february 2004 james d. hurley, acas, maaa energy insurance mutual overview of ultimate loss...
TRANSCRIPT
February 2004
James D. Hurley, ACAS, MAAA
Energy Insurance Mutual
Overview of Ultimate Loss Projections
2S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt
ENERGY INSURANCE MUTUALUltimate Loss Levels
Process - Considerations
Claims-made (sort of...)
Low frequency/high severity
Data - good news/bad news
1984 - 2003 experience period - (still) limited credibility
Growth - complicates projections
3S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt
ENERGY INSURANCE MUTUALUltimate Loss Levels
Process:
Construct a model of EIM exposure
Focus on Member experience (lower attachment)
Project “base” layer losses (frequency/severity)
Apply size of loss relationship
Adjust for reinsurance/emergence
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ENERGY INSURANCE MUTUAL“Factoids”
Total payments $307 million (7 closed) Total reported $557 million (19 reported)
Historic Member Loss Experience (as adjusted) truncation varies from $0.6M to $1.7M expect 90 claims/year above truncation average trended claim above truncation $9.25M
Extended Reporting Coverage Issuance approximately 151 issued (vs. 138 last year) approximately 96 members (vs. 91 last year) 48% of the ERE’s are D&O
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ENERGY INSURANCE MUTUALUltimate Loss Levels
Model: Member experience
Accident year data, all claims > $500,000
Obtain year specific truncation point
Determine expected number of claims
Average claim cost - $9.25M Convert frequency/severity to claims-made Adjust for growth in membership Project base layer of losses by year Size of loss data - proportion of losses > EIM
attachment Determine losses by layer above attachment Apply reinsurance
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ENERGY INSURANCE MUTUALUltimate Loss Levels
Example: 2000
1. Projection Basea. Severity (000) $5,977b. # of claims 68.61c. Truncation (000) $1,324d. Excess of truncation (000) $319,242
2. Excess Factorsa. Attachment (000) $45,000b. $25,000 xs of a. 0.096c. $25,000 xs of b. 0.069d. $25,000 xs of c. 0.054e. $25,000 xs of d. 0.045f. $25,000 xs of e. 0.038
3. Adjusted Excess Factor (retention, % purchasing) 0.250
4. Reinsurance (per claim) $34,500
5. Indicated ultimate (000) $45,358
6. Yet to emerge 0.441
7. Loss provision adjusted for emergence (000) $20,014
8. Adjustment for aggregate reinsurance $15,278
9. Net loss provision after aggregate reinsurance $4,736
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ENERGY INSURANCE MUTUALUltimate Loss Levels
IBNR
Years Direct Net
1986 – 12/2003 $365,451 $219,709
Triggered Tail 16,785 16,785
Property 12,291 1,749
Total $394,527 $238,243
8S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt
ENERGY INSURANCE MUTUALUltimate Loss Levels
Years Direct Net
1986 – 12/2003 $365,451 $219,709
Triggered Tail 16,785 16,785
Property 12,291 1,749
Total IBNR $394,527 $238,243
Case Reserves – Casualty 266,346 99,234
Case Reserves – Property 15,862 1,403
Total $676,735 $338,880
Booked $688,114 $341,909
February 2004
James D. Hurley, ACAS, MAAA
Energy Insurance Mutual
Overview of Ultimate Loss Projections