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Washington State Transit Insurance Pool Banking versus Pooling. May 28, 2009. Presented by: Kevin Wick, FCAS, MAAA. PwC. Equity allocation worksheet Insurance industry events risk transfer Bank versus Pool Implications if Bank Rating System Considerations Illustration Losses by Member.
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Washington State Transit Insurance Pool Banking versus Pooling May 28, 2009 Presented by: Kevin Wick, FCAS, MAAA PwC
Equity allocation worksheet Insurance industry events risk transfer Bank versus Pool Implications if Bank Rating System Considerations Illustration Losses by Member Background/Agenda
Effective financial decisions regarding a program require clarity on the goals and purpose of the program Banking Each member is responsible for their own claims Separate accounts Pooling Each member is collectively responsible for all claims Share risk and provides stability Banking versus Pooling
Compare each members’ contribution to their costs Claim costs are a direct charge Other costs require some sort of allocation Equity allocated based on how each member “contributed” to it If member has $1 million claim, their equity is reduced by $1 million No risk transfer (protection from catastrophic events) Each member is effectively self-insured up to the WSTIP retention Pool is basically a bank with a line of credit Rating system becomes minimum account requirements Implications if Bank
Members’ contribute funds in proportion to their level of risk Rating system measures risk Funds available to any member who has a claim No “pay-back” provision Individual risks transferred to pool Not complete transfer as members own the pool Over the long-term, the proportion of contributions and losses should be similar Equity allocated based on operating year results in proportion of contribution Pooling System
Prospective (Pooling) Use historical information to set future rates Contribution/rate paid for a year not impacted directly by member loss experience in that year Indirectly as it impacts overall dividend/reassessment Risk transfer Retrospective (Hybrid) Contribution/rate paid is partially a function of member experience in that year Pay deposit that is adjusted subject to set parameters Paid loss retro Incurred loss retro Deductible Limited risk transfer Types of Rating Systems
