1. Slide 1 Trend Sources and Techniques, A Comparison of US and European Methods Trending of Premium and Claims A Reinsurer’s Perspective FIT FOR PURPOSE Niranjan Nathan Head of Actuarial Pricing Property and Casualty, Swiss Re UK London CARe Seminar 15 th September 2009

2. Slide 2 Trending Premiums Rate change indices Rate indices are often used in the UK to rebase historic premiums to policy period Extract from EMB Motor Insurance Industry Report as at 31 December 2008 Though need to be wary…..

3. Slide 3 Trending Premiums Need to be wary…. 80% of clients indicated rate changes are higher than average premium shift Different index may be needed for different purposes (e.g QS vs XoL)

4. Slide 4 Trending Premiums Further thoughts No equivalent of rate filing process in the UK LR volatility impact in “sticky” jurisdictions? Further this may be the source of some subtle methodology differences

5. Slide 5 Claims Trending Not straightforward Loss volatility Claim development pattern Past “one off” legal shifts Different trends for different claim sizes FGU trends with censored data BUT: need to make best estimate…

6. Slide 6 Application of Claims Inflation The danger of long term assumptions

7. Slide 7 Application of Claims Inflation Average claim size trends Beware of mixing trends in average claim sizes with fixed deductibles / observation points Year 1Year 2

8. Slide 8 Measurement of trends Where to look? Different inflation measurements will reflect calendar versus accident year trends

9. Slide 9 Application of claims inflation Accident year trending projection Development year trending projection – Need to ensure measurement basis is consistent with projection basis – Different Trends by different claim type / size No explicit trending projections

10. Slide 10 Conclusion Both US and UK actuaries are logical Ensure indexes are fit to purpose Ensure application is fit to index