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Managing A Loss Reserving Department and Communicating Results

Managing A Loss Reserving Department and Communicating Results. Bill Burns — Vice President & Actuary CLRS September 11, 2006. Introduction. Actuarial profession is lacking in management literature

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Managing A Loss Reserving Department and Communicating Results

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  1. Managing A Loss Reserving Department and Communicating Results Bill Burns — Vice President & Actuary CLRS September 11, 2006

  2. Introduction • Actuarial profession is lacking in management literature • Hundreds of papers on quantitative techniques but only a handful (if that) on managing the loss reserving projects • Gregory Alff — 1993 • This session will focus on managing the loss reserving process not the people

  3. The Big Day arrives and you find yourself in charge of the Loss Reserving Department…Where do you start?

  4. Come prepared with a list of questions: • Do I have the right staff? • How often do reserve reviews have to be done? • How much time does it take to do a review (in man-hours)? • What are the responsibilities of the individual staff members? • Do I have enough staff?

  5. Staff Evaluation • Technical skills • Knowledge of company operations • Verbal and written communication skills • Inter-personal skills • Management experience • Professional credentials

  6. How often are reserve reviews needed? • Depends on company • Size • Public vs private • Management’s needs/wishes • All lines — 2x year • “Major” lines — 4x year • Roll-forward at year-end (especially if a large complex company)

  7. How long does a review take? • Depends on • Staff (size, abilities, etc.) • Quality of data • Depth of analysis • Complexity of book of business • Reinsurance program • Goal: Streamline the process as much as possible so you devote your resources to analysis and not data issues • Don’t make every time the first time

  8. Typical Department Structure Chief Actuary Assistant Actuaries Reserving Pricing Corporate Actuarial Assistants

  9. Responsibilities — Actuarial Assistants • Students (< 4 exams, 3 – 5 years experience) • “Ground Level” • Gather, scrub and balance data • Generate initial indications • Reserving package • In-house spreadsheets • Produce reports for management • Form and maintain relationships with peers in other departments

  10. Responsibilities — Assistant Actuaries • Seasoned students to new ACAS, FCAS • “5,000 Foot View” • Check work of actuarial assistants • Challenge assumptions and conclusions (“Smell Test”) • Propose alternative methods • Present results to chief actuary • Bring along your staff!

  11. Responsibilities — Chief Actuary • Seasoned ACAS, FCAS • Thick skin a must • Scar tissue optional • “10,000 Foot View” • Final word on reserve estimates (point and range) • Communicates results to senior management and B of D • Might write and sign opinions

  12. Communicating Results — Where are we? • Analysis is done and Chief Actuary has blessed the numbers • A formal report has been produced • The chief actuary now has to talk to a C-level executive (CEO, COO, CFO)

  13. Formal Report • Not a mystery novel • Conclusions upfront and in plain sight • If the reader wants to go further tell him/her where to find the information

  14. Formal report should include • Executive summary with conclusions • Breakdown by business segment reviewed, e.g. • Core business by line • Assumed business • ULAE • Methods and key assumptions • Data reconciliation • Tie in with prior analyses

  15. But formal reports can be hundreds of pages long • Do you really plan to give the entire report to a C-level executive? • What about reports you might have to give to: • Board of Directors • Department heads • Reinsurers • Regulators • Rating agencies • Each will have their own hot buttons as to what is important

  16. Rules of Thumb • Know your audience • K.I.S.S. • Avoid “Information Pollution” • As Pat Tures so eloquently put it: “For actuaries a complex exhibit is a work of art. For everyone else it is a thorny tangle you wouldn’t want to touch even with gloves on.”

  17. Summary • Loss reserving process is vital to the proper management of insurance companies • A properly and adequately staffed actuarial department is the most critical component in the process • Your success will depend upon: • The value of the information you provide • How you present this information • Your track record • Communicate effectively and document your work

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