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REPORT ON LOSS RESERVING PRACTICES
June 2006
• | Section I provides an overview of our financial objectives and results, and explains why accurate reserving is important | |
• | Section II describes how reserve development affects our financial results, and how we have performed relative to our goal of having total reserves that are adequate and develop with minimal variation | |
• | Section III defines the types of reserves, how they are related and how we analyze them | |
• | Section IV describes how and why we estimate our required reserves by segment | |
• | Section V presents the process enhancements we introduced in 2005 | |
• | Section VI defines many of the terms we use throughout the report | |
• | Sections VII and VIII in theAppendix present two case studies of segment reserve reviews — one for loss reserves and one for loss adjustment expense (LAE) reserves, including discussion of the issues we consider and the calculations involved |
01P00102A (06/06) | Copyright © Progressive Casualty Insurance Company. All Rights Reserved. |
Section I – About Progressive | ||||
Our Business | 1 | |||
2005 Business Highlights | 1 | |||
Our Financial Objectives | 1 | |||
Relationship Between Loss Reserving and Pricing Functions | 2 | |||
Section II – About Reserves and Development | ||||
Definition and Stated Goals | 4 | |||
Calendar Year versus Accident Year | 4 | |||
Paid Development Patterns | 5 | |||
Reserve Development | 6 | |||
External Reporting of Reserve Changes and Reserve Development | 9 | |||
Internal Reporting of Reserve Changes and Reserve Development | 10 | |||
Section III – Types of Reserves | ||||
Loss Reserves | 11 | |||
Case Reserves | 11 | |||
Incurred But Not Recorded (IBNR) Reserves | 14 | |||
Loss Adjustment Expense (LAE) Reserves | 15 | |||
Salvage and Subrogation | 16 | |||
Involuntary Market Operating Loss Reserves | 16 | |||
Section IV – Estimating Loss Reserves | ||||
Segmentation of Reserves for Analysis | 18 | |||
Projections of Ultimate Losses | 19 | |||
Section V – Process Enhancements Introduced in 2005 | ||||
Analysis of salvage and subrogation recoveries | 21 | |||
Analysis of IBNR reserves | 21 | |||
Additional segmentation | 21 | |||
Controls and procedures | 22 | |||
Section VI – Terms and Definitions | 23 | |||
Section VII – Case Study: Loss Reserve Review | Appendix | |||
Section VIII – Case Study: Loss Adjustment Expense Reserve Review | Appendix |
1 | Based on net income. | |
2 | Use of Comprehensive ROE is consistent with the Company’s policy to manage on a total return basis and reflects changes in unrealized gains and losses on securities held in our portfolio. For Progressive, Comprehensive ROE consists primarily of: | |
[Net income + changes in unrealized security gains, net of tax] / [average shareholders’ equity]. | ||
To review all components of Progressive’s Comprehensive ROE, refer to our Consolidated Statement of Changes in Shareholders’ Equity and related Notes in our2005 Annual Report to Shareholders, which is attached as an appendix to the Company’s2006 Proxy Statement. |
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• | Operating – Monitor pricing and reserving discipline | |
• | Financing – Maintain sufficient capital to support insurance operations | |
• | Investing – Maintain a liquid, diversified, high-quality investment portfolio |
• | Overall changes in the level of reserves by type of reserve (see Section III) | ||
• | History of claim development and selected ultimate losses by accident period | ||
