presentation title · lydia rhodes 20 june 2016 colour palette for powerpoint presentations dark...

20/06/2016

1

Casualty Reserving in the Lloyd’s Market Lydia Rhodes

20 June 2016

Colour palette for PowerPoint presentations

Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184

Secondary colour palette

Primary colour palette

Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Outline

20 June 2016

1. Are casualty recent years actually under reserved?

2. Why has this happened?

3. What should be done?


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Some healthy disclaimers..

• Not finger pointing but thought provoking..

• There is a range – not everyone is in the same boat

• Analysis provided is based on the Lloyd’s market data

20 June 2016

20/06/2016

2

Are the most recent years for

Casualty actually under reserved?

20 June 2016 4


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

20 June 2016

ULRs pushing out


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

20 June 2016 6

Driven by strengthening in IBNR

20/06/2016

3


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

20 June 2016 7

And a low initial ULRs for the most recent years

Gross

Earned

ULRs

2009 2010 2011 2012 2013 2014 2015

At 12

months6% 11% 5% 4% 2% 3% 0%

At 24

months 10% 8% 5% 5% 2% 5%

At 36

months 7% 7% 5% 6% 5%

At 48

months 9% 7% 7% 7%

At 60

months 4% 6% 9%

At 72

months 3% 7%

At 84

months 5%


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

20 June 2016 8

Results in ULRs being strengthened..

Gross

Earned

ULRs

2009 2010 2011 2012 2013 2014 2015

At 12

months6% 11% 5% 4% 2% 3% 0%

At 24

months 10% 8% 5% 5% 2% 5%

At 36

months 7% 7% 5% 6% 5%

At 48

months 9% 7% 7% 7%

At 60

months 4% 6% 9%

At 72

months 3% 7%

At 84

months 5%


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

20 June 2016 9

Casualty result driven by reserve releases on the

most recent years

20/06/2016

4


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Gross

Earned

ULRs

2011 2012 2013 2014 2015

At 12 months 10% 10% 0% 1% 0%

At 24 months 4% 3% 3% 4%

At 36 months 2% 4% 3%

At 48 months 4% 4%

At 60 months 5%

20 June 2016 10

Results on a Solvency 2 best estimate basis

aren’t any better..

How has this come about?

20 June 2016 11


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

The chicken and egg debate!

20 June 2016

Reserving

Underwriting

/ pricing

20/06/2016

5


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

The chicken and egg debate - explained!

20 June 2016 13

Input to pricing

Starting ULR

assumptions for

the pricing model

Input from

pricing:

Use the business

plan as the ULR

for the most

recent years

Input from

reserving

Starting ULR

assumptions for the

pricing model

Input to reserving:

Business plan used

within reserving for

the most recent

years


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Optimistic business planning…

20 June 2016 14


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Partly driven by proposed rate changes not being

achieved…

20 June 2016 15

20/06/2016

6


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Amounts are then used as priors for the most

recent years..

20 June 2016 16

Volume of Premium £10,000,000

Book running

at

Percentage

developed

Business

Forecast ULR

Rate

reduction

'error'

Revised

Business

Forecast ULR

Proposed

Reseves

Corrected

Reserves Understatement

%

Understated

65% 5% 65% 0.5% 65% £6,175,000 £6,206,030 £31,030 0.5%

65% 5% 65% 1.0% 66% £6,175,000 £6,237,374 £62,374 1.0%

65% 5% 65% 2.0% 66% £6,175,000 £6,301,020 £126,020 2.0%

65% 5% 65% 3.0% 67% £6,175,000 £6,365,979 £190,979 3.1%

65% 5% 65% 4.0% 68% £6,175,000 £6,432,292 £257,292 4.2%


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Rate changes alone do not explain the difference…

20 June 2016 17


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Reason 2: ‘Actuarial Reserving’ methods do not

typically allow for changes in the business

• Rely on assumptions of ULRs

– Therefore heavily dependent on

underwriter input

– Requires an assumption on

inflation

– And rate change adequacy

20 June 2016 18

• Assume past is a guide to the

future..

– ..Therefore gradual changes in

books are not allowed for

• Change in the retentions

• Changes in policy wording

• Change in the terms and

conditions

• Changes in the location of

risk

20/06/2016

7


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Gradual shifts in business are harder to identify..

20 June 2016 19


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

And within classes there is also a shift towards

binders

20 June 2016 20


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Shift towards binders must be allowed for

20 June 2016 21

20/06/2016

8

What should be done?

20 June 2016 22


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

What should be done?

20 June 2016

Option 1 Option 2 Option 3


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

Understand the pricing..

• Spend time with the pricing teams

– Understand how the book is being technically priced

– The difference between technical price and price achieved

• Understand the business they are writing and market conditions

• Ensure this is reflected in the reserving ULRs

20 June 2016 24

20/06/2016

9


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

…to ensure the reserving ULRs are appropriate

• Feedback obtained from the pricing teams is used within the reserving

loss picks

• Changes in the mix of business are reflected in the development

patterns and assumptions used

• Ensure this is reflected in the reserving ULRs…

• …. which are the input to the pricing ULRs

20 June 2016 25


Dark blue

R17 G52 B88

Gold

R217 G171 B22

Mid blue

R64 G150 B184



Light grey

R63 G69 B72

Pea green

R121 G163 B42

Forest green

R0 G132 B82

Bottle green

R17 G179 B162

Cyan

R0 G156 B200

Light blue

R124 G179 B225

Violet

R128 G118 B207

Purple

R143 G70 B147

Fuscia

R233 G69 B140

Red

R200 G30 B69

Orange

R238 G116 29

Dark grey

R63 G69 B72

20 June 2016 26

Expressions of individual views by members of the Institute and Faculty of

Actuaries and its staff are encouraged.

The views expressed in this presentation are those of the presenter.

Questions Comments

presentation title · lydia rhodes 20 june 2016 colour palette for powerpoint presentations dark...

Documents