Milliman Asbestos Valuation 2004 Casualty Loss Reserve Seminar Las Vegas, Nevada September 13, 2004 Claus S. Metzner, FSA, FCAS, MAAA, Aktuar – SAV Actuary,

Slides:



Advertisements
Similar presentations
Course on Professionalism ASOP 43 – Property / Casualty Unpaid Claim Estimates.
Advertisements

1998 CASUALTY LOSS RESERVE SEMINAR Intermediate Track III- Techniques SEPTEMBER 28, 1998.
Claims Reserving for Non Life Insurance Craig Thorburn, B.Ec., F.I.A.A. Phone
Excess Liability Price Monitoring
Reserve Risk Within ERM Presented by Roger M. Hayne, FCAS, MAAA CLRS, San Diego, CA September 10-11, 2007.
Introduction to Reinsurance Reserving Peter A. Royek Toa Reinsurance Company of America Casualty Loss Reserve Seminar Scottsdale, Arizona September 13,
ACTUARIAL SERVICES ADVISORY Other Balance Sheet Reserves: SAO & Reinsurer Concerns Las Vegas September 2004.
Reserve Variability Modeling: Correlation 2007 Casualty Loss Reserve Seminar San Diego, California September 10-11, 2007 Mark R. Shapland, FCAS, ASA, MAAA.
Loss Reserving in Argentina, Brazil and Mexico Eduardo Esteva New Orleans, Louisiana September 11, 2001.
Introduction to Reinsurance Reserving Casualty Loss Reserve Seminar Washington, D.C. September 23, 2002 Bruce D. Fell, FCAS, MAAA Am-Re Consultants, Inc.
Sapient Insurance Partners. Overview & Services We have almost four decades of combined experience in the property & casualty insurance and reinsurance.
A New Exposure Base for Vehicle Service Contracts – Miles Driven CAS Ratemaking Seminar – Atlanta 2007 March 8, 2007Slide 1 Discussion Paper Presentation.
Casualty Loss Reserve Seminar New perspectives on asbestos Paul Jardine Chief Actuary, Equitas Limited 10 September 2001.
Introduction to Experience Rating Jim Sandor American Re-Insurance 2003 CAS Ratemaking Seminar 1234.
© 2007 Towers Perrin September 11, CLRS – San Diego, California Property Catastrophe Reserving – Approaches to large event reserving Christopher.
Philadelphia CARe Meeting European Pricing Approaches Experience Rating May 7-8, 2007 Steve White Seattle.
PwC CAS Fair Value Project Casualty Actuaries in Europe Spring Meeting 23 April 2004 E. Daniel Thomas (1)
The Reserving Actuary’s Role in Risk Assessment: Value Added by the Reserving Actuary in Identifying and Helping Mitigate Financial Risk Both on the Balance.
Basic Track I 2007 CLRS September 2007 San Diego, CA.
Abcd Managing and measuring operational risk in an insurance company John Rowland Tillinghast General Insurance Spring Seminar May 2003 Scarman House.
1 Practical ERM Midwestern Actuarial Forum Fall 2005 Meeting Chris Suchar, FCAS.
© 2005 Towers Perrin September 12, 2005 Michael Angelina, ACAS, MAAA – Endurance Specialty Holdings Kevin Downs, FCAS, MAAA – Towers Perrin Bruce D. Fell,
Ab Rate Monitoring Steven Petlick Seminar on Reinsurance May 20, 2008.
February 2004 James D. Hurley, ACAS, MAAA Energy Insurance Mutual Overview of Ultimate Loss Projections.
1999 CASUALTY LOSS RESERVE SEMINAR Intermediate Track II - Techniques
Presented at: 1998 DFA Seminar July 13-14, 1998 Presented at: 1998 DFA Seminar July 13-14, 1998 lmn Dynamic Financial Analysis: Objectives & Design Gerald.
CLOSING THE BOOKS WITH PARTIAL INFORMATION By Joseph Marker, FCAS, MAAA CLRS, Chicago, IL, September 2003.
Hidden Risks in Casualty (Re)insurance Casualty Actuaries in Reinsurance (CARe) 2007 David R. Clark, Vice President Munich Reinsurance America, Inc.
An Introduction to Reserving and Financial Reporting Issues for Non-Traditional Reinsurance Casualty Loss Reserving Seminar September 14, 2004 Derek Jones,
Milliman Package Policy Reserving Casualty Loss Reserve Seminar Prepared by: Brian Z. Brown, FCAS, MAAA Consulting Actuary Milliman, Inc. Monday – September.
Thomas L. Ghezzi, FCAS, MAAA 2003 CAS Seminar on Reinsurance Commercial Umbrella This document was designed for discussion purposes only. It is incomplete,
