,139 8,217 11,252 12,686 13,759 14,572 2004/05 2,757 7,332 10,086 11,351 12,349 13,122 2005/06 4,195 10,709 15,111 16,949 18,362 19,603 2006/07 3,897 10,142 13,626 15,411 16,600 17,679 2007/08 4,418 11,446 15,687 17,922 19,305 20,573 2008/09 4,972 12,659 17,149 19,620 21,158 22,871 2009/10 5,840 15,115 20,454 23,166 24,914 26,297 2010/11 4,442 11,796 16,582 18,631 19,823
2011/12 5,074 13,329 18,051 20,083 2012/13 4,872 13,325 17,565 2013/14 6,063 14,185 2014/15 6,348
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Loss Triangle,Excerpt of Paid Loss Development
Claim Months of DevelopmentPeriod 12 24 36 48 60 72 … Ultimate
2000/01 2,637 6,735 9,264 10,632 11,456 12,139 2001/02 2,977 7,763 10,749 12,077 12,962 13,859 2002/03 2,456 6,435 8,978 10,086 10,897 11,624 2003/04 3,139 8,217 11,252 12,686 13,759 14,572 2004/05 2,757 7,332 10,086 11,351 12,349 13,122 2005/06 4,195 10,709 15,111 16,949 18,362 19,603 2006/07 3,897 10,142 13,626 15,411 16,600 17,679 2007/08 4,418 11,446 15,687 17,922 19,305 20,573 2008/09 4,972 12,659 17,149 19,620 21,158 22,871 2009/10 5,840 15,115 20,454 23,166 24,914 26,297 2010/11 4,442 11,796 16,582 18,631 19,823
2011/12 5,074 13,329 18,051 20,083 2012/13 4,872 13,325 17,565 2013/14 6,063 14,185 2014/15 6,348 14,185 / 6,063 = 2.339
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Loss Triangle,Paid Loss Development Factors
Claim Months of DevelopmentPeriod 12-24 24-36 36-48 48-60 60-72 72-84 … Ultimate
2000/01 2.554 1.375 1.148 1.078 1.060 1.049 2001/02 2.607 1.385 1.124 1.073 1.069 1.051 2002/03 2.620 1.395 1.123 1.080 1.067 1.053 2003/04 2.617 1.369 1.127 1.085 1.059 1.053 2004/05 2.659 1.376 1.125 1.088 1.063 1.054 2005/06 2.553 1.411 1.122 1.083 1.068 1.051 2006/07 2.602 1.344 1.131 1.077 1.065 1.053 2007/08 2.591 1.371 1.142 1.077 1.066 1.041 2008/09 2.546 1.355 1.144 1.078 1.081 1.054 2009/10 2.588 1.353 1.133 1.075 1.056 2010/11 2.656 1.406 1.124 1.064 2011/12 2.627 1.354 1.113 2012/13 2.735 1.318 2013/14 2.339 2014/15
Avg. All 2.593 1.370 1.130 1.078 1.065 1.051 Avg. Last 3 2.567 1.359 1.123 1.073 1.067 1.049 Avg. Wtd 3 2.551 1.358 1.123 1.073 1.067 1.049
Selected 2.600 1.375 1.135 1.080 1.065 1.052 Cumulative 6.284 2.417 1.758 1.549 1.434 1.346 Percent 16% 41% 57% 65% 70% 74% 100%
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Development Methods
16%
25%
16% 8% 5% 5% 4% 3% 2% 2% 2%
41%
57% 65%
70% 74%
78% 81% 83% 85% 86%
52%
69% 76%
79% 83%
86% 89%
0%
20%
40%
60%
80%
100%
0 12 24 36 48 60 72 84 96 108 120 132
Months of Development
Incremental Paid Paid Reported
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9 12 13 14 14 17 25 16 29 26 35 42 58 75 93 89 117 189 366
1025
3179 3165 3211 3350 3176
3474 3542 3470 3514 3475 3496 3636 3705 3584 3570 3366 3388 3335
3625 3579
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Prio
r
1995
/96
1996
/97
1997
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1998
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1999
/00
2000
/01
2001
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2002
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2003
/04
2004
/05
2005
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2006
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2007
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2014
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Num
ber o
f Cla
ims
# of Open Claims # of Claims Average
Number of Claims About 3,460 claims last 5 years
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$7,037 $6,410
$7,576 $8,229
$10,217
$7,322
$8,595 $8,335 $8,432
$9,791 1.8 1.8
1.6 1.6
1.5 1.5
1.5 1.4
1.5 1.5
0.8
1.0
1.2
1.4
1.6
1.8
2.0
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000 20
05/0
6
2006
/07
2007
/08
2008
/09
2009
/10
2010
/11
2011
/12
2012
/13
2013
/14
2014
/15
# of
Cla
ims
per $
1 M
illio
n P
ayro
ll
Aver
age
Cos
t per
Cla
im
Frequency: at 1.5 claims per $1M of payrollSeverity: recent averages about $10,000
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$0
$5
$10
$15
$20
$25
$30
$35
$40 to
199
9/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
2010
/11
2011
/12
2012
/13
2013
/14
2014
/15
15 17 14 17 15
22 20 22 24 26 20 20 18
14
6
1 1
0
2 1
1 2
3 3
5
2 3 4
6
13 1
1 0
1 1
1 2
3 3
5
3 6
7 10 17
Mill
ions
Paid Case Reserves IBNR
