Siewert

Question 1

Advantages of high deductible plans (5)

Answer 1

1. achieves price flexibility while passing additional risk to larger insureds
2. reduced residual market charges and premium taxes
3. cash flow advantages for the insured (b/c insurer pays first)
4. provides incentive for insureds to control losses while providing large loss protection
5. allows “self-insurance” without rigorous state requirements

Question 2

Per aggregate XS losses under the LR approach

Answer 2

per aggregate XS loss = prem * ELR * (1 - per occurrence charge) * per aggregate charge

Question 3

Advantages of the LR approach to estimating XS losses (3)

Answer 3

1. can be used with no/immature data
2. LR estimate can be consistently tied to pricing programs
3. relies on a more credible pool of company and industry experience

Question 4

Disadvantages of the LR approach to estimating XS losses (2)

Answer 4

1. ignores actual experience (less useful for mature AYs)

2. may not properly reflect account characteristics if development emerges differently due to exposures written

Question 5

Reason limits should be indexed for inflation

Answer 5

allows combining multiple experience periods by keeping the proportion of deductible/excess losses constant about the limit

Question 6

Advantages of the implied development approach to estimating XS losses (3)

Answer 6

1. provides estimate of XS losses at early maturities, even if no losses have yet emerged
2. limited LDFs are more stable than unlimited
3. ultimate limited losses are used to calculate the service revenue asset

Question 7

Disadvantage of the implied development approach for estimating XS losses

Answer 7

does not explicitly recognize XS loss development

Question 8

Limited tail factor formula using an inverse power curve

Answer 8

age-to-age factor = 1 + a * (starting age/12 + c) ^ -b

Question 9

Advantage and disadvantage of using an inverse power curve for the limited tail factor selection

Answer 9

advantage: produces uniformly decreasing tail factors that are consistent for each limit
disadvantage: bias exists b/c each limit is extended to the same maturity

Question 10

Limited LDF under the direct development approach for estimating XS losses

Answer 10

limited LDF = LDF * severity relativity at ultimate / severity relativity at time t

severity relativity = limited severity / unlimited severity

Question 11

XS LDF under the direct development approach for estimating XS losses

Answer 11

LDF * ( 1 - severity relativity at ultimate ) / ( 1 - severity relativity at time t

Question 12

Weighted average form of the direct development approach

Answer 12

LDF = severity relativity * limited LDF + ( 1 - severity relativity ) * XS LDF

Question 13

Advantages of the direct development approach for estimating XS losses (2)

Answer 13

1. explicitly recognizes excess development

2. ensures consistency b/w limited and excess LDFs

Question 14

Disadvantages of the direct development approach for estimating XS losses (2)

Answer 14

1. XS LDFs tend to be volatile and overly leveraged

2. not possible to produce estimates if no losses have emerged

Question 15

Credibility weighting/BF method for estimating XS losses

Answer 15

ultimate loss = losses to date + expected loss * (LDF - 1) / LDF

Question 16

Advantages of the credibility weighting/BF method for estimating XS losses (3)

Answer 16

1, liabilities can be determined directly or indirectly

2. ability to tie into pricing estimates for immature years with no loss experience
3. produces more stable estimates over time

Question 17

Disadvantage of the credibility weighting/BF method for estimating XS losses

Answer 17

ignores actual experience to the extent of the complement of credibility

Question 18

What service revenue is and which claims the insurer collects service revenue on

Answer 18

service revenue = asset for revenue associated with servicing claims under a high deductible program

> > collect on claims below the deductible and below the aggregate limit

Question 19

Service revenue asset (formula)

Answer 19

SRA = expected recoverables - known recoverables

expected recoverables = ( ultimate limited losses - ultimate XS of aggregate losses ) * loss multiplier