• | Changes in selected ultimate loss amounts over time | ||
• | Selected severity by historical accident period and resulting trends | ||
• | Selected frequency by historical accident period and resulting trends | ||
• | Changes in actuarially determined case average reserves by age (see Section III) | ||
• | Changes in the level of average adjuster-set case reserve estimates (see Section III) | ||
• | Changes in claim closure rates | ||
• | Changes in the rate of claims closed without payment (CWP rate) |
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• | Claims settle for more or less than the established reserves for those claims | ||
• | Adjuster-set reserve estimates on open (reported) claims change | ||
• | Average reserves set by the loss reserving area for open (reported) claims change | ||
• | Unreported claims emerge (i.e., they are reported after the accounting date) at a rate greater or less than anticipated. This can be due to either or both of the following: |
° | The actual number (frequency) of “late reported” claims differs from the estimate | ||
° | The average amount (severity) of these claims differs from the estimate |
• | Loss reserving area’s estimates of future emergence patterns on unreported claims change | ||
• | Salvage and subrogation recoveries are greater or less than anticipated |
(unaudited)
For years ended December 31, | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | |||||||||||||||||||||||||||||||||
Loss and LAE reserves, net | $ | 1,314.4 | $ | 1,532.9 | $ | 1,867.5 | $ | 1,945.8 | $ | 2,200.2 | $ | 2,785.3 | $ | 3,069.7 | $ | 3,632.1 | $ | 4,346.4 | $ | 4,948.5 | $ | 5,313.1 | ||||||||||||||||||||||
Re-estimated reserves as of: | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 1,208.6 | 1,429.6 | 1,683.3 | 1,916.0 | 2,276.0 | 2,686.3 | 3,073.2 | 3,576.0 | 4,237.3 | 4,592.6 | ||||||||||||||||||||||||||||||||||
Two years later | 1,149.5 | 1,364.5 | 1,668.5 | 1,910.6 | 2,285.4 | 2,708.3 | 3,024.2 | 3,520.7 | 4,103.3 | |||||||||||||||||||||||||||||||||||
Three years later | 1,118.6 | 1,432.3 | 1,673.1 | 1,917.3 | 2,277.7 | 2,671.2 | 2,988.7 | 3,459.2 | ||||||||||||||||||||||||||||||||||||
Four years later | 1,137.7 | 1,451.0 | 1,669.2 | 1,908.2 | 2,272.3 | 2,666.9 | 2,982.7 | |||||||||||||||||||||||||||||||||||||
Five years later | 1,153.3 | 1,445.1 | 1,664.7 | 1,919.0 | 2,277.5 | 2,678.5 | ||||||||||||||||||||||||||||||||||||||
Six years later | 1,150.1 | 1,442.0 | 1,674.5 | 1,917.6 | 2,284.9 | |||||||||||||||||||||||||||||||||||||||
Seven years later | 1,146.2 | 1,445.6 | 1,668.4 | 1,921.9 | ||||||||||||||||||||||||||||||||||||||||
Eight years later | 1,147.4 | 1,442.5 | 1,673.9 | |||||||||||||||||||||||||||||||||||||||||
Nine years later | 1,146.3 | 1,443.2 | ||||||||||||||||||||||||||||||||||||||||||
Ten years later | 1,146.9 | |||||||||||||||||||||||||||||||||||||||||||
Cumulative Development: | ||||||||||||||||||||||||||||||||||||||||||||
favorable/(unfavorable) | $ | 167.5 | $ | 89.7 | $ | 193.6 | $ | 23.9 | $ | (84.7 | ) | $ | 106.8 | $ | 87.0 | $ | 172.9 | $ | 243.1 | $ | 355.9 | |||||||||||||||||||||||
% of Original Reserves | 12.7 | % | 5.9 | % | 10.4 | % | 1.2 | % | -3.8 | % | 3.8 | % | 2.8 | % | 4.8 | % | 5.6 | % | 7.2 | % |
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• | Reserve development on claims that settle more slowly (e.g., bodily injury liability claims) can be highly variable and challenging to evaluate. | ||
