Purdue_2011_v2

Purdue_2011_v2 - Introduction to Casualty Actuarial Science...

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1 Ken Fikes, FCAS, MAAA Introduction to Casualty Actuarial Science Ken Fikes, FCAS, MAAA Executive Director Email: [email protected]
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2 Ken Fikes, FCAS, MAAA Casualty Actuarial Science Two major areas are measuring 1. Written Premium Risk Pricing 2. Earned Premium Risk Reserving
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3 Ken Fikes, FCAS, MAAA What is a Loss Reserve? Amount necessary to settle unpaid claims Why are Loss Reserves Important? Accurate evaluation of financial condition & underwriting income Definitions
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4 Ken Fikes, FCAS, MAAA Definitions Accounting Aspects of Loss Reserves Assets Liabilities Surplus Balance Sheet
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5 Ken Fikes, FCAS, MAAA Definitions Case Reserves » Claim reported but not yet paid » Assigned a value by a claims adjuster or by formula Bulk + IBNR reserves include: » Reserves for claims not yet reported (pure IBNR) » Claims in transit » Development on known claims » Reserves for reopened claims
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6 Life Cycle of a Claim Reserve 8/1/11 Accident entered into records as $1,000 Formula Reserve 7/11/11 Accident reported Claims in Transit 10/5/11 Individual reserve established $10,000 Case Reserve 1/1/12 Estimate revised $25,000 Case Reserve 8/18/12 Settlement agreed $30,000 Case Reserve 8/25/12 Payment sent $30,000 Case Reserve 9/2/12 Claim draft clears Closed 4/2/11 Accident occurs Pure IBNR
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7 Ken Fikes, FCAS, MAAA Other Considerations Factors Affecting Loss Reserves » External or Environmental – Society – Regulation – Judiciary – Seasonality – Residual Market – Inflation – Economy
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8 Ken Fikes, FCAS, MAAA Basic Reserving Techniques Expected Loss Ratio Method Loss Development Method Bornhuetter/Ferguson Method
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9 Ken Fikes, FCAS, MAAA Expected Loss Ratio Method EXPECTED LOSS RATIO (ELR) The anticipated ratio of projected ultimate losses to earned premiums. Sources: » Pricing assumptions » Industry data
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10 Ken Fikes, FCAS, MAAA Expected Loss Ratio Method EXAMPLE OF ELR USING PRICING ASSUMPTIONS Commissions 20% Taxes 5% General Expenses 12% Profit (2%) Total 35% Amount to pay for loss & loss expense ---- 65% of premium
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11 Ken Fikes, FCAS, MAAA Expected Loss Ratio Method
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This note was uploaded on 02/28/2012 for the course STAT 170 taught by Professor Nicholaswegman during the Fall '09 term at Purdue.

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Purdue_2011_v2 - Introduction to Casualty Actuarial Science...

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