Non-Life Loss Reserving Practices and Documentation
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Non-Life Loss Reserving Practices and Documentation
IAIS – ASSAL Training Seminar
April 29, 2009
David Oakden
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Canadian Requirements
• Discounting– Required Margins– Similar to IFRS 4 Proposal
• Actuarial Opinion Required• Actuarial Report Filed with
Regulator
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Report Outline
• Introduction• Opinion• Executive Summary• Company Overview• Data Overview• Unpaid Claims• Premium Liabilities• Exhibits and Appendices
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Introduction
• Company• Date• Name and contact information of the
Actuary• Purpose/Scope of the report
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Opinion
• Compare carried provisions with Actuary’s estimate
• Summary of the results for the different business segments showing how the total provision is derived
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Executive Summary
• Summary of key results– Accident year vs calendar year– Unusual losses or significant concerns
• Comment on development of prior years’ losses
• Discuss changes in methods and their financial impact
• Disclose any departure from accepted actuarial practice
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Company Overview
• Ownership and Management– Especially changes
• Business – Lines of business– Underwriting policies– Claims policies
• Reinsurance– Description of all significant treaties
covering several years• Ideally covering all years which have
unpaid claims
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Overview of Data
• Sources of data• Verification procedures
– Reliance on others• Accountants• Other actuaries
• Completeness of data– Non reviewed business segments
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Unpaid Claims
• To meet Canadian Requirements we need:
• Undiscounted Unpaid Claims• Selection of Payment Patterns• Selection of Interest Rate• Selection of Margins
I will restrict my comments to the undiscounted unpaid claims
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Undiscounted Unpaid Claims
• Gross• Ceded• Net
Two of the above provisions are calculated and the third obtained by simple arithmetic
Practices vary depending on the data, lines of business and reinsurance
We have no preference but all provisions must be reasonable
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Undiscounted Unpaid Claims
Considerations• Frequency/severity trends• Policy or coverage changes• Change in reinsurance• Change in reporting or payment of
claims• Changes in case reserving practices• Regulatory changes
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Claims Expenses
• Internal or Unallocated– Usually estimated using the paid to paid ratio
and the assumption that 50% of the expense is incurred when the claim is reported
• External or Allocated– Can be included with the claims data or reviewed
separately
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Undiscounted Unpaid Claims
• Favourable/unfavourable development– We require 5 years of data by line and in total– We encourage actuaries to show 10 years
• This is a very valuable tool for the supervisor– The actuary should comment on the reasons for
the development and changes made to address any relevant issues
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Premium Liabilities
Balance Sheet Presentation• Unearned Premiums• Deferred Acquisition Expenses• Other assets/liabilities• Premium Deficiency
Actuary’s Calculation• Expected losses & expenses on policies in force• Premium adjustments on policies and
reinsurance• Commission adjustments including agent/broker
profit commissions
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Other Liabilities
• Self-Insured Retentions• Subrogation and Salvage• Other Assets/Liabilities
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External Review Procedures
• External Auditor– Actuarial Specialist
• External Reviewer– Once every 3 years– Actuary should discuss the status of any
recommendations make in past reviews
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Questions