1. Milliman Package Policy Reserving Casualty Loss Reserve Seminar Prepared by: Brian Z. Brown, FCAS, MAAA Consulting Actuary Milliman, Inc. Monday – September 13, 2005 10:30 a.m. – 12:00 p.m.

2. Milliman 1  Lack of Credibility  Lack of Homogeneity  Indivisible Premium  Odd Exposures  Construction Defect  Mold  Products  State Differences  Type of Risk Package Policy Reserving Issues

3. Milliman 2 Lack of Credibility  Need to use external sources  LDFs ISO Annual Statements Others  Loss Ratios Pricing Analysis Competitors – Annual Statements Older years adjusted to current rate and loss cost levels Package Policy Reserving Issues

4. Milliman 3 Lack of Homogeneity  Differences by type of risk  Large versus small  Deductible / non-deductible  Products / non-products  Construction defect exposure  State  Etc. Package Policy Reserving Issues

5. Milliman 4 Industry Statistics - CMP  Loss ratio differences by type of Company Package Policy Reserving Issues

6. Milliman 5 Industry Statistics  Observations 1)Loss ratio variability increases with size of insurer. 2)Results more cycle-driven for larger insurers. Package Policy Reserving Issues

7. Milliman 6 Industry Statistics - CMP  Total Reserves to Earned Premium by Type of Company Package Policy Reserving Issues

8. Milliman 7 Reserves to Earned Premium  Observations  Smaller insurers have lower reserves relative to premium – maybe related to higher percentage of property exposure and longer tailed general liability exposure  Some large insurers have significant IBNR relative to case Construction Defect Products Package Policy Reserving Issues

9. Milliman 8 Package Policy Reserving Issues

10. Milliman 9 Payout Pattern  Observations  Larger insurers have slower payout patterns Package Policy Reserving Issues

11. Milliman 10 Observations  Larger insurers results are more difficult to project  Higher loss ratio variability  More IBNR needs  Slower payout pattern  More difficult exposures Package Policy Reserving Issues

12. Milliman 11 Indivisible Premium  One premium charge frequently for property / liability  Analyze partial loss ratios  Property / Liability  Further refinements Products / non-products Construction defect / non-construction defect Package Policy Reserving Issues

13. Milliman 12 Odd Exposures  Construction Defect  Long tail  Difficult to assign accident / policy year  Additional insured exposure  Significant legal  A mess  Mold  Products Package Policy Reserving Issues

14. Milliman 13 State Differences Package Policy Reserving Issues Source: Annual Statement Statutory Exhibit of Premiums and Losses

15. Milliman 14 Loss Ratios Package Policy Reserving Issues Source: Annual Statement Statutory Exhibit of Premiums and Losses