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Loss Development in Massachusetts Private Passenger Automobile

Explore loss development in the Massachusetts Private Passenger Automobile market segment, examining data, market reforms, and impact on carriers post-1989.

ernestmorris
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Loss Development in Massachusetts Private Passenger Automobile

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  1. Loss Development in Massachusetts Private Passenger Automobile Casualty Loss Reserving Seminar - Arlington, VA Kathy Barnes, FCAS, MAAA

  2. Market Segments Reviewed for Massachusetts Private Passenger Automobile (PPA) • Industrywide - Used in Commissioner's Rate Setting Process, and as Benchmarks for Individual Companies • Residual Market (Commonwealth Automobile Reinsurers or CAR) - Used by Companies in Reserving for Business Assumed from CAR • Individual Companies’ Direct and Retained (i.e., not ceded to CAR) Business

  3. Massachusetts Industrywide Loss Development • Data Available from Industry Filing • Incurred Losses Plus Paid ALAE for Liability • Paid Losses for Physical Damage • Issues Affecting Loss Development • Reforms Effective in 1989 • Case Reserve Adequacy • Changes in Market Share of Carriers • Insolvencies

  4. Massachusetts PPA - Industry Reform Effects in 1989 • Financial Responsibility Limits Increased from 10/20 to 20/40 Over Three Years • PIP Tort Threshold Increased from $500 to $2,000 • Other Effects (Changes to SDIP Plan, Etc) • Estimated Effect of Legislation Based on Rates for 1990: -13.7% on Liability, -4.6% on Physical Damage

  5. Massachusetts PPA - Industry Case Incurred Losses - BI Basic Limits ($ in Millions)

  6. Massachusetts PPA - Industry Case Incurred Losses - BI Basic Limits • Accident Years 1990 through 1994 • Significant Growth in Market Share of One Carrier with Higher Average Case Reserves • Accident Years 1995 through 1999 • Relatively Stable Market Share for Carriers • Calendar Year 2000 • Two Insolvencies - Combined Market Share Over 6% • Data Reporting Issues for Prior Accident Years • Accident Years 2000 through 2002 • Shrinking Number of Carriers - Currently 22 Writers

  7. Massachusetts PPA - Using Industry Data as Benchmarks • Report-to-Report Factors - Individual Carriers Can Use Industry Data With Judgmental Adjustments • Explicit Reserve Adequacy Adjustments Not Possible (No Claim Count Data Available Other than Reported) • No Paid Data Available for Liability, No Case Reserves Data Available for Physical Damage • Bornhuetter-Ferguson Methods - Use Industry Pure Premium or Loss Ratio Data With Judgmental Adjustments • Significant Differences in Pure Premiums and Loss Ratios in Various Classes and Territories

  8. Massachusetts PPA - CAR Loss Development • Total CAR Losses by Policy Year are Allocated to Company, and Booked as Assumed Losses • Data Available from CAR Reports to Estimate CAR Losses • Incurred Losses (Liability Only) • Paid Losses (Liability and Physical Damage) • Paid ALAE • CAR Loss Reserving Committee IBNR Estimates • Lots of Judgment by Committee

  9. Massachusetts PPA - CAR Liability Total Limits Total Market Figures Based on Data from Industry Filings. CAR Figures from CAR Reports Evaluated as of March 2002 Policy Year 2000 Results May be Distorted Due to Insolvent Carriers As CAR Market Share Decreases, Business in CAR Becomes More Residual, With Higher Pure Premiums

  10. Massachusetts PPA - CAR Loss Development • Historical Report-to-Report Factors Will be Affected by Same Issues as Industrywide Data • Reform, Changes in Case Reserve Adequacy, Changes in Market Shares by Carrier, Insolvencies • Additional Distortion Due to CAR Market Share • As CAR Population Shrinks, Ceded Business Tends to Have Lower Limits, So Reporting Tends to be Quicker • In Bornhuetter-Ferguson Methods, Adjust Industrywide Estimates of Pure Premium or Loss Ratio to Reflect CAR Market Share • Timing Issues for CAR Data • Data Available at Year End Reflects only Nine Months Experience for the Current Policy Year

  11. Massachusetts PPA - Loss Development Summary • Historical Report-to-Report Factors For Both Industry and CAR are Distorted by a Number of Issues, and Need to be Adjusted Before Using as Benchmarks • Both CAR and Retained Losses are Affected by the CAR Market Shares • For the Industry, CAR Market Share Affects the Total CAR Results • For Individual Carriers, CAR Market Share Affects the Retained Results • Adjusted Industry Data Can Provide Useful Benchmarks for Report-to-Report Factors and Bornhuetter-Ferguson Methods

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