• | Regardless of how close the initial accident year estimates are, they will never be exactly right, and there will always be development until all claims are settled. | ||
• | Years in which we experience significant reserve development in either direction are learning experiences, affording us the opportunity to get better at estimating future reserves. |
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• | There is unfavorable development of prior accident years during the current year. | ||
• | Reserves for accidents that occur in the current year are over-estimated (i.e., subsequent evaluation shows favorable development of these reserves in future years). |
• | In 1998, the reported earnings were over-stated. This was mainly due to year-end 1997 reserves (for accident years 1997 and prior) developing favorably during 1998, reducing incurred losses and increasing earnings during calendar year 1998. | ||
• | In 1999, the reported earnings were also over-stated. In this case it was mainly due to the under-estimated (deficient) reserves for 1999 accidents. | ||
• | In 2000, the reported earnings were under-stated. This was due to a combination of the year-end 1999 reserves (for accident years 1999 and prior) developing unfavorably during 2000, and the reserves for 2000 accidents being over-estimated (conservative). |
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February 2006 Year-to-Date | Companywide | |||
($ in millions) | Total | |||
Net Premiums Earned | $ | 2,414.0 | ||
Actuarial Adjustments | ||||
Reserve Decrease/(Increase) | ||||
Prior accident years | $ | 27.3 | ||
Current accident year | 2.3 | |||
Calendar year actuarial adjustment | $ | 29.6 | ||
Prior Accident Years Development | ||||
Favorable/(Unfavorable) | ||||
Actuarial adjustment | $ | 27.3 | ||
All other development | 56.2 | |||
Total development | $ | 83.5 | ||
Calendar year loss/LAE Ratio | 66.3 | |||
Accident year loss/LAE Ratio | 69.8 | |||
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• | Features that closed | ||
• | Features that opened (including reopened features) | ||
• | Changes in reserve averages on new features (due to loss reserving) | ||
• | Changes in reserve averages on open features (due to loss reserving) | ||
• | Inflationary impact on open features (inflation factor applied to average reserves) | ||
• | Aging of open features (features moving to the next age grouping) | ||
• | Changes from adjuster-set to average reserve (reserve amount changes from above threshold to below threshold) | ||
• | Changes from average reserve to adjuster-set (reserve amount changes from below threshold to above threshold) | ||
• | Changes in adjuster-set reserves (reserve amount changes, but stays above threshold) | ||
• | Changes due to resegmentation of data |
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Exhibit 5
Example of Case Reserving Over the Life of a Large Auto Bodily Injury Claim
Private Passenger Automobile
Policy Limit = 300,000
Sample Threshold = 75,000
Inflation Factor = 6% per year
(Excludes Loss Adjustment Expense)
Case Reserve | |||||||||||||||||||||||||||||
Month | Transaction | Age of Claim | Adjuster Estimate | Carried on | Amount | ||||||||||||||||||||||||
End | Date | Claim Activity | (months)* | of Claim Amount | Company Books | Paid | Explanation of Reserve Change | ||||||||||||||||||||||
1/5/01 | Accident Occurs | 1 | N/A | 0 | |||||||||||||||||||||||||
Jan-01 | 1 | N/A | IBNR only | 0 | Aggregate amount based on factor of EP for Segment | ||||||||||||||||||||||||
2/12/01 | Claim is Reported | 2 | N/A | 0 | Claim is in “Pipeline”; Still IBNR | ||||||||||||||||||||||||
