Data

Question 1

What 2 characteristics are required to use data

Answer 1

• Sufficient
• Reliable

Question 2

Sufficient

Answer 2

Include the appropriate information

Question 3

Appropriate

Answer 3

Suitable for the intended purpose

Question 4

Reliable

Answer 4

Substantially accurate

Question 5

Homogeneous

Answer 5

Similar patters
* Relationship between claim-related expenses and indemnity
* Relative propensity for large claims

Question 6

Statistical reliability (credibility)

Answer 6

Sufficient volume of homogeneous claims

Question 7

Indemnity

Answer 7

Claim payments and case estimates for a loss or damage

Question 8

Claim-related expenses (Loss adjusment expenses, LAE)

Answer 8

• Allocated loss adjustment expenses (ALAE)
• Unallocated loss adjustement expenses (ULAE)

Question 9

ALAE

Answer 9

Third-party expenses directly attributable to a specific claim

Question 10

ULAE

Answer 10

General claim-related expenses that cannot be allocated to a specific claim (usually estimated on an aggregate basis)

Question 11

Salvage

Answer 11

Amounts recovered (or estimated to be recoverable) from the reclaimed property

Question 12

Subrogation

Answer 12

Right of the insurer to pursue action against the third-party that caused an insurance claim for the insured

Question 13

Calendar year aggregation

Answer 13

All claim transactions taking place in a given calendar year (Jan1-Dec31)

Question 14

Pros and cons of calendar year aggregation

Answer 14

Pros: readily available, interpreting effects of changes
Cons: no clear indication of pricing and reserving adequacy

Question 15

Accident year aggregation

Answer 15

All claims for accidents occurring in the same year

Question 16

Pros and cons of accident year aggregation

Answer 16

Pros: data available more quickly than policy year
Cons: no exact match between AY claims and CY earned premiums

Question 17

Policy (underwriting) year aggregation

Answer 17

All claims associated with policies that are effective during the CY

Question 18

Pros and cons of policy year aggregation

Answer 18

Pros: precise matching of claims and premiums
Cons: time lag (a policy year, for 12-month policies, extends over 2 calendar years)

Question 19

Report year aggregation

Answer 19

All claim payments arising from claims reported in a report year

Question 20

Pros and cons of report year aggregation

Answer 20

Pros: testing adequacy of prior estimates of unpaid claims for known claims
Cons: doesn’t capture pure IBNR

Question 21

Gross of reinsurance

Answer 21

Include assumed reinsurance, prior to ceded reinsurance

Question 22

Net of reinsurance

Answer 22

Data after reflecting cessions to reinsurers
Net=Gross-Reinsurance
Gross=Direct+Assumed

Question 23

Total limit

Answer 23

All claims are included without capping or limitation

Question 24

Basic limit

Answer 24

Remove the effect of large claims
* Set by law of selected judgmentally
* Need to add provision for claims above the basic limit

Question 25

Exposure

Answer 25

State of being subject to loss because of hazard or contingency

Question 26

Exposure base

Answer 26

Basis to which rates are applied to determine premium

Question 27

Requirements for a good exposure base

Answer 27

* Expected claims should be directly proportional to the exposure base * Easy to measure, ideally already recorded

Question 28

Earned premiums

Answer 28

Premiums earned by providing insurance protection (expired portion of the policy)

Question 29

Written premiums

Answer 29

Premiums generated on all policies issued

Question 30

In-force premiums

Answer 30

Premiums associated with the exposures that have been written, are in effect, and have not expired or been cancelled

Question 31

General expenses

Answer 31

Expenses associated with the costs of day-to-day operations including administrative and operational costs that are not directly related to marketing or selling of the insurance policies or the settlement of claims (rent, utilities, senior management salaries)

Question 32

Underwriting expenses

Answer 32

Costs associated with selling GI products (commission and brokerage fees, salaries and employee benefits for marketing and underwriting staff, advertising and other promotional costs, premium taxes, licenses and fees)

Question 33

Considerations when using external data (9)

Answer 33

* Definition of counts: no payment, ALAE only, reopened * Claim management: conservative vs aggressive * Lines of business: terms and conditions, standard exclusions, limits * Underwriting: non-standard risks, affinity groups, operations * Geographic mix: urban, rural, small cities * Claim coding: claim reporting, payment patterns * Policyholder deductibles and limits * Legal precedents: legal environment, tort reform initiatives * Reinsurance practices

Question 34

Management and general information

Answer 34

* Business plans * Participation in pools and associations * Regulatory interaction

Question 35

Information and technology

Answer 35

* Types of data available * Periods of time * Data verification processes

Question 36

Accounting

Answer 36

* Segregation of claim data

Question 37

Claim management

Answer 37

Claim handling practices * Organizational structure (stock, mutual, reciprocal, RRG, Lloyds) * Distribution (direct, captive agents, independent agents and brokers) * Participation in pools * Target markets, sales incentives, competitors

Question 38

Marketing and underwriting

Answer 38

* Characterictics of the book

Question 39

Catastrophe exposure

Answer 39

* Recording of catastrophe claims * Exposure to catastrophes

Question 40

Pricing and actuarial ratemaking

Answer 40

* Historical rate changes

Question 41

Reinsurance

Answer 41

* Historical reinsurance program * Gross and ceded insurance liabilities

Question 42

Investments

Answer 42

* Requirements to discounting insurance contract liabilities * Future investment income