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1999 CLRS Intermediate Case Study Discussion Material For GL Insurance Company

1999 CLRS Intermediate Case Study Discussion Material For GL Insurance Company. Intermediate Case Study Company Facts. Stock insurance company Only general liability policies written In business for over 20 years Stable book of business (essentially the same group of insureds)

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1999 CLRS Intermediate Case Study Discussion Material For GL Insurance Company

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  1. 1999 CLRSIntermediate Case StudyDiscussion Material For GL Insurance Company

  2. Intermediate Case StudyCompany Facts • Stock insurance company • Only general liability policies written • In business for over 20 years • Stable book of business (essentially the same group of insureds) • Well managed • Healthy balance sheet GL-1

  3. Intermediate Case Study Balance Sheet @ 12/31/98 ($000) GL-2

  4. Intermediate Case StudyReserving Information • GL Insurance Company has a small actuarial staff headed by an actuarial student. • The department calculated year-end reserves using both the paid and incurred loss development methods. • The staff supplements this analysis with the use of expected loss techniques, if needed. GL-3

  5. Intermediate Case StudyGLIC Actuarial Study • Slides GL-5 and GL-6 display the paid loss development method. • Slides GL-7 and GL-8 display the incurred loss development method. • Tail factor selections are based upon reviews of industry data, as well as curve fits of selected loss development factors (Slides GL-6 and GL-8). GL-4

  6. GL-5

  7. GL-6

  8. GL-7

  9. GL-8

  10. Intermediate Case StudySummary of Loss Development Projections GL-9

  11. Intermediate Case StudyApplications of Bornhuetter-Ferguson Technique GL-10

  12. Intermediate Case StudyEstimated IBNR Reserves GL-11

  13. Intermediate Case StudyGLIC’s Carried Reserves • The company’s carried reserves are based upon the straight average of the paid and incurred loss projection methods after application of expected loss techniques. GL-12

  14. Intermediate Case StudyManagement’s Observations • In previous years, the paid and incurred loss projections were almost identical. • Recently, differences between the two estimates are emerging. GL-13

  15. Intermediate Case StudyAssignment • GLIC has employed you, a consulting actuary, to complete their 1998 reserve certification and critique the actuarial work done by GLIC’s actuarial department. GL-14

  16. Intermediate Case StudyInitial Task • You begin the assignment by interviewing the vice president of each of the following insurance disciplines. • Claims • Marketing • Underwriting GL-15

  17. Intermediate Case StudyVice President of Claims • Staff and procedures have remained the same for as long as anyone can remember. • Systems have not changed, and there have been no accounting or other changes that would have impacted year-end processing. GL-16

  18. Intermediate Case StudyVice President of Marketing • The client base is extremely stable. • Growth has come primarily from increase in business from existing clients, as opposed to new clients. • GLIC’s clients represent almost all US distributors of Widgets. • These clients are expanding into other areas, generating the growth in premium. GL-17

  19. Intermediate Case StudyVice President of Marketing • Given the company’s understanding of the product and their sensible approach to pricing (small annual increases), they have captured and retained their niche market GL-18

  20. Intermediate Case StudyVice President of Underwriting • The VP is concerned about the deterioration in the loss ratio (including ALAE) from 81% in 1995 to 91% in 1998 on an accident year basis. • They attribute at least part of the problem to the heavier GL exposures being accepted from their long-term clients. GL-19

  21. Intermediate Case StudyDistribution of Earned Premium GL-20

  22. Intermediate Case StudyVice President of Underwriting • The underwriting department, with the help of the actuarial staff, will be conducting separate rate analyses for Heavy GL versus Light GL later in the year. • Reports by class of business have just been provided via an ad hoc request to the data processing department. GL-21

  23. Intermediate Case StudyVice President of Underwriting • Although the analysis has not yet been completed, the underwriting department suspects that Heavy GL rates need to increase by more than the traditional 5% annual increase taken in previous years for Total GL. GL-22

  24. GL-23

  25. GL-24

  26. GL-25

  27. GL-26

  28. Intermediate Case StudyBornhuetter-Ferguson Technique - Light GL GL-27

  29. Intermediate Case StudyIBNR Reserves Estimate - Light GL GL-28

  30. GL-29

  31. GL-30

  32. GL-31

  33. GL-32

  34. Intermediate Case StudyBornhuetter-Ferguson Technique - Heavy GL GL-33

  35. Intermediate Case StudyIBNR Reserve Estimate - Heavy GL GL-34

  36. Intermediate Case StudySummary of IBNR Estimates GL-35

  37. Intermediate Case StudyBalance Sheet @ 12/31/98 ($000) GL-36

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