IMPROVING ACTUARIAL RESERVE ANALYSIS THROUGH CLAIM-LEVEL PREDICTIVE ANALYTICS 1 Presenter: Chris Gross.
©2015 : OneBeacon Insurance Group LLC | 1 SUSAN WITCRAFT Building an Economic Capital Model
Pricing Excess Workers Compensation 2003 CAS Ratemaking Seminar Session REI-5 By Natalie J. Rekittke, FCAS, MAAA Midwest Employers Casualty Company.
Asbestos Valuation CLRS – Chicago; September 8, 2003 Kevin M. Madigan, PhD, ACAS, MAAA Vice President, Platinum Underwriters Bermuda, Ltd. Claus S. Metzner,
Ab Rate Monitoring Steven Petlick CAS Underwriting Cycle Seminar October 5, 2009.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Insurance Company Operations.
Sapient Insurance Partners. Overview & Services We have almost four decades of combined experience in the property & casualty insurance and reinsurance.
The Chubb Corporation 2005 Update on Asbestos Reserves Date of release 01/31/2006.
Kpmg 2002 Casualty Loss Reserve Seminar Surety Reserving Mike Rozema, ACAS, MAAA KPMG LLP.
Accounting Implications of Finite Reinsurance Contracts 2003 Casualty Loss Reserve Seminar Chicago, IL Session 4 – Recent Developments in Finite Reinsurance.
IRS/Actuary Actuary’s Perspective by Alan E. Kaliski, FCAS, MAAA.
©Towers Perrin Loss Reserve Adequacy and the Underwriting Cycle Casualty Actuarial Society General Meeting Montreal, Canada November 16, 2004 Michael E.
1 Casualty Loss Reserve Seminar Claudette Cantin, FCIA, FCAS, MAAA Munich Reinsurance Company of Canada September 14, 2004 Las Vegas Session 7 Loss Reserve.
Milliman SOP 97-3 and Other Balance Sheet Reserves CLRS 2004 Las Vegas, Nevada September 13, 2004 Claus S. Metzner, FSA, FCAS, MAAA, Aktuar – SAV Actuary,
JLT RE SOLUTIONS, INC. Introduction to Reinsurance Reserving Las Vegas, Nevada September 13, 2004 Bruce D. Fell, FCAS, MAAA, CFA Casualty Loss Reserve.
1 The Value Proposition of DFA Presented by: Susan Witcraft Manuel Almagro June 7, 2001.
©Towers Perrin Introduction to Reinsurance Reserving Casualty Loss Reserve Seminar Atlanta, Georgia September 11, 2006 Christopher K. Bozman, FCAS, MAAA.
CLRS Intermediate Track II September 2006 Atlanta, Georgia Investigating and Detecting Change.
Basic Track II 2004 CLRS September 2004 Las Vegas, Nevada.
Reserving for Medical Professional Liability Casualty Loss Reserve Seminar September 10-11, 2001 New Orleans, Louisiana Rajesh Sahasrabuddhe, FCAS, MAAA.
Introduction to Reinsurance Reserving Casualty Loss Reserve Seminar Chicago, Illinois September 9, 2003 Christopher K. Bozman, FCAS, MAAA.
Spencer M. Gluck, FCAS New York CAS Seminar on Reinsurance 2007 Hidden Risks in (Re)Insurance Systemic Risks and Accumulation: May 7, 2007.
1 Casualty Actuarial Society Loss Reserve Seminar Chicago Marriott Chicago, Illinois ALLAN R. NEIS, FCAS, MAAA September 8-9, 2003 Closing the Books.
The Run-Off Environment – Considerations for the Reserving Actuary Jason Russ, FCAS Principal Milliman, Inc.
Basic Track I 2008 CLRS September 2008 Washington, DC.
Construction Defects Casualty Loss Reserve Seminar September 24, 2002 Panelist: Carolyn Yau, ACAS.
CLRS Intermediate Track III September 2001 New Orleans, Louisiana.
1998 CASUALTY LOSS RESERVE SEMINAR Intermediate Track II - Techniques
Actuarial Review of Emerging Risks
Loss Reserving in Mexico
Reinsurance Reserving Methods
September 2008 Washington, DC
Developing the Coverage Chart and Determining Financial Exposures
1 The roles of actuaries & general operating environment
Introduction to Reinsurance Reserving
1999 CLRS September 1999 Scottsdale, Arizona
Casualty Actuarial Society Practical discounting and risk adjustment issues relating to property/casualty claim liabilities Research conducted.
ASU Short Duration Contracts – New GAAP Disclosures
Timothy L. Wisecarver FCAS, FCA, MAAA September 8, 2003
Presentation transcript:

