1. Introduction to Reinsurance Reserving
Casualty Loss Reserve Seminar
Scottsdale, Arizona - September 13, 1999
Leslie Marlo - Senior Manager
KPMG LLP
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2. Applications, Complications, and Considerations
Loss Development Method
Loss Ratio Method
Bornhuetter-Ferguson
Others
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3. Applications, Complications, and Considerations
Parameter estimation very difficult
Data
Other Considerations
Qualitative information
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4. Loss Development Method
Application same as for primary business
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5. Loss Development Method
For non-proportional business, may develop individual losses by layer:
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6. Loss Development Method
Potential Problems
Selection of LDFs ----> Variability
Tail Estimation
Changes in Exposure
No claims = No IBNR, Large claims = Large IBNR
Paid Development
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7. Loss Development Method Potential Problems
Selection of LDFs ----> Variability
Treaty vs. Facultative

8. Treaty vs. Facultative Historical Loss Development Automobile Liability

9. Loss Development Method Potential Problems
Selection of LDFs ----> Variability
Treaty vs. Facultative
Attachment Point

10. Impact of Attachment Points on Historical Loss Development Automobile Liability

11. Loss Development Method Potential Problems
Selection of LDFs ----> Variability
Treaty vs. Facultative
Attachment Point
Loss Portfolio Transfers
Commutations
Line of Business Mix
Catastrophes
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12. Loss Development Method Potential Problems
Tail Estimation
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13. Loss Development Method Potential Problems
Tail Estimation
Industry Benchmarks
RAA
ISO/A.M. Best/NCCI with lags
Comparability with your company?
Curve Fitting
Inverse Power Curve: Y = 1 + a(t)-b
Development may never end
Judgment
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14. Loss Development Method Potential Problems
Changes in Underlying Exposure
Attachment Points / Limits
Line of Business Mix
Understanding the Data
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15. Loss Development Method Potential Problems
Paid Development Method
Not very common for reinsurance reserving
Little data
No industry benchmarks on development
May be appropriate for property or low limit proportional business
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16. Loss Ratio Method Ultimate loss = Earned Premium x Expected Loss Ratio
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17. Loss Ratio Method Useful for new business or immature years
Picking the loss ratio:
Past experience (rate changes, trends)
Underwriting considerations
Market considerations
Adjust for changes in coverage
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18. Loss Ratio Method Potential Problems Loss Ratio Triangles
Ignores actual experience ----> potential for negative IBNR
Premium develops too ----> need to estimate
development technique
underwriter input
Loss Ratio Triangles
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