2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware Outline What benchmarks do Canadian actuaries use? What are the general issues with all types of benchmark data? What are the specific issues with the benchmarks most frequently used by Canadian actuaries? What are your responsibilities as AA? What benchmarks do Canadian actuaries use? What are the general issues with all types of benchmark data? What are the specific issues with the benchmarks most frequently used by Canadian actuaries? What are your responsibilities as AA?

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware What benchmarks do Canadian actuaries use? IBC data Affiliated companies (primarily US) US general insurance industry patterns –AM Best’s Aggregates and Averages –ISO –RAA –NCCI Canadian workers’ compensation data Province-specific experience IBC data Affiliated companies (primarily US) US general insurance industry patterns –AM Best’s Aggregates and Averages –ISO –RAA –NCCI Canadian workers’ compensation data Province-specific experience

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware From the New CAS Text on Reserving The use of any benchmarks must be utilized with caution, as there may be significant differences between the lines of business being analyzed and the benchmark with regard to: –Definition of claim counts- Claim coding –Claims practices- Policyholder deductibles –Policy coverages- Limits –Underwriting- Legal precedents –Geographic mix Such differences could make the development patterns non- comparable. The use of any benchmarks must be utilized with caution, as there may be significant differences between the lines of business being analyzed and the benchmark with regard to: –Definition of claim counts- Claim coding –Claims practices- Policyholder deductibles –Policy coverages- Limits –Underwriting- Legal precedents –Geographic mix Such differences could make the development patterns non- comparable.

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware What are the specific issues with IBC data when used by Canadian actuaries? Different... Policies for defining claim counts Approaches to claims management Underwriting practices Strategies regarding geographic targets Technologies that affect coding Strategies regarding policyholder deductibles and limits Legal environment by province Reinsurance programs Different... Policies for defining claim counts Approaches to claims management Underwriting practices Strategies regarding geographic targets Technologies that affect coding Strategies regarding policyholder deductibles and limits Legal environment by province Reinsurance programs

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware What are the specific issues with using benchmarks based on data from affiliated companies? Different... Coverages Legislation and regulations, particularly statutes of limitations Claims and/or underwriting philosophies Geographic mix Policyholder deductibles or limits Reinsurance programs Different... Coverages Legislation and regulations, particularly statutes of limitations Claims and/or underwriting philosophies Geographic mix Policyholder deductibles or limits Reinsurance programs

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware What are the specific issues with using US general insurance industry data as a benchmark in Canada? Know your data! Potential differences in: –Definition of claim counts- Claim coding –Claims practices- Policyholder deductibles –Policy coverages- Limits –Underwriting- Legal precedents –Geographic mix Know who develops the benchmarks Know your data! Potential differences in: –Definition of claim counts- Claim coding –Claims practices- Policyholder deductibles –Policy coverages- Limits –Underwriting- Legal precedents –Geographic mix Know who develops the benchmarks

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware What are the specific issues with using Canadian workers’ compensation data as a benchmark for other Canadian lines of business? Is it reasonable? Are development patterns similar? Is it reasonable? Are development patterns similar?

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware What are the specific issues with using experience from one province for another province in Canada? Is it reasonable? Are development patterns similar? Is it reasonable? Are development patterns similar?

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware What are your responsibilities as AA? Know your Standards of Practice Be able to support and defend your assumptions Know your Standards of Practice Be able to support and defend your assumptions

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware Standards of Practice, Section 1700 Assumptions, Sub-section on “Past experience data” The available and pertinent past experience data are helpful in the selection of assumptions. Other things being the same, pertinent past experience data are data of the case itself, rather than of similar cases, of the recent past, rather than of the distant past, which are homogeneous, rather than heterogeneous, and which are statistically credible. Usually, however, those criteria conflict with each other. … The actuary would be prudent in adjusting the available data to take account of the circumstances of the case. The available and pertinent past experience data are helpful in the selection of assumptions. Other things being the same, pertinent past experience data are data of the case itself, rather than of similar cases, of the recent past, rather than of the distant past, which are homogeneous, rather than heterogeneous, and which are statistically credible. Usually, however, those criteria conflict with each other. … The actuary would be prudent in adjusting the available data to take account of the circumstances of the case.

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware Conclusion – Returning to Ralph’s list The use of any benchmarks must be utilized with caution, as there may be significant differences between the lines of business being analyzed and the benchmark with regard to: –Definition of claim counts- Claim coding –Claims practices- Policyholder deductibles –Policy coverages- Limits –Underwriting- Legal precedents –Geographic mix Such differences could make the development patterns non- comparable. The use of any benchmarks must be utilized with caution, as there may be significant differences between the lines of business being analyzed and the benchmark with regard to: –Definition of claim counts- Claim coding –Claims practices- Policyholder deductibles –Policy coverages- Limits –Underwriting- Legal precedents –Geographic mix Such differences could make the development patterns non- comparable.

2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Benchmarks – User Beware Conclusion – Sources of Benchmark Data for Canadian Actuaries IBC data Affiliated companies (primarily US) US general insurance industry patterns –AM Best’s Aggregates and Averages –ISO –RAA –NCCI Canadian workers’ compensation data Province-specific experience IBC data Affiliated companies (primarily US) US general insurance industry patterns –AM Best’s Aggregates and Averages –ISO –RAA –NCCI Canadian workers’ compensation data Province-specific experience