Milliman Asbestos Valuation 2004 Casualty Loss Reserve Seminar Las Vegas, Nevada September 13, 2004 Claus S. Metzner, FSA, FCAS, MAAA, Aktuar – SAV Actuary, Milliman, Inc.

Milliman 1 Asbestos Valuation  Asbestos Reserve Valuations have received and are receiving a great deal of publicity  Asbestos Reserve Valuations have led to substantial restatement of reserves for many companies – both primary insurers and re-insurers – “surprises” are commonplace  Asbestos Reserve Valuations are an on-going concern of rating agencies and regulators  Why this level of concern? This level of uncertainty? What are our options?  Complexity of valuation – “black box” effect - increases uncertainty and anxiety  What can we learn from the “Asbestos” Experience?

Milliman 2 Asbestos Valuation What are we faced with? a large number of claimants multiple defendants long latency periods a number of coverage years different coverages (products; premises/ops, etc.) varying policy limits limited information complex financial arrangements What are we to do?

Milliman 3 Asbestos Valuation  Develop techniques to deal with:  A gigantic allocation problem between The manufacturer/installer/distributor: the insured defendant The insurers of the manufacturer, etc The re-insurer The retrocessionaire  Need to obtain/quantify expert knowledge from claim and legal staff to master the problem  Need to develop monitoring/reporting tools that help avoid “surprises” and mitigate the “black box” effect

Milliman 4 Asbestos Valuation  Step I: The Insured  Develop the “Universe” of claims for each insured  Consider the type of claim: products versus premises/operations, etc.  Consider the length of the reporting period  Consider legal costs  Consider inflation (all kinds)  Consider issues of bankruptcy

Milliman 5 Asbestos Valuation  What do we know/what can we find out for Step I?  Historical reporting patterns  Historical frequency and severity  Claim knowledge  Legal knowledge  Goal: develop a set of assumptions and a model for the projection of the ultimate claims and the allocation to coverage period  Quantifying the “expert knowledge”  Developing Monitoring Tools Claims function Management function

Milliman 6 Asbestos Valuation  After we have all the assumptions, how do we model the results ?(the assumptions are developed with the help of claim and legal experts!)  Assumptions are generally not just a best estimate  Assumptions have a distribution, a range, of possible outcomes  Model on a stochastic basis (note: less than perfect approximations are useful – the output of the model provides information as to the sensitivity of key assumptions)  The assumptions form the basis for monitoring: “actual” versus “expected”

Milliman 7 Asbestos Valuation  Step II: The Insurer  Once we have obtained the model output (note – this is a range of outputs!) can apply coverage charts to obtain the range of ultimate losses  Policy limits important  Primary versus excess  Other special coverage conditions (manuscript forms)

Milliman 8 Asbestos Valuation  Having developed the range of ultimate losses for each insured, can now subtract the payments to date to obtain a range of reserves for each insured  Note 1: pay special attention to validation routines on an account by account basis – the “smell test” – using the collective knowledge of claim and legal experts  Note 2: consider if a covariance adjustment is appropriate – i.e. will everything go bad at the same time? - if no co-variance adjustment is used, the range may be misstated on the high side; if complete independence assumed, the range may be misstated on the low side  Each company’s mix of business by state, by type of insured, etc. should be considered

