Introduction to Reinsurance Reserving Casualty Loss Reserve Seminar Scottsdale, Arizona - September 13, 1999 Leslie Marlo - Senior Manager KPMG LLP kpmg

Applications, Complications, and Considerations Loss Development Method Loss Ratio Method Bornhuetter-Ferguson Others kpmg

Applications, Complications, and Considerations Parameter estimation very difficult Data Other Considerations Qualitative information kpmg

Loss Development Method Application same as for primary business kpmg

Loss Development Method For non-proportional business, may develop individual losses by layer: kpmg

Loss Development Method Potential Problems Selection of LDFs ----> Variability Tail Estimation Changes in Exposure No claims = No IBNR, Large claims = Large IBNR Paid Development kpmg

Loss Development Method Potential Problems Selection of LDFs ----> Variability Treaty vs. Facultative

Treaty vs. Facultative Historical Loss Development Automobile Liability

Loss Development Method Potential Problems Selection of LDFs ----> Variability Treaty vs. Facultative Attachment Point

Impact of Attachment Points on Historical Loss Development Automobile Liability

Loss Development Method Potential Problems Selection of LDFs ----> Variability Treaty vs. Facultative Attachment Point Loss Portfolio Transfers Commutations Line of Business Mix Catastrophes kpmg

Loss Development Method Potential Problems Tail Estimation kpmg

Loss Development Method Potential Problems Tail Estimation Industry Benchmarks RAA ISO/A.M. Best/NCCI with lags Comparability with your company? Curve Fitting Inverse Power Curve: Y = 1 + a(t)-b Development may never end Judgment kpmg

Loss Development Method Potential Problems Changes in Underlying Exposure Attachment Points / Limits Line of Business Mix Understanding the Data kpmg

Loss Development Method Potential Problems Paid Development Method Not very common for reinsurance reserving Little data No industry benchmarks on development May be appropriate for property or low limit proportional business kpmg

Loss Ratio Method Ultimate loss = Earned Premium x Expected Loss Ratio kpmg

Loss Ratio Method Useful for new business or immature years Picking the loss ratio: Past experience (rate changes, trends) Underwriting considerations Market considerations Adjust for changes in coverage kpmg

Loss Ratio Method Potential Problems Loss Ratio Triangles Ignores actual experience ----> potential for negative IBNR Premium develops too ----> need to estimate development technique underwriter input Loss Ratio Triangles kpmg