Estimated Ultimate Losses by Policy Year
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• Known loss events expected to become claims• Unknown loss events expected to become
claims§ More common in liability insurance§ Worker compensation (e.g. cumulative injury)
• Future development on claims already reported Paid losses
Incurred but Not Reported (IBNR)
$0
$5
$10
$15
$20
$25
$30
$35
$40 to
199
9/00
2000
/01
2001
/02
2002
/03
2003
/04
2004
/05
2005
/06
2006
/07
2007
/08
2008
/09
2009
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2010
/11
2011
/12
2012
/13
2013
/14
2014
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1 1
0
2 1
1 2
3 3
5
2 3 4
6
13 1
1 0
1 1
1 2
3 3
5
3 6
7 10 17
Mill
ions
Case Reserves IBNR
$117.0 M (case reserves of $55.1 M + IBNR of $61.8 M)
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Claim Liabilities =Case Reserves + IBNR
As of June 30, 2015
ASSETS ($ Millions)
Cash and investments $204.8
Receivables 0.2
Prepaids 0.01
Total assets $205.0
LIABILITIES AND NET ASSETS
Liability for open and incurred but not reported (IBNR) claims $117.0
ULAE 9.0
Other 1.0
Total liability 127.0
Net assets (Surplus) 78.0
Total liabilities and net assets $205.0
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Balance SheetFinancial Position at a Given Point in Time
Actuarial Study Conclusions
2015201420132012Prior
Outstanding losses
…2019201820172016
Projected funding
December 2015
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$0
$5
$10
$15
$20
$25
$30
$35
$40 20
05/0
6
2006
/07
2007
/08
2008
/09
2009
/10
2010
/11
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
22 20 22 24 26 20 20 18
14
6
1 2
3 3
5
2 3 4
6
13
1 2
3 3
5
3 6
7 10 17
Mill
ions
Paid Case Reserves IBNR
Estimated Ultimate Losses
???
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Loss Rate
Ultimate Losses Loss Rate =
Exposure
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Exposure Data
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• Exposure base§ Workers compensation – payroll§ Auto liability – number of vehicles§ General liability – payroll, FTEs, expenditures§ Property – total insured value (TIV)
• Changes over time§ Inflation – payroll§ Mix by type – vehicles, employee class§ Membership
1.69
1.491.541.57
1.84
1.261.39
1.251.311.461.39 1.41
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
2005
/06
2006
/07
2007
/08
2008
/09
2009
/10
2010
/11
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
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Historical (2015/16 level)ProjectedLatest 10-Yr Average
$0.0
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
2008
/09
2009
/10
2010
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2011
/12
2012
/13
2013
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2014
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2015
/16
2016
/17
Millions
Historical Future
$37,286,000= $1.41 Loss RateX $2.6 Billion Payroll
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Loss Rate per $100 of Payroll
$0
$5
$10
$15
$20
$25
$30
$35
$40 20
05/0
6
2006
/07
2007
/08
2008
/09
2009
/10
2010
/11
2011
/12
2012
/13
2013
/14
2014
/15
2015
/16
2016
/17
2017
/18
22 20 22 24 26 20 20 18
14
6
1 2
3 3
5
2 3 4
6
13
1 2
3 3
5
3 6
7 10 17
36 37 38
Mill
ions
Accident Year Paid Case Reserves IBNR Projected
Ultimate Losses
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• Add:§ Expected losses§ Investment income§ Risk margin§ Admin expenses§ Excess insurance premiums
• Rate:§ Divide funding amount by
exposure units, say payroll per $100
excess premiumsadmin expenses
risk margin
investment income
losses
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Funding Components
Member’s contribution = member’s payroll
x average Pool rate
x member’s ex mod factor
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Projected Member’s Contribution
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Summary
• Building Blocks of an Actuarial Report§ Data: claims and exposure§ Estimate ultimate losses§ Outstanding claim liabilities§ Funding: losses, expenses, and rates§ Discounting§ Risk margin (confidence level)
Questions?
Mujtaba Datoo, ACAS, MAAA, FCA Actuarial Practice Leader Aon Risk Consultants (949) 608-6332 [email protected]
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