2/15/01 | Claim is Recorded | 2 | N/A | 0 | No estimate yet made by adjuster Actuarially determined Average Reserve for | ||||||||||||||||||||||||
Feb-01 | 2 | N/A | 5,829 | 0 | 1-2 mo. Age group | ||||||||||||||||||||||||
Mar-01 | 3 | N/A | 7,121 | 0 | Aging to 3-4 mo. Age group & Inflation | ||||||||||||||||||||||||
Apr-01 | 4 | N/A | 7,157 | 0 | Inflation | ||||||||||||||||||||||||
5/20/01 | Adjuster sets up reserve | 5 | 30,000 | 0 | This is below the Effective Threshold** | ||||||||||||||||||||||||
May-01 | 5 | 30,000 | 8,391 | 0 | Actuarial review & Aging to 5-6 mo. Age group | ||||||||||||||||||||||||
Jun-01 | 6 | 30,000 | 8,433 | 0 | Inflation | ||||||||||||||||||||||||
July-01 | 7 | 30,000 | 9,789 | 0 | Aging to 7-12 mo. Age group & Inflation | ||||||||||||||||||||||||
Aug-01 | 8/10/01 | Adjuster revises estimate | 8 8 | 50,000 50,000 | 10,250 | 0 0 | This is below the Effective Threshold** Actuarial review revised Averages | ||||||||||||||||||||||
Sep-01 | 9 | 50,000 | 10,301 | 0 | Inflation | ||||||||||||||||||||||||
10/25/01 | Adjuster revises estimate | 10 | 70,000 | 0 | ANCR Factor for 7-12 mo. Age group = 1.25 | ||||||||||||||||||||||||
Oct-01 | 10 | 70,000 | 87,500 | 0 | (70,000) X (1.25) is greater than 75,000 | ||||||||||||||||||||||||
Nov-01 | 11 | 70,000 | 87,500 | 0 | Inflation NOT applied to adjuster-set reserves | ||||||||||||||||||||||||
Dec-01 | 12 | 70,000 | 87,500 | 0 | |||||||||||||||||||||||||
Jan-02 | 13 | 70,000 | 80,500 | 0 | ANCR Factor for 13-24 mo. Age group = 1.15 | ||||||||||||||||||||||||
Feb-02 | 14 | 70,000 | 80,500 | 0 | (70,000) X (1.15) is still greater than 75,000 | ||||||||||||||||||||||||
3/10/02 | Adjuster revises estimate | 15 | 80,000 | 0 | |||||||||||||||||||||||||
Mar-02 | 15 | 80,000 | 92,000 | 0 | (80,000) X (1.15) | ||||||||||||||||||||||||
Apr-02 | 16 | 80,000 | 92,000 | 0 | |||||||||||||||||||||||||
May-02 | 17 | 80,000 | 88,000 | 0 | Actuarial review revised ANCR Factor to 1.10 | ||||||||||||||||||||||||
Jun-02 | 18 | 80,000 | 88,000 | 0 | (80,000) X (1.10) | ||||||||||||||||||||||||
7/15/02 | Claim is Paid | 19 | 90,000 | 90,000 | |||||||||||||||||||||||||
Jul-02 | 19 | N/A | 0 | 90,000 | Claim is Closed |
* | Age = [(# days since accident) / (30 days)] rounded up to the next whole number | |
** | Effective threshold is (75,000) / (ANCR factor for age of claim) |
Exhibit 6
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Countrywide Personal Auto Bodily Injury
RECORDED FEATURE COUNT
Lag Quarters* | Incremental % | Cumulative % | ||||||
Lag 0 | 82.4 | % | 82.4 | % | ||||
Lag 1 | 13.2 | % | 95.6 | % | ||||
Lags 2-3 | 2.4 | % | 98.0 | % | ||||
Lags 4-6 | 1.1 | % | 99.1 | % | ||||
Lags 7-9 | 0.6 | % | 99.7 | % | ||||
Lags 10+ | 0.3 | % | 100.0 | % |
* | Record Quarter = Accident Quarter Plus Lag |
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• | Determine Progressive’s estimated portion of the assigned risk pool by multiplying our projected market share by the estimated future size of the assigned risk pool in that state | |
• | Reduce this by any credits a state may allow such as voluntarily writing policies that would have otherwise been considered assigned risk-type business | |
• | Estimate the operating loss that we expect to incur from this business |
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2006 Personal Auto BI Loss Reserve Segments
![(MAP)](https://capedge.com/proxy/8-K/0000950152-06-005401/l20791al2079107.gif)
