InsuranceandReinsuranceRunoffJamesB.Kahn,FCAS,.pptVIP

Appendix B, Exhibit 1 Appendix B, Exhibit 1 Insurance and Reinsurance RunoffJames B. Kahn, FCAS, MAAACAS Annual Meeting Session #C16November 14, 2007Chicago, Illinois Anecdotal Evidence Many of the conclusions reached are as a result of surveys and discussions as well as anecdotal information The opinions expressed here are my own and not necessarily those of Watson Wyatt Worldwide All numerical amounts shown are illustrious and should not be considered as usable information for any other purpose Why is this the case? Not always easy to track information through Annual Statements Some companies file Annual Statements, though after 10 Years of runoff, all information is contained in the ‘Prior Years’ Line of Schedule P Sometimes, the history of the Acquired entity is integrated into the Annual Statement of the buying entity Distortions from Increased usage of commutations or changes to historical pooling percentages Important Quotations “Those who cannot remember the past are condemned to repeat it. ” - George Santayana (1906) Important Quotations “Actuaries who remember the past too often, may misstate ultimate loss estimates for a runoff company. ” - Jim Kahn (2007) What Might Be Changing? Average Payments or Reserve Philosophies Reinsurance issues Loss Reporting Issues Commutations/Settlements Underwriting Standards Staffing and Operational Issues Average Payments or Reserve Philosophies Review of Average Closed Claim severity and impact on traditional reserving methodologies Closure Rates/Settlements Trusting new case reserves? Impact to the reinsurers Reinsurance Issues Faster or slower reporting after a runoff? Settlements could lower ultimate loss amounts below retentions Commutations Historical net triangle development patterns Loss Reporting Issues Buying a reinsurance company going into runoff – in a worst case scenario, an increase in loss reporting Not the same long lasting relationship with brokers or cedents and motivation to increase