1. Value of a Health Insurer
David Gulland
&
Tony Jeffery

2. Contents Scope Why is health different (and difficult)?
Theoretical Measures
Tools and Warnings

3. Scope UK and Ireland (mainly) Stand-alone company or (large) portfolio
Medical Expense Repayments

4. Why Health is not Life or General…
Premium/contract structure is neither purely annual or purely long-term
Variety (and complexity) in product design
Exposure to external political risks (e.g. in UK purchase is voluntary, replacing “free” State cover)
Infinite consumer demand for “health” services
Group and Individual markets very different

5. What features of Health pose problems…
Medical expense inflation is not well modelled
Very few companies
Even fewer for profit companies
Consumer issues affect ability to price
Better than average public image (?)

6. Theoretical Value Measures
Market Price related measures
Embedded values
Fair Values
Infrastructure Values

7. Market Price related measures
Discounted Cash Flow Measures
No data on discount rates
P/E Ratios
No data at all

8. Discount rate Claims Inflation Multipliers Significant Risks
Embedded Value Method
Discount rate
Claims Inflation
Multipliers
Significant Risks

9. Fair Values (IAS) (a) Future Premiums Criteria
If there is value to the policyholder in the renewal then future premiums should be taken into account

10. Fair Values (IAS) (b) Term (life) Motor (general) Medex (Health)
Select Period Y N
Rewrite
Rerate(global)
Policy value
???

11. Discount Rate Allowance for Risk Presentation
Fair Values (IAS) (c)
Discount Rate
Allowance for Risk
Presentation

12. Infrastructure Method - Cost of replicating what is there.
IT systems
Provider network
Distribution methods
Intellectual capital (risk models)
Economies of scale
Solvency and Working capital
“Brand value”

13. Tools and Warnings Understanding recent claim costs
Complexities in projections
Reserving methodology
Capital adequacy requirements

14. Understanding recent claim costs
Complexity varies with data quality
Multivariate analysis and GLIM
Coherence between model and premium structure
Impact of changes in product design
Impact of changes in provider relationships & “managed care” protocols

15. Complexities in projections
Lapses - Any evidence of adverse selection (congruity with GLIM model and duration)
Contribution increases and “claims inflation”
Adherence to stated Pricing Protocols
Treating Customers Fairly
Reasonableness checks

16. Reserving methodology
Usually not a problem because of short tail
Issues with Group Business
Congruency with claims administration
Impact of changes in practice
Impact of changes in provider behaviour (!)
Seasonality

17. Capital requirements Current FSA “rule of thumb”
CP136 and self assessment
Other areas of risk and need for capital

18. Contents Scope Why is health different (and difficult) ?
Theoretical Measures
Tools and Warnings

19. Value of a Health Insurer
David Gulland
&
Tony Jeffery