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2010-07-09 16:55:20


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  1. 5 Advantages of High Deductible Program
    • 1. Achieving price flexibility while passing additional risk to larger insureds
    • 2. Ameliorating onerous residual market charges and premium taxes in some states
    • 3. Realizing cash flow advantages similar to those of closely related product - paid loss retro
    • 4. Providing insureds with another vehicle to control losses while protecting them against random, large losses
    • 5. Allowing "self-insurance" without submitting insureds to sometimes demanding state requirements
  2. 4 Development Approaches to Estimating High Deductible Reserve Liabilities for Per Occurrence Coverage
    • 1. Loss ratio approach
    • 2. Implied development approach
    • 3. Direct development approach
    • 4. Credibilitiy weighting techniques / BF approach to determining excess liabilities
  3. Technique, Advantages, and Disadvantages of Loss Ratio Approach
    • 1. Technique:
    • a. Per Occurrence Excess Loss = P * E * χ, where P = Premium, E = Expected Loss Ratio, and χ = Per Occurrence Charge
    • 2. Advantages:
    • a. Can be consistently tied to pricing programs
    • b. Bene fits from its reliance on a more credible pool of company and/or industry experience
    • c. Commonly used approach
    • 3. Disadvantages:
    • a. Ignores actual emerging experience
    • b. May not properly reflect account characteristics
  4. Steps of Implied Development Approach
    • 1. Develop full coverage losses to ultimate
    • 2. Develop deductible losses to ultimate by applying development factors reflecting various inflation indexed limits
    • 3. Determine ultimate excess losses by di fferencing the full coverage ultimate losses (step 1) and the limited ultimate losses (step 2)
  5. Advantages and Disadvantages of Implied Development Approach
    • 1. Advantages
    • a. Provides an estimate of excess losses at early maturities even when excess losses have not emerged
    • b. Development factors for limited losses are more stable than those for losses above the deductible
    • c. Estimating deductible losses helps in determining the service revenue asset
    • 2. Disadvantage
    • a. Does not explicitly recognize excess loss development
  6. Advantages and Disadvantages of Direct Development Approach
    • 1. Advantage
    • a. Uses excess loss experience directly
    • 2. Disadvantage
    • a. Excess factors tend to be quite leveraged and extremely volatile
    • b. If excess losses have not actually emerged at any particular stage of development, it is not possible to get an estimate of the required liability
  7. Advantages and Disadvantages of Credibility Weighting Techniques
    • 1. Advantages
    • a. Using BF approach allows the actuary to determine liabilities either directly or indirectly
    • b. A ffords the ability to tie into pricing estimates for recent years where excess losses have yet to emerge
    • c. Provides more stable estimates over time
    • 2. Disadvantages
    • a. Ignores actual experience to the extent of the complement of credibility
    • b. Suggests finding alternative weights that may be more responsive to the actaul experience as desired
  8. Steps to Determine Service Revenue Asset
    • 1. Determine ultimate deductible losses at the account level
    • 2. Subtract ultimate losses excess of aggregate limits from ultimate deductible losses in step 1
    • 3. Apply the selected loss multiplier to the di fference determined in step 2 to determine ultimate recoverable
    • 4. Determine the total asset by subtracting any known recoveries from the estimated ultimate recoverables
    • 5. Aggregate results for all accounts
  9. Important Issues in Estimating Liabilities for High Deductible Workers Compensation Programs
    • 1. Estimation of development patterns by size of deductible and mix of business
    • 2. Consistency of development factors between limited losses and excess losses
    • 3. Indexing deductible limits over time
    • 4. Estimation of liability for aggregate limits
  10. Formulas for Per Occurrence Excess Losses and Aggregate Loss Charge
    • 1. Per Occurrence Excess Losses = P * E * χ where
    • a. P = Premium
    • b. E = Expected Loss Ratio
    • c. χ = Per Occurrence Charge
    • 2. Aggregate Loss Charge = P * E * (1 - χ) * Ф where
    • a. Ф = Per Aggregate Charge
  11. Relationship Between The Full Coverage Loss Development and Severity Relativities
    • 1. LDFL C S RL / Ct St RtL = LDF Δ RL
    • 2. XSLDFL = C S (1 - R)L / Ct St (1 - RtL ) = LDF Δ(1 - RL)
    • 3. LDFt = RtL LDFL + (1 - RtL )XSLDFL
    • where
    • L = Deductible Limit
    • C = Counts
    • S = Severity
    • R = Severity Relativity
    • t = Age
  12. Techniques To Estimate Aggregate Losses and Associated LDFs
    • 1. Use collective risk modeling (CRM)
    • a. Weibull Severity
    • b. Poisson count
    • c. No Parameter risk
    • 2. Use Table M insurance charge factors
  13. 4 Suggested Improvements to Siewert's Methods
    • 1. Obtain longer histories of experience under the program better reflecting risk characteristics
    • 2. Derive or select parameters (distributions) that provide better fits to the actual data
    • 3. Determine better tail factors and/or parameters of the utilized loss distribution
    • 4. Develop more advanced approaches to index loss limites

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