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1. | Amount Paid, in which we organize the total loss dollars paid by accident period and age of development into a triangular format and project them to estimated ultimate amounts. We base our selections of future loss development largely on the historical development of prior periods. |
2. | Average Paid, in which we organize the paid severity (average amount paid per feature) by accident period and age of development into a triangular format and project the severities to estimated ultimate levels. Ultimate loss amounts are then calculated as the ultimate severities multiplied by the estimated ultimate number of features to be paid. |
3. | Bornhuetter-Ferguson Paid, which uses the paid loss development pattern to determine the percent unpaid. We apply the percent unpaid to the expected ultimate loss amount to arrive at the expected unpaid amount, which is added to actual losses paid-to-date. |
4. | Amount Incurred, in which we organize the total loss dollars incurred by accident period and age of development into a triangular format and project them to estimated ultimate amounts. We base our future loss development largely on the historical development of prior periods. |
5. | Average Incurred, in which we organize the incurred severity (average amount incurred per feature) by accident period and age of development into a triangular format and project the severities to estimated ultimate levels. Ultimate loss amounts are then calculated as the ultimate severities multiplied by the estimated ultimate number of features to be paid. |
6. | Bornhuetter-Ferguson Incurred, which uses the incurred loss development pattern to determine the percent not yet recorded. We apply the percent unrecorded to the expected ultimate losses to arrive at the expected unrecorded amount, which is added to actual losses incurred-to-date. |
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• | Analysis of salvage and subrogation recoveries |
• | Analysis of IBNR reserves |
• | Additional segmentation |
• | Controls and procedures |
• | We now individually analyze each state’s personal auto bodily injury loss and LAE reserves. | ||
• | New regions were created for the states of Michigan and New York. | ||
• | We expanded the segmentation of personal auto uninsured/underinsured motorist bodily injury and property damage loss reserves by separately reviewing six additional states, and by splitting the remaining states into the six geographic regions of the country. | ||
• | We review the lower and upper limits reserves separately for more of the personal auto bodily injury and uninsured/underinsured motorist bodily injury segments. | ||
• | For commercial auto bodily injury loss reserves, we now review 11 states individually, with three of those further segmented into regions. |
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• | Additional Needed Case Reserves (ANCR):An actuarially determined reserve intended to cover expected future emergence and development of claims above the threshold. | ||
• | Adjuster-set reserves:The claims adjuster’s best estimate of how much a specific claim will cost. Only claims estimates above a specified threshold are included in financial reserves. All adjuster estimates are included in the actuarial reserve analyses. | ||
• | Average reserves: When the adjuster estimate for a feature is below a predetermined threshold, the financial case reserve is the average reserve. These |
