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

Question 7

what information does Schedule P provide (2)

Answer 7

• detail underlying loss & LAE reserves from balance sheet
• includes 10 years of loss & DCC (Defense & Cost Containment)

Question 8

what is a common reason for outside parties to use a company’s Schedule P

Answer 8

to evaluate company’s reserve adequacy

Question 9

how many ‘Parts’ comprise Schedule P

Answer 9

7

Question 10

how is Schedule P data segmented

Answer 10

by line of business & accident year

Question 11

identify the Parts of Schedule that have a ‘Summary’ section

Answer 11

Part 1,2,3,4 have a summary section (the subparts A - T show line of business detail)
Part 5,6,7 DO NOT have a summary section

Question 12

identify the Parts of Schedule that have a ‘Summary’ section

Answer 12

Part 1,2,3,4 have a summary section (the subparts A - T show line of business detail)
Part 5,6,7 DO NOT have a summary section

Question 13

identify the Schedule P yearly reporting convention for: Medical Professional Liability (Claims-Made)

Answer 13

report year

Question 14

identify the Schedule P yearly reporting convention for: Commercial Auto Liability/Medical(Occurrence)

Answer 14

accident year

Question 15

identify the Schedule P yearly reporting convention for: Products Liability (Tail Coverage)

Answer 15

policy year (although several other answers were accepted)

Question 16

dentify the Schedule P yearly reporting convention for: Surety

Answer 16

discovery year

Question 17

identify changes in a company’s business to consider when using Schedule P to assess reserve adequacy (9)

Answer 17

examiner’s report required 3 of these:
- mix of business
- reserving practices
- claim settlement practices
- growth/shrinkage
- retentions
- limits
- intercompany pooling
- definition of claim count
- commutations