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Chapter 4 - ACTSC 363 Chapter 4 Loss Reserving 4.1...

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ACTSC 363 Chapter 4 Loss Reserving 4.1 Introduction 4.2 How Outstanding Benefits Arise Two most important functions of a P&C actuary is ratemaking and loss reserving Loss reserving- actuary determines the present liability associated with future claim payments. The law requires that the actuary attest to the adequacy and appropriateness of the insurer’s loss reserves and that there are sufficient assets/surplus to cover those liabilities Actuary as fiduciary for at least 2 parties 1) To the regulators, the actuary is protecting the rights of the insurer’s PH 2) Provides service to the insurer, its owners and potential future owners as the actuary attests to the insurer’s solvency, level of liabilities and assets. Incurred claims = paid claims + reserves - claims must be developed to their ultimate estimated values in order for proper ratemaking to take place. - Depending on size of the difficulty in estimating, outstanding liabilities varies widely by coverage. Auto collision and homeowners ppty claims are normally settled in a matter of weeks. Generally, after 2 or 3 years from occurrence, the totally liability is known with high degree of confidence - Claim for auto bodily injury and medical malpractice taken 10 -20 years to settle. Two sources of uncertainty regarding unpaid claims 1) Estimated claim payments to be made on known claims can and do change from time to time until finally settled 2) There may be unreported claims that have been incurred 4.3 Definition of Terms 4.3.1 Individual Claim File Estimates When a FIELD ADJUSTER is aware of a pending claim, a CLAIM FILE will be established. The file contains information such as: 1) Date of accident 2) Date of claim 3) Assigned lawyer 4) Examining physician 5) Payment-to-date Case Reserves- the aggregate of the individual claim file estimates, split by line of business and accident year
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4.3.2 Gross IBNR Total reserve = bulk reserve + case reserve Bulk or gross IBNR reserve consists of: 1) Provision for future development in known claims (ie adjustments of case reserves) 2) Provision for claim files that are closed but which may reopen (ie workers compensation) 3) Provision for claims incurred but not reported (pure IBNR) 4) Provision for claims reported but not recorded (RBNR) 4.3.3 Paid Loss Development Paid age-to-age loss development: change in cumulative payments made to date on a defined set of claims
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