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are determined by the loss reserving area and vary by segment. Within each segment, they may also vary by age (months since the accident occurred), policy limit, and geographic area. | |||
• | Financial reserves:The case reserves carried on the Company’s financial records. Below a predetermined dollar threshold, the average reserve developed by the loss reserving area is used. For claims in excess of the threshold, adjuster-set reserves are used. |
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Total Loss Adjustment Expenses (LAE) =
[Defense and Cost Containment (DCC) expenses] + [Adjusting & Other (A&O) expenses]
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REPORT ON LOSS RESERVING PRACTICES
APPENDIX
June 2006
Appendix
Case Studies
Section VII – Loss Reserve Review | ||||
Introduction | 1 | |||
Exhibits A – E | 3 | |||
Exhibit A – Accident Period Analysis | 10 | |||
Exhibit B – Accident Period Average Incurred Loss Development | 24 | |||
Exhibit C – Record Period Analysis | 29 | |||
Exhibit D – Summary of Estimated IBNR | 32 | |||
Exhibit E – IBNR Analysis | 37 | |||
Section VIII – Loss Adjustment Expense Reserve Review | ||||
Introduction | 42 | |||
Exhibit DCC – Defense and Cost Containment Expense Reserve Analysis | 44 | |||
Total DCC Expense Analysis | 45 | |||
DCC Expense Analysis by Component | 51 | |||
Other Parameters | 54 | |||
Exhibit ADJ – Adjusting and Other Expense Reserve Analysis | 56 |
01P00102B (06/06) | Copyright © Progressive Casualty Insurance Company. All Rights Reserved. |
• | Case Reserves can be revised by changing: |
o | Average reserves, which are applied to open features below the threshold | |||
o | ANCR factors, which are applied to adjuster-set reserves on open features above the threshold | |||
o | Theinflation factor, which is applied to average reserves in months following a review |
• | IBNR Reserves can be revised by changing: |
o | IBNR factors, which are applied to trailing periods of earned premium |
Type of Loss Reserve | Claims Data Organized by | |
Total (Case + IBNR) | Accident Period | |
Case | Record Period | |
IBNR | Record within Accident Period |
[Required (or Indicated) Loss Reserves] =
[Total Indicated (or Selected or Estimated) Ultimate Losses] –
[Total Paid Losses]
[Loss Reserve Adequacy] =
[Carried (or Held) Loss Reserves] –
[Required (or Indicated) Loss Reserves]
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Exhibit B–Accident Period Average Incurred Loss Development
Exhibit C–Record Period Analysis
Exhibit D–Summary of Estimated IBNR
Exhibit E(3 pages) –IBNR Analysis
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ACCIDENT PERIOD ANALYSIS
(1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | |||||||||||||||||||||||||||||||||||||||||||||
Accident | Paid | Avg. Paid | BF Paid | Incurred | Avg. Incurred | BF Incurred | Adj. Inc. @ | Pd. Loss @ | Indicated | ||||||||||||||||||||||||||||||||||||||||||||
Semesters | Projection | Projection | Method | Projection | Projection | Method | 12/31/2004 | 12/31/2004 | Ultimate | ||||||||||||||||||||||||||||||||||||||||||||
Ending | Ult ($000) | Ult ($000) | Ult ($000) | Ult ($000) | Ult ($000) | Ult ($000) | ($000) | ($000) | Loss ($000) | ||||||||||||||||||||||||||||||||||||||||||||
PRIOR 3 yrs | 35,427 | 35,385 | 35,427 | 35,395 | 35,347 | 35,395 | 35,373 | 34,937 | 35,379 | ||||||||||||||||||||||||||||||||||||||||||||
Jun-2001 | 10,930 | 10,940 | 10,931 | 11,193 | 11,170 | 11,193 | 11,111 | 10,434 | 11,186 | ||||||||||||||||||||||||||||||||||||||||||||
