1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A...
-
Upload
dinah-hensley -
Category
Documents
-
view
218 -
download
0
Transcript of 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A...
![Page 1: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/1.jpg)
1 - © ISO, Inc., 2008
London CARe Seminar:Trend – U.S. Trend Sources and Techniques, A
Comparison to European Methods
Beth Fitzgerald, FCAS, MAAA, CPCUVice President, Commercial Lines & Modeling
![Page 2: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/2.jpg)
2 - © ISO, Inc., 2008
U. S. Trend Sources and Techniques
• Data for Trend Analysis
• Issues in Selecting Trends
• Commercial Property Basic Group I (Fire) example
• General Liability Manufacturers & Contractors example
• Data available for Reinsurance/Excess Pricing
![Page 3: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/3.jpg)
3 - © ISO, Inc., 2008
Trend Data
![Page 4: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/4.jpg)
4 - © ISO, Inc., 2008
ISO Industry Data
• Data available for claim severity, claim frequency and exposure trend analysis
• Detailed transaction reporting of premium and losses
– individual policy information– individual occurrence/claimant information
•More flexibility in compiling data for analysis
•Enhanced quality and accuracy
![Page 5: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/5.jpg)
5 - © ISO, Inc., 2008
Statistical Plan Unit Transaction Reporting
Account Date
Policy Effective Date
Policy Expiration Date
Line State Class Exposure Premium Amount …
Loss Records
Account Date
Policy Effective Date
Accident Date
Line State Class Paid or Reserve Indicator
Loss Amount …
Premium Records
![Page 6: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/6.jpg)
6 - © ISO, Inc., 2008
External Data
•U. S. Economic Data – Average hourly earnings of construction
workers– Retail Sales (RSALES)– Manufacturers Sales Exposure (MSEP)– Producer Price Indices (PPI)
•Xactware Commercial Index (XCI) for buildings
![Page 7: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/7.jpg)
7 - © ISO, Inc., 2008
Trend Issues
![Page 8: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/8.jpg)
8 - © ISO, Inc., 2008
Trend Method
•Fit data to least squares exponential curves
•Calculate goodness of fit R2
•Calculate fits for different number of years
![Page 9: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/9.jpg)
9 - © ISO, Inc., 2008
Trend Selection Issues
•Stability •Regulatory Support•Compliance with Actuarial Standard of
Practice #13 on Trending Procedures– consider bias or distortions in data– consider economic or social influences
either in data or in projection period
![Page 10: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/10.jpg)
10 - © ISO, Inc., 2008
Commercial Property Trend
![Page 11: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/11.jpg)
11 - © ISO, Inc., 2008
Basic Group I (Fire) Claim Severity and Claim Frequency Trend
•By coverage (buildings, contents, time element)
•Fit internal ISO claim severity and claim frequency data
– losses/claims developed to ultimate– total vs. normal accident year losses– 10, 7 and 5 year fits– by deductible & “blended” weighted avg.
of all deductible data
![Page 12: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/12.jpg)
12 - © ISO, Inc., 2008
Basic Group I (Fire) Claim Severity
•Fit 12 points of External data – XCI for buildings– PPI for contents– MSEP and RSALES for time element
•Determine Current Cost Factor & Loss Projection Factor using External data
![Page 13: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/13.jpg)
13 - © ISO, Inc., 2008
Basic Group I (Fire) Loss Trend
•Select Severity Loss Trend Adjustment (LTA) to complement external economic indices
•Select Frequency LTA based on internal data
• Apply severity trend to individual occurrence
– first add $ded back to loss amount– apply severity trend– subtract $ded
![Page 14: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/14.jpg)
14 - © ISO, Inc., 2008
Basic Group I (Fire) Exposure Trend
•By coverage (buildings, contents, time element) using internal ISO data
•Determined from actual changes in amounts of insurance from one year to the next
•Based on a sample of renewal policies, matched on premium record ID, insurer, state, territory, construction, coverage, protection, occupancy class and rating ID
![Page 15: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/15.jpg)
15 - © ISO, Inc., 2008
Issues for Commercial Property
•Deductible distribution changes over time = rely on “blended average” of all deductibles
•Distortions due to large losses = rely more on normal losses
•Bias in distribution of losses by cause in different years- analyze fire, VMM, theft, water claims each year
![Page 16: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/16.jpg)
16 - © ISO, Inc., 2008
Commercial Property Example
$500 Ded. $1000 Ded. $2500 Ded. Blended Ded.
Normal Total Normal Total Normal Total Normal Total
10 Yr. Fits 3% 4.5% 4% 4.5% 6% 5.5% 4.2% 5%
R2 .85 .80 .90 .88 .80 .78 .90 .85
Basic Group I Building Severity
Last year’s selection = 4.0%
This year’s selection ? = 4.0%
![Page 17: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/17.jpg)
17 - © ISO, Inc., 2008
General Liability Trend
![Page 18: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/18.jpg)
18 - © ISO, Inc., 2008
Manufacturers & Contractors Claim Severity and Frequency Trend
•By coverage (bodily injury, property damage, fringe)
• Internal ISO claim severity and claim frequency data
– Basic limits accident year loss data– losses/claims developed to ultimate– paid and incurred– indemnity, ALAE, indemnity + ALAE– 10, 8 and 6 year fits
![Page 19: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/19.jpg)
19 - © ISO, Inc., 2008
Manufacturers & Contractors Exposure Trend
• U. S. Economic Data from IHS Global Insight, Inc. provides historical and projected indices
• Contractors payroll - uses average hourly earnings of construction workers
• Manufacturers sales derived from: – Durable and Nondurable Consumption – Net Exports of Merchandise
•Calculate 3, 4 & 5 year fits
![Page 20: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/20.jpg)
20 - © ISO, Inc., 2008
Issues for Manufacturers & Contractors
•Analyze fits excluding latest year due to development
•Use paid severity to avoid bias in case reserve changes over time
• Incurred development more stable•Analyze Indemnity vs. ALAE for any
severity distortions•Frequency selection also reflects any
recent patterns and any external information
![Page 21: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/21.jpg)
21 - © ISO, Inc., 2008
Manufacturers & Contractors Example
Indemnity + ALAE Fits
Indemnity + ALAE R2
ALAE Fits
ALAE R2
6 year 10% .85 15% .80
8 year 7% .95 10% .85
10 year 6% .90 8% .80
9 year (ex latest)
7.5% .95 9.5% .88
$100k/$200k Bodily Injury Severity
Last year’s selection = 6.5%
This year’s selection ? = 7.0%
![Page 22: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/22.jpg)
22 - © ISO, Inc., 2008
Data for Reinsurance/Excess Trends
![Page 23: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/23.jpg)
23 - © ISO, Inc., 2008
Data Compilations
•Size of Loss data for General Liability and Commercial Property
•Layer of Loss data by policy limit for General Liability
•Excess Layer Loss Development Manual for General Liability
![Page 24: 1 - © ISO, Inc., 2008 London CARe Seminar: Trend – U.S. Trend Sources and Techniques, A Comparison to European Methods Beth Fitzgerald, FCAS, MAAA, CPCU.](https://reader036.fdocuments.net/reader036/viewer/2022062409/5697bfdf1a28abf838cb2bd1/html5/thumbnails/24.jpg)
24 - © ISO, Inc., 2008
General Liability Increased Limit Trend Analysis
•Calculate Increased Limit Factors– mixed exponential curves – paid occurrence data by accident year
and settlement date
•Analyze paid/settled data for many years by policy limit purchased
•Analyze basic limit and total limit paid and incurred accident year data
•Select long-term average unlimited severity trend