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Reserving in Mergers and Acquisitions

Reserving in Mergers and Acquisitions. CAS Loss Reserve Seminar New Orleans, Louisiana Robert S. Bennett, FCAS September 11, 2001. OdysseyRe. INTRODUCTION. Directing integration of loss reserving functions of two reinsurers Reinsurer “A” Established in 1984

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Reserving in Mergers and Acquisitions

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  1. Reserving inMergers and Acquisitions CAS Loss Reserve Seminar New Orleans, Louisiana Robert S. Bennett, FCAS September 11, 2001 OdysseyRe

  2. INTRODUCTION Directing integration of loss reserving functions of two reinsurers Reinsurer “A” Established in 1984 Loss reserve mix predominantly claims made business Minimal mass tort exposure Reinsurer “B” Established in early 1900’s Loss reserves mix of occurrence/claims made exposure Significant mass tort exposure

  3. DISCUSSION ISSUES Similarities/differences in books of business Claims handling and case reserving practices Reserving systems and methods Reconciliation of reserving assumptions Understanding legacy issues ( Mass Tort, Ceded Reinsurance ) Audit firm issues

  4. SIMILARITIES/DIFFERENCES IN BOOKS OF BUSINESS Reinsurance loss experience is aggregation of segments of reinsured company loss exposure Loss development varies by reinsured company All ‘Excess Casualty’ books of business are not the same Working layer versus high excess ‘Main Street’ versus Excess and Surplus Lines

  5. CLAIMS HANDLING AND CASE RESERVING PRACTICES Historical loss data reflects two (at least) reinsurance claim department philosophies Case reserving practices Claims audit strategy Additional case reserves (ACRs) Integrated department reflects mix of past claim department practices

  6. RESERVING SYSTEMS AND METHODS Multiple databases Varying levels of detail and data quality Loss Reserve projection methodologies Report year versus accident year analysis Reliance on Paid, Incurred, BF, Other methods Estimating Tail factors

  7. RECONCILIATION OF RESERVING ASSUMPTIONS Reconciliation of loss picks between companies Requires review of associated expense ratios Justification for differences Tail factors Impacted by underwriting at time business was written Justification for differences

  8. UNDERSTANDING LEGACY ISSUES Mass Tort Issues Each reinsurance company’s mass tort exposure is unique Those most familiar may not be with the merged organization Ceded Reinsurance Each reinsurance company’s ceded program is unique Those most familiar may not be with the merged organization

  9. AUDIT FIRMS ISSUES After you understand all the new issues you get to explain it all to your audit firm Audit firm familiar with only one of the merged companies

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