Dec-2001 | 13,257 | 13,163 | 13,254 | 13,249 | 13,273 | 13,250 | 13,087 | 12,197 | 13,257 | ||||||||||||||||||||||||||||||||||||||||||||
Jun-2002 | 13,534 | 13,781 | 13,603 | 14,012 | 13,985 | 14,141 | 13,738 | 11,955 | 14,046 | ||||||||||||||||||||||||||||||||||||||||||||
Dec-2002 | 9,962 | 9,868 | 9,954 | 10,324 | 10,304 | 10,324 | 10,117 | 8,248 | 10,318 | ||||||||||||||||||||||||||||||||||||||||||||
Jun-2003 | 9,485 | 9,492 | 9,435 | 10,149 | 10,100 | 10,127 | 9,888 | 7,014 | 10,125 | ||||||||||||||||||||||||||||||||||||||||||||
Dec-2003 | 7,187 | 6,928 | 8,001 | 8,181 | 8,129 | 8,216 | 7,891 | 4,238 | 8,175 | ||||||||||||||||||||||||||||||||||||||||||||
Jun-2004 | 9,689 | 8,667 | 9,207 | 8,842 | 8,727 | 8,846 | 8,529 | 3,221 | 8,805 | ||||||||||||||||||||||||||||||||||||||||||||
Dec-2004 | 11,020 | 12,069 | 10,285 | 9,665 | 9,673 | 9,748 | 8,107 | 1,357 | 9,695 | ||||||||||||||||||||||||||||||||||||||||||||
Total | 120,492 | 120,293 | 120,095 | 121,011 | 120,708 | 121,241 | 117,840 | 93,602 | 120,987 | ||||||||||||||||||||||||||||||||||||||||||||
Paid Loss | 93,602 | 93,602 | 93,602 | 93,602 | 93,602 | 93,602 | 93,602 | ||||||||||||||||||||||||||||||||||||||||||||||
Required Reserves | 26,890 | 26,691 | 26,494 | 27,409 | 27,106 | 27,639 | Required Reserves | 27,385 | |||||||||||||||||||||||||||||||||||||||||||||
Held Reserves | 28,038 | 28,038 | 28,038 | 28,038 | 28,038 | 28,038 | Held Reserves | 28,038 | |||||||||||||||||||||||||||||||||||||||||||||
Reserve Adequacy | 1,148 | 1,347 | 1,545 | 629 | 932 | 400 | Reserve Adequacy | 2.4 | % | 654 | |||||||||||||||||||||||||||||||||||||||||||
Average Last 4 | 3,132 | (2,025 | ) | 3,261 | 3,835 | ||||||||||||||||||||||||||||||||||||||||||||||||
2nd to Last Diagonal | 2,865 | (3,318 | ) | 624 | 1,951 | ||||||||||||||||||||||||||||||||||||||||||||||||
Last Diagonal | (7,001 | ) | (6,264 | ) | 3,470 | 3,154 | |||||||||||||||||||||||||||||||||||||||||||||||
(10) | (11) | (12) | (13) | (14) | (15) | (16) | (17) | (18) | (19) | (20) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accident | Avg. Adjuster | Paid | Clsd. w/Pay | Incurred | Recorded | Indicated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Semesters | Avg. Paid | Avg. Incurred | Case Reserves | Closure Rate | CWP Rate | Ultimate | Counts | Counts | Counts | Counts | Ultimate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending | Severity | Severity | @ 6 Months | @ 6 Months | @ 6 Months | CWP Rate | Projection | Projection | Projection | Projection | Counts | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
PRIOR 3 yrs | 5,863 | 5,857 | 6,030 | 6,029 | 6,032 | 6,035 | 6,035 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-2001 | 5,796 | 5,918 | 4,207 | 33.7 | % | 26.3 | % | 37.9 | % | 1,885 | 1,886 | 1,888 | 1,887 | 1,888 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-2001 | 6,141 | 6,192 | 4,321 | 28.6 | % | 29.4 | % | 40.4 | % | 2,144 | 2,145 | 2,145 | 2,142 | 2,144 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-2002 | 6,342 | 6,436 | 5,341 | 26.1 | % | 27.6 | % | 41.3 | % | 2,132 | 2,134 | 2,175 | 2,171 | 2,173 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-2002 | 5,404 | 5,643 | 5,291 | 32.3 | % | 26.3 | % | 39.8 | % | 1,821 | 1,822 | 1,827 | 1,825 | 1,826 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-2003 | 6,280 | 6,682 | 5,462 | 30.8 | % | 30.7 | % | 41.8 | % | 1,483 | 1,486 | 1,514 | 1,509 | 1,512 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-2003 | 5,686 | 6,671 | 5,213 | 26.4 | % | 29.2 | % | 42.5 | % | 1,198 | 1,196 | 1,222 | 1,215 | 1,219 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-2004 | 7,449 | 7,501 | 4,606 | 23.5 | % | 32.4 | % | 47.2 | % | 1,080 | 1,074 | 1,179 | 1,148 | 1,164 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-2004 | 8,940 | 7,165 | 4,153 | 21.5 | % | 28.7 | % | 43.1 | % | 1,177 | 1,104 | 1,449 | 1,379 | 1,350 | |||||||||||||||||||||||||||||||||||||||||||||||||||
