Sch P

Question 1

Info Sch P provides

Answer 1

• detail underlying loss & lae reserves from balance sheet
• includes 10 yrs of loss & DCC

Question 2

Why outside parties use Sch P

Answer 2

to eval reserve adequacy

Question 3

How many parts?

Answer 3

7

Question 4

How Sch P data is segmented

Answer 4

by LOB and AY

Question 5

Common uses and functions of Sch P (DT-RAPID)

Answer 5

• Development of reserves of over time to specific years and lines (2,3,4)
• Trends in freq and sev (1,2,5)
• RBC loss-sensitive discount (7)
• Adequacy of recorded reserves (2,3,4,5)
• Payment patterns for discounting (3)
• IBNR/Case reserve split (2,3,4)
• Disclosures for SAO (1)

Question 6

Contents of each part

Answer 6

1: tables of everything (losses, expenses, prems, clm cts)
2,3,4: loss triangles (2: incurred ults, 3: paid, 4: IBNR)
5: claim count triangles (CWP, outstanding, rept)
6: earned prem triangles
7: tables and triangles for loss-sensitive contracts

Question 7

Parts that have a summary

Answer 7

Parts 1 - 4 have summaries ( subpart A - T = by LOB). 5-7 do not

Question 8

Case Reserve Formula

Answer 8

Ultimate - Paid - IBNR (Part 2 - Part 3 - Part 4)

Question 9

Paid in CY

Answer 9

Cumulative Paid in CY - Cumulative Paid in PY

Question 10

Change in Case in CY

Answer 10

Case in CY - Case in PY

Question 11

Case Incurred in CY

Answer 11

Change in Case in CY + Paid in CY

Question 12

Closed to Reported Ratio

Answer 12

(Reported Claims - Outstanding Claims) / Reported Claims

Question 13

All Closed Claims

Answer 13

Reported Claims - Outstanding Claims

Question 14

Avg Case Outstanding

Answer 14

Case Reserves / Outstanding Claims

Question 15

How changes in avg case outstanding affect adequacy of reserves

Answer 15

may indicate a strengthening or weakening of case reserves

Question 16

Why you should be cautious of using Sch P Pt 5 to compare companies

Answer 16

• Doesn’t indicate whether counts are recorded on a per claim or per claimant basis
• Definition of closed claim can vary
• Commutation may distort count triangles

Question 17

Update Pts 2 and 3 for new calendar year

Answer 17

Update Pt 3:
1. Drop oldest CY column and sum 2 oldest AYs into new prior year row
2. Add new CY+1 paid amts to new CY column to get new CY + 1 Column
3. Subtract out prior AY - 1 amount from entire new prior row

Update Pt 2:
1. Create original unpaid triangle (original pt2 - original pt3)
2. Calculate new unpaid triangle following pattern of step 1 and add new unpaid amts to new CY+1 column
3. Create new part2 =new unpaid + new paid

Question 18

Cautions with using Sch P

Answer 18

• Numbers don’t tell whole story - should talk to mgmt
• Sch P net of reins and doesn’t reflect credit risk
• Only 10 yrs of data (inappropriate for long-tailed lines)
• Internal and Voluntary/Involuntary pools can distort data
• Commutations can cause sudden increase in net reserves
• Can’t separate DCC trends from loss trends
• Prepartion of Sch P is judgement based: companies have choice on allocations and presentations