Loss Portfolio Transfers Casualty Loss Reserve Seminar September 10, 2001 New Orleans, LA André Lefebvre, FCAS, MAAA

Definition Transfer of a risk portfolio of an organization, insurer or self-insured, to a third-party, insurer or reinsurer, of equal or greater security for the least amount of assets. Seller Buyer Risk Insurer/ Self-Insured Insurer/ Reinsurer Assets

Reasons for Transfer Economic Risk Transfer Financial Management Discontinued Lines of Business/Self-Insured Program Mergers & Acquisition

Economic Risk Transfer Adverse Loss Development Accelerated Loss Payments Insufficient Yield on Assets Supporting the Reserves

Financial Management Income Recognition Statutory GAAP “Soft Market”

Discontinued Operations Discontinued Line of Business/Self-Insured Program Loss Reserve Liabilities Claims Maintenance

Mergers & Acquisitions Adverse Loss Development Protection

Types of Products Guaranteed Cost vs. Finite (Funded) Aggregate Limit vs. Unlimited Deductible/Attachment Point Additional Features (e.g., Profit Sharing)

General Process Claims Review Risk Management Information Systems Reinsurance Agreements Financial / Actuarial Analysis Claims Administration

Claims Review Claims Audit Access to Claim Files Location of Claim Files Number of Open Claims Adequacy of Carried Reserves

RMIS Format of Claim Data (i.e., Electronic or Hard Copies) Complete Transactional History Number of Years of History Transferring Data from Buyer to Seller

Reinsurance Agreements Terms of Existing Reinsurance Agreements Flexible Cut-through Agreements

Financial / Actuarial Analysis Traditional Reserve Review Cash-Flow Analysis Sensitivity Analysis

Claims Administration (Buyer) Staffing Requirement Intellectual Capital Additional TPA Costs (Self-Insured)