Loss Portfolio Transfers

1. Loss Portfolio Transfers Casualty Loss Reserve Seminar September 10, 2001 New Orleans, LA André Lefebvre, FCAS, MAAA

2. Definition Transfer of a risk portfolio of an organization, insurer or self-insured, to a third-party, insurer or reinsurer, of equal or greater security for the least amount of assets. Seller Buyer Risk Insurer/ Self-Insured Insurer/ Reinsurer Assets

3. Reasons for Transfer • Economic Risk Transfer • Financial Management • Discontinued Lines of Business/Self-Insured Program • Mergers & Acquisition

4. Economic Risk Transfer • Adverse Loss Development • Accelerated Loss Payments • Insufficient Yield on Assets Supporting the Reserves

5. Financial Management • Income Recognition • Statutory • GAAP • “Soft Market”

6. Discontinued Operations • Discontinued Line of Business/Self-Insured Program • Loss Reserve Liabilities • Claims Maintenance

7. Mergers & Acquisitions • Adverse Loss Development Protection

8. Types of Products • Guaranteed Cost vs. Finite (Funded) • Aggregate Limit vs. Unlimited • Deductible/Attachment Point • Additional Features (e.g., Profit Sharing)

9. General Process • Claims Review • Risk Management Information Systems • Reinsurance Agreements • Financial / Actuarial Analysis • Claims Administration

10. Claims Review • Claims Audit • Access to Claim Files • Location of Claim Files • Number of Open Claims • Adequacy of Carried Reserves

11. RMIS • Format of Claim Data (i.e., Electronic or Hard Copies) • Complete Transactional History • Number of Years of History • Transferring Data from Buyer to Seller

12. Reinsurance Agreements • Terms of Existing Reinsurance Agreements • Flexible • Cut-through Agreements

13. Financial / Actuarial Analysis • Traditional Reserve Review • Cash-Flow Analysis • Sensitivity Analysis

14. Claims Administration (Buyer) • Staffing Requirement • Intellectual Capital • Additional TPA Costs (Self-Insured)