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Transcript of Milliman Package Policy Reserving Casualty Loss Reserve Seminar Prepared by: Brian Z. Brown, FCAS,...
Milliman
Package Policy Reserving
Casualty Loss Reserve Seminar
Prepared by: Brian Z. Brown, FCAS, MAAA
Consulting Actuary
Milliman, Inc.
Monday – September 13, 2005
10:30 a.m. – 12:00 p.m.
2Milliman
Lack of Credibility Lack of Homogeneity Indivisible Premium Odd Exposures
Construction Defect Mold Products
State Differences Type of Risk
Package Policy Reserving Issues
3Milliman
Lack of Credibility
Need to use external sources LDFs
• ISO• Annual Statements• Others
Loss Ratios• Pricing Analysis• Competitors – Annual Statements• Older years adjusted to current rate and loss cost levels
Package Policy Reserving Issues
4Milliman
Lack of Homogeneity
Differences by type of risk Large versus small Deductible / non-deductible Products / non-products Construction defect exposure State Etc.
Package Policy Reserving Issues
5Milliman
Industry Statistics - CMP Loss ratio differences by type of Company
Package Policy Reserving Issues
CMPUltimate Loss and DCC Ratio
LargeAccident Personal Middle Commercial
Year Lines Market Insurers
1995 75.4% 69.1% 71.7%1996 73.8% 79.9% 80.2%1997 69.5% 66.6% 74.0%1998 78.6% 78.9% 91.8%1999 67.9% 77.7% 94.5%2000 73.0% 81.4% 86.6%2001 71.5% 77.1% 93.6%2002 60.8% 57.0% 59.3%2003 53.2% 55.3% 53.8%2004 69.9% 58.5% 68.7%
Total 68.6% 68.6% 76.0%
6Milliman
Industry Statistics Observations
1) Loss ratio variability increases with size of insurer.
2) Results more cycle-driven for larger insurers.
Package Policy Reserving Issues
7Milliman
Industry Statistics - CMP Total Reserves to Earned Premium by Type of
Company
Package Policy Reserving Issues
CMPReserves to Earned Premium
LargeAccident Personal Middle Commercial
Year Lines Market Insurers
1995 1.6% 1.7% 3.5%1996 2.1% 2.6% 4.5%1997 2.4% 3.7% 5.5%1998 3.5% 4.8% 9.1%1999 4.3% 8.6% 13.2%2000 6.3% 11.3% 17.6%2001 9.3% 14.9% 25.4%2002 13.1% 17.1% 24.1%2003 17.2% 22.1% 28.0%2004 37.9% 36.4% 51.9%
Total 11.5% 14.4% 19.9%
8Milliman
Reserves to Earned Premium Observations
Smaller insurers have lower reserves relative to premium – maybe related to higher percentage of property exposure and longer tailed general liability exposure
Some large insurers have significant IBNR relative to case
• Construction Defect• Products
Package Policy Reserving Issues
9Milliman
Package Policy Reserving Issues
CMPPayment Patterns by Size of Company
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
1 2 3 4 5 6 7 8 9 10
Years of Development
Per
cen
t P
aid
Personal Lines Middle-Market Large Commercial Insurers
10Milliman
Payout Pattern Observations
Larger insurers have slower payout patterns
Package Policy Reserving Issues
11Milliman
Observations Larger insurers results are more difficult to
project Higher loss ratio variability More IBNR needs Slower payout pattern More difficult exposures
Package Policy Reserving Issues
12Milliman
Indivisible Premium One premium charge frequently for property /
liability Analyze partial loss ratios
Property / Liability Further refinements
• Products / non-products
• Construction defect / non-construction defect
Package Policy Reserving Issues
13Milliman
Odd Exposures Construction Defect
Long tail Difficult to assign accident / policy year Additional insured exposure Significant legal A mess
Mold
Products
Package Policy Reserving Issues
14Milliman
State Differences
Package Policy Reserving Issues
Source: Annual Statement Statutory Exhibit of Premiums and Losses
CMPDirect Incurred Loss & DCC Ratio
Calendar Western Southern All OtherYear States States Excl. NY
1999 69.3% 71.7% 84.4%2000 80.2% 72.9% 69.7%2001 81.8% 73.3% 75.0%2002 78.3% 62.6% 56.3%2003 68.3% 59.4% 59.9%2004 56.8% 114.0% 52.4%
Total 71.5% 76.5% 64.6%
15Milliman
Loss Ratios
Package Policy Reserving Issues
Source: Annual Statement Statutory Exhibit of Premiums and Losses
CMPDirect Incurred Loss & DCC Ratio
CalendarYear Nevada
1999 117.7%2000 137.8%2001 132.3%2002 138.8%2003 108.3%2004 84.9%
Total 117.4%