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2000 Casualty Loss Reserve Seminar

Gain valuable knowledge on extending and reporting insurance endorsements. Learn about DD&R guidelines, NAIC concerns, model inputs, and liability accrual. Discover best practices and references for effective risk management.

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2000 Casualty Loss Reserve Seminar

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  1. 2000 Casualty Loss Reserve Seminar DD&R/Extended Reserves Presented by Christopher P. Walker, FCAS, MAAA PricewaterhouseCoopers LLP September 19, 2000

  2. CLRS Seminar - DD&R Extending Reporting Endorsement • Separate policy • Bridges gap between prior claims-made coverage and occurrence coverage • Late reported claims applied to endorsement, not prior coverage • A separate premium is usually charged Slide 1

  3. CLRS Seminar - DD&R DD&R Coverage • Death of insured • Disability of insured • Retirement of insured, sometimes subject to tenure criteria Slide 2

  4. CLRS Seminar - DD&R NAIC Concerns • The expected cost of promised DD&R was not always recognized on insurers’ balance sheets • Separate charge not made for DD&R benefit Slide 3

  5. CLRS Seminar - DD&R NAIC Guidelines • Make a charge in current rates to reflect future DD&R • Unearned premium reserve, or loss reserve, should be established to recognize future DD&R benefit Slide 4

  6. CLRS Seminar - DD&R NAIC Guidelines (cont.) Insurers should establish a “level premium” charge to remain a constant percent of premium whether an insurer: • Is just starting to write business • Has provided coverage for several years and continues to write new business • Has ceased writing new business but continues to write existing accounts Slide 5

  7. CLRS Seminar - DD&R NAIC Guidelines (cont.) 1999 Actuarial Opinion • Must additionally opine on extended loss and expense reserve • Located on the Schedule P Interrogatories Slide 6

  8. CLRS Seminar - DD&R • Loss trend • Time value of money • Lapse rates • Mortality of population • Morbidity of population • Age of the insured when first insured with company • Relationship of tail cost to mature claims-made rate Model Inputs Slide 7

  9. CLRS Seminar - DD&R Other NAIC Recommended Factors • Age and tenure requirements • Age and tenure demographics • Pricing differentials related to age • Expected claims costs related to age and years to retirement • Waivers • Partial benefits Slide 8

  10. CLRS Seminar - DD&R • No liability exists for DD&R until the contract is issued • Need to establish premium load reflecting endorsements issued in upcoming policy period only • Uses mortality/morbidity/retirement considerations • Compares PV of DD&R cost for the policy period compared to anticipated non-DD&R premium “Pay As You Go” Slide 9

  11. CLRS Seminar - DD&R • Liability is accrued for DD&R throughout insured’s anticipated tenure with company • A charge, as percent of premium, is charged for each insured based on age first insured with insurance company • Premium load remains constant throughout tenure with company • Very sensitive to trend and interest rate assumptions • Unearned premium reserve is a direct result of pricing calculation “Level Funding” Approach Slide 10

  12. CLRS Seminar - DD&R References • Death, Disability, and Retirement Coverage: Pricing the “Free” Claims-Made Tail by Christopher Walker and Don Skrodenis, located in the Casualty Actuarial Society Forum, Winter 1996 • A Dynamic Approach to Modeling Free Tail Coverage by Robert Walling III, located in the Casualty Actuarial Society Forum, Fall 1999 Slide 11

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