Milliman 9 Asbestos Valuation  “Smaller” insureds with reported asbestos claims – some alternatives for the valuation  Use the information gained from the modeling process for large accounts to group small accounts  Treat each group as if it were a single account and model  Use a review of emerging claims to assess products and premises/operations coverage  Use a review of the types of accounts to evaluate potential impact of policy limits

Milliman 10 Asbestos Valuation  IBNR  A very difficult subject but note the following Major asbestos defendants have long since been identified and are presumably already modeled – see Step I Minor defendants are emerging - model how many additional accounts may report claims in the future and apply frequency/severity assumptions per account – in the alternative, model number of emerging claims (note that policy limits may not apply – c.f. reinsurance impact) Consider where you are on the “reporting” curve May want to consider issues of “modeling risk” as part of IBNR

Milliman 11 Asbestos Valuation  Step 3: Assess Reinsurance Recoverable  Reinsurance Program for each coverage/underwriting year can be applied to each outcome of the ultimate losses to develop a range of reinsurance recoverable consistent with the gross ultimate losses  Consider: dimunition/exhaustion of coverage due to other types of claims and previous payments  Consider: facultative/treaty/etc.  Consider: what accounts are generating IBNR and will the emergence of the IBNR claims even trigger reinsurance  Consider: creditworthiness

Milliman 12 Asbestos Valuation  The previous steps have taken us through the process of developing a gross and a net liability for the primary insurer  Now we come to the re-insurer

Milliman 13 Asbestos Valuation  What are some key differences between the primary insurance valuation problems and the reinsurance valuation problem?  Re-insurer has less information than the primary insurer  Potentially more heterogeneous book of business  Generally higher attachment points  Generally longer lags until claims are reported  Potential that primary companies’ reserving problems lead to a (massive) understatement of reinsurance recoverable by primary companies and understatement of re-insurer’s liability

Milliman 14 Asbestos Valuation  Possible remedies for the lack of data  For primary companies representing a large portion of the exposure, investigate who the major insured accounts were for the years in question – then follow primary process with superimposed reinsurance program  Adjust reported data for Perceived reserve inadequacies For better/worse than average reporting of data –Quality and timeliness and relative case basis reserve adequacy are important  Consider the limits profile of the primary company  Consider the source of the primary company’s IBNR (products vs non- products; size of claim anticipated )

Milliman 15 Asbestos Valuation  Retrocessionaire Issues  Even less data available  Longer report lags  “Spiral” may be critical – e.g. London Excess Market  IBNR very important, but the least amount of information is available  Consider if the market under review – e.g., LMX – can be viewed as a pool

Milliman 16 Asbestos Valuation  Management Information/Monitoring  Assumptions provide the basis for monitoring on a quarterly basis Monitoring doesn’t mean changing the answer Monitoring means assessing when we should “drill down” Monitoring means an on-going information flow and dialogue with –Claim/legal experts –Management –Others –Explanation of “what’s going on”

Milliman 17 Asbestos Valuation  Monitoring Tools  Actual versus expected payments  Actual versus expected newly reported accounts  Actual versus expected number of new claimants  Actual versus expected average values  Etc.

Milliman 18 Asbestos Valuation  Summary  Key issues Long latency period Multiple coverage years Complex legal issues Complex financial structures Lack of data

Milliman 19 Asbestos Valuation  Summary  Key Approaches Gain as much information as possible Use expertise of claim and legal staff to develop assumptions Model results stochastically –Assumptions are documented –Can measure impact of change in environment as reflected in revised assumptions Use consistent underlying assumptions to model primary, excess, reinsurance layers

Milliman 20 Asbestos Valuation  Summary  Expect to be “surprised”  Keep monitoring and updating We are engaged not just in a loss reserve project but in financial reporting Remove the “black box” effect  Stay in close contact with claim and legal professionals  What Else Do We Know  Similar reserving problems in other areas: Construction Defect, for example  Similar approaches to reserving may be our best opportunity to stay current with emerging liabilities