Patrik

Question 1

Reinsurance loss reserving problems (7)

Answer 1

1. longer claim report lags
2. persistent upward development of reserves
3. heterogeneity - contracts, reporting patterns, etc.
4. industry statistics are not very useful b/c of above
5. reinsurer often lacking important info (summary only)
6. often have data coding and IT systems problems
7. size of adequate reserve to relative to surplus

Question 2

Causes of persistent upward development of reinsurer loss reserves (3)

Answer 2

1. economic and social inflation
2. tendency to reserve at modal values
3. tendency to under-reserve ALAE

Question 3

Components of a reinsurer’s loss reserve (6)

Answer 3

1. ceding co. case reserves
2. reinsurer’s additional case reserves
3. IBNER
4. pure IBNR
5. discount for future investment income
6. risk load

Question 4

Methods for reinsurance reserving for short-tailed exposure categories (2)

Answer 4

1. set IBNR = % of latest yr EP

2. reserve up to a selected LR

Question 5

Method for reinsurance reserving for medium-tailed exposure categories

Answer 5

CL - incurred preferable, but paid can be used if more stable

Question 6

Methods for reinsurance reserving for long-tailed exposure categories (6)

Answer 6

1. CL
2. BF
3. CC
4. credibility IBNR estimate (CL and CC)
5. other credibility procedures
6. alternate estimation methods - ex: stochastic reserving or freq/sev models

Question 7

Advantage of using CL method for reinsurer loss reserve estimates
(Patrik)

Answer 7

strongly correlates future development with overall lag pattern

Question 8

Disadvantage of using CL method for reinsurer loss reserve estimates
(Patrik)

Answer 8

so heavily correlated that credibility is low for immature years

Question 9

Advantage of using the BF method for reinsurer loss reserve estimates
(Patrik)

Answer 9

correlates future development with an exposure measure

Question 10

Disadvantage of using the CC method for reinsurer loss reserve estimates
(Patrik)

Answer 10

highly dependent on rate-level adjusted premium

Question 11

Credibility IBNR estimate

Answer 11

credibility IBNR = Z * CL IBNR + (1 - Z) * SB IBNR

where Z = cred. factor * report lag
» more weight to CL as AYs mature

Question 12

Potential conclusions if actual claims > expected claims (3)

Answer 12

1. purely random
2. beginning IBNR was too low
3. report lags were too short

Question 13

Advantage of the CC method for loss reserve estimates

Patrik

Answer 13

more stable than CL results at early maturities