Schedule P

Question 1

Schedule P

Answer 1

Part 1: L+LAE and EP
Part 2: Historical net incurred loss & DCC Est
Part 3: Historical net paid loss and DCC
Part 4: Historical net IBNR for loss & DCC
Part 5” Historical Claim Counts
Part 5: Historical EP
Part7: Loss and Premium data on loss sensitive contracts

Question 2

Part 1

Answer 2

Column 4 - 9 are net of Sal Sub Recieved (col 10)

Amounts are cumulative. Paid to Date.

Prior year is incremental (ITD)

Col 26 - 28: Incurred loss contains IBNR

EPs are shown by CY. would not change after the end of the year. premium adj recognized in the CY in which they are received.

Losses are grouped by Occurrence (AY) and Claims Made (RY) and Tail: (PY - will cover claims that occur after the current - long term / short term liabilities) and Fidelity and Surety (Discovery Year)

Question 3

LAE

Answer 3

DCC used to be ALAE and A&O used to be ULAE

DCC - defense, litigation, and medical cost containment

A&O - all other expenses associated with adjusting and recording the claim

DCC needs to be assigned to AY in accordance with the associated losses
A&O needs to assigned in “any justifiable way”

Question 4

A&O needs to assigned in “any justifiable way”

(On the exam)

Answer 4

on the exam, preferred way to allocate A&O is in proportion to the number of claims reported, closed, or O/S each year

Question 5

Case & IBNR in Part 1

Answer 5

Columns 1 - 31: Net of tabular discount. (STAT)

THEN in columns 32&33: Gross of nontabular discount

AND NET ON NON-TABULAR DC IN COL 35 AND 36

Question 6

Intercompany Pooling

Answer 6

all losses are pooled and companies in participation take a % share.

Sched P Part1 shows NET of intercompany pooling (Only companys share)

Question 7

Claims information in Sched p - Part 1

Answer 7

On a gross basis

can derive a freq trend. there will be a distortion bc claims are not developed to ultimate and can be distorted by rate change.

I.E a lot of rate -> higher premium -> frequency will seem lower than actuals

Can derive a severity trend: loss / claim

Watch out for: mix of business, policy limits, reinsurance attachments points and limits, the way the company counts its claim (CWP, CNP)

Question 8

Parts 2 - 4

Answer 8

Case Reserves = Part 2 - Part 3 - Part 4

Triangles are gross of all DC since DCs throughout the years can cause YoY distortions in the development

Net of reinsurance and

net of sal / sub

Question 9

Issues with Using Sched P to determine LDFs

Answer 9

Schedule P may not be accurate in calculating ultimates compared to actual company data.

Guidance on compiling Sched P triangles are not comprehensive and may not be reliable for calculating LDFs across companies.

Internal pooling or reinsurance arrangements are not obvious.

Distortions due to commutations

Sched P has 10 years of data, longer tailed lines need more years of development -> understate the ultimate loss

Granularity between DCC and loss are blurred. Trends in individual pieces will not be recognized since they are shown combined

Question 10

Sched P - Part 2&3 Columns 11 - 12

Answer 10

1-year and 2-year development show PYD

Question 11

Sched P - Part 4 - Prior Year Calculations (Case Reserves)

Answer 11

From Sched P Part 1: Col 16 - Col 16 + Col 19 - Col 20 + TAB DC

recall Part 1 is Net of tab DC and part 4 is gross of tab DC

Question 12

Sched P - Part 3 - Prior Year Calculations

Question 13

Sched P - Part 5 - Claim Counts

Answer 13

Grouped by AY

Direct and Assumed

1) Closed with payment
2) Claims O/S
3) Claims Reported

Question 14

Sched P - Part 5 - Claim Counts Metrics

Claim Closure Rates

Answer 14

Closed Claims / Total Reported Claims

Change in Settlement of Claim Closures

Increase -> speed up

Decrease -> slow down
Causes: decrease in staff
growth in business without relavant increase
Large catastrophic event causing influx of reported claims

Question 15

Sched P - Part 5 - Claim Counts Metrics

CWP
Rates

Answer 15

CWP/Total Closed Claims

Growth in freq driven by CWithOutP, (CWP is decreasing) -> less concerned

Question 16

Sched P - Part 5 - Claim Counts Metrics

Claim Freq

Answer 16

This will be distorted by rate change

Question 17

Benefits of Intercompany Pooling

Answer 17

1) easier to administer than having to maintain
separate intercompany reinsurance agreements
2) intercompany pooling can be
more flexible.
3) makes it easier for a rating agency to review the
financial condition of a group and assign a single rating.
5) unpaid claim analysis for both gross and net reserves can be
calculated on pooled (combined) basis, as opposed to having to perform separate analyses of
gross reserves for each entity.

Question 18

Intercompany Pooling: Surplus Relief

Answer 18

As with reinsurance, companies use intercompany pooling for surplus relief.

Under intercompany
pooling, the members of the pool utilize the capital and surplus of all the companies, rather
than each individual company.

Question 19

Intercompany Pooling: UW Income

Answer 19

underwriting income for members of
an intercompany pool is shared based on their respective pooling percentage.

pooling percentages are
generally determined with consideration of the level of policyholders’ surplus at the legal
entity level; in general, the larger the surplus, the greater the share.

Question 20

Intercompany Pooling: pooling percentages

Answer 20

pooling percentages can change over time, based on a particular group’s
business strategy.

Schedule P is generally restated retroactively when there is a change in
intercompany pooling. if % changes form 10% to 15% the history is retstated to reflect 15%

Question 21

Intercompany Pooling: Schedule P

Answer 21

pooling percentages can change over time, based on a particular group’s
business strategy.

all figures provided in Part 1 and the triangles provided in Parts 2 through 7 are
provided after intercompany pooling.

Question 22

Reconciliation between Schedule F and P: Double Couinting

Answer 22

on a net basis, the amounts are the same in all of the “exhibits and schedules
within the Annual Statement”. However, on a gross basis, “exhibits and schedules other than
Schedule P” essentially double count the cessions to intercompany pooling, whereas Schedule
P nets them out.

Question 23

Reconciliation between Schedule F and P

Answer 23

Is Complicated due to the following:

Schedule F does not show IBNR on an assumed basis

double counting effect
of pooling

some companies have other intercompany reinsurance
relationships outside the intercompany pooling relationship,

Question 24

Intercompany reinsurance

Answer 24

cessions to affiliated reinsurers under straight reinsurance
agreements serve to reduce gross premiums, losses and related expenses.

It is important to know that intercompany pooling differs from intercompany reinsurance.

Question 25

Part 6 Schedule P

Answer 25

Cumulative EP By Exposure Year EP may change after end of Exposure Year due to: premium audits retrospective policies lags in reporting / accounting for premiums

Question 26

Part 7:

Answer 26

loss and premium by policy year on loss sensitive contracts Part A: Primary Contracts (direct Business) Part B: Reinsurance Contracts