Schedule P

Question 1

Functions of Schedule P

Answer 1

DT-RAPID (go downtown on rapid transit)
D - Development of reserves over time attributable to specific years & lines - (2,3,4)
T - Trends in frequency & severity (1,2,5)

R - Calculate RBC loss-sensitive discount (7)
A - Evaluate Adequacy of recorded reserves (2,5)
P - Determine Payment patterns for discounting (3)
I - Observe split between actuarial reserves (IBNR) and case reserves (4,5)
D - Disclosures for SAO (1)

Question 2

Organization of Schedule P

Answer 2

• 1 - tables of everything by accident year (losses, expenses, premiums, claim counts)
• 2,3,4 - triangles of losses (Ultimates, Paids, IBNR)
• 5 - triangles of claim counts (Closed with payment, Outstanding, Reported)
• 6 - triangles of earned premium
• 7 - tables & triangles for loss-sensitive contracts

Question 3

Schedule P Parts 2/3/4 Formulas

Answer 3

Case Reserves = Part 2 - Part 3 - Part 4
Paid in CY = Cumulative Paid in CY - Cumulative Paid in CY-1
Case Incurred in CY = Sum(Change in Case in CY) + Sum(Paid in CY)

Question 4

Prior Year Row Calculations

Answer 4

• Start with Part 3
• Calculate CY+1 column
• Back out (NEW prior, CY-1) from entire 1st row
• Calculate Unpaid triangle [Part 2 - Part 3]
• Apply Step 1 to Unpaid triangle
• New Part 2 = Unpaid triangle + New Part 3 triangle

Question 5

Cautions when using Schedule P to assess reserve adequacy

Answer 5

• Talk to people!: talk to management to understand what’s going on at the company
• 10: maximum # of years of data in P exhibits; problem for long-tailed lines
• Pooling
  Internal pooling can distort data
  Participation in voluntary/involuntary pools can distort data (many pools report IBNR as case reserves)
• Commutations: can cause a sudden increase in net reserves
• DCC: Parts 2,3,4 include DCC, so you can’t separate DCC trends from loss trends
• Preparation of Schedule P: person preparing Schedule P has certain amount of choice regarding allocations & presentations

Question 6

Intercompany Pooling Calculations

Answer 6

Schedule P
Gross Reserves: Total Direct Loss & LAE * Pool %
Net Reserves: Total Net Loss & LAE * Pool %

Non-Schedule P:
Gross Reserves:
* Lead internally assumes everything from non-lead companies
* Non-lead internally re-assume their pool % from A’s gross amounts

Net Reserves:
* Same as Schedule P