1. Update on the Aging Phenomenon Steve D’Arcy Sholom Feldblum Alma Cohen CAS Fall Meeting November 12, 2002 Boston, Massachusetts

2. Definition A cohort of property-liability insurance policies, all written as new business at the same time, experiences a gradually improving loss ratio as the policies undergo successive renewal cycles with an insurer. This contrasts with the select-ultimate experience pattern of life insurance.

3. Primary Empirical Research Dahlby 1983 Adverse Selection and Statistical Discrimination Journal of Public Economics D’Arcy and Doherty 1990 The Aging Phenomenon and Insurance Prices PCAS D’Arcy and Doherty 1990 Adverse Selection, Private Information and Lowballing in Insurance Markets Journal of Business Feldblum 1996 Personal Automobile Premiums: An Asset Share Pricing Approach for Property/Casualty Insurance PCAS Cohen 2001 Asymmetric Information and Learning in the Automobile Insurance Market (Working Paper)

5. Explanations for the Aging Phenomenon Accumulation of private information Business more accurately classified Underwriting – high risk policies cancelled –However, aging occurs where renewal underwriting is restricted High maintenance policyholders become dissatisfied with service and leave

6. New Developments Extensive dataset of company experience –Alma Cohen’s research CLUE (Comprehensive Loss Underwriting Exchange) –Appears to lower initial loss ratios and reduce level of improvement Aging Phenomenon in DFA models –Allows study of optimal growth rates