18,950 | 18,876 | 19,431 | 19,311 | 19,309 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accident | (21) | (22) | (23) | (24) | (25) | (26) | (27) | (28) | (29) | (30) | |||||||||||||||||||||||||||||||||||||||||||||||||
Semesters | Ultimate | Change In | Ultimate | Change In | Pure | Loss | Premium | Earned | Change In | ||||||||||||||||||||||||||||||||||||||||||||||||||
Ending | Severity | Severity | Frequency | Frequency | Premium | Ratio | ($000) | Exposures | Avg EP | Avg EP | |||||||||||||||||||||||||||||||||||||||||||||||||
PRIOR 3 yrs | 5,862 | 3.22 | % | 189 | 49.1 | % | 72,054 | 187,526 | 384 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-2001 | 5,926 | 3.59 | % | 212 | 64.6 | % | 17,325 | 52,642 | 329 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-2001 | 6,185 | 4.4 | % | 3.41 | % | -4.8 | % | 211 | 70.7 | % | 18,744 | 62,827 | 298 | -9.3 | % | ||||||||||||||||||||||||||||||||||||||||||||
Jun-2002 | 6,464 | 4.5 | % | 3.46 | % | 1.5 | % | 224 | 79.5 | % | 17,670 | 62,734 | 282 | -5.6 | % | ||||||||||||||||||||||||||||||||||||||||||||
Dec-2002 | 5,650 | -12.6 | % | 3.24 | % | -6.3 | % | 183 | 65.9 | % | 15,652 | 56,287 | 278 | -1.3 | % | ||||||||||||||||||||||||||||||||||||||||||||
Jun-2003 | 6,699 | 18.6 | % | 2.97 | % | -8.4 | % | 199 | 68.6 | % | 14,749 | 50,881 | 290 | 4.2 | % | ||||||||||||||||||||||||||||||||||||||||||||
Dec-2003 | 6,709 | 0.2 | % | 2.56 | % | -13.9 | % | 172 | 56.2 | % | 14,557 | 47,667 | 305 | 5.3 | % | ||||||||||||||||||||||||||||||||||||||||||||
Jun-2004 | 7,568 | 12.8 | % | 2.60 | % | 1.6 | % | 197 | 61.9 | % | 14,233 | 44,804 | 318 | 4.0 | % | ||||||||||||||||||||||||||||||||||||||||||||
Dec-2004 | 7,182 | -5.1 | % | 2.59 | % | -0.3 | % | 186 | 60.0 | % | 16,162 | 52,158 | 310 | -2.5 | % | ||||||||||||||||||||||||||||||||||||||||||||
196 | 60.1 | % | 201,146 | 617,528 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Chg Dec 04 vs. Dec 03 | Chg Dec 04 vs. Dec 03 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4 Point Ann Exp Trend | 6.8 | % | -7.6 | % | -1.4 | % | 4.9 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
8 Point Ann Exp Trend | 6.5 | % | 7.0% | -10.5 | % | 1.3% | -4.7 | % | 0.4 | % |
Page 3
Semiannual | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accident | AVERAGE INCURRED LOSSES — ACCIDENT PERIOD ANALYSIS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Periods | Ultimate | Ultimate | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | Severity | Loss ($000) | ||||||||||||||||||||||||||||||||||||||||||||||||
Jun-98 | 5,790 | 5,876 | 5,928 | 5,553 | 5,688 | 5,796 | 5,792 | 5,988 | 6,019 | 5,999 | 5,969 | 5,960 | 5,962 | 5,950 | 5,950 | 3,540 | ||||||||||||||||||||||||||||||||||||||||||||||||
Dec-98 | 5,365 | 5,961 | 5,385 | 5,730 | 5,636 | 5,514 | 5,782 | 5,928 | 5,884 | 5,970 | 5,939 | 5,981 | 5,981 | 5,969 | 5,969 | 4,262 | ||||||||||||||||||||||||||||||||||||||||||||||||
Jun-99 | 6,087 | 6,084 | 5,795 | 6,852 | 6,652 | 6,833 | 6,832 | 6,825 | 6,882 | 6,907 | 6,900 | 6,912 | 6,913 | 6,899 | 6,899 | 5,333 | ||||||||||||||||||||||||||||||||||||||||||||||||
Dec-99 | 5,031 | 5,470 | 5,558 | 5,623 | 5,774 | 5,974 | 6,084 | 6,102 | 6,139 | 6,230 | 6,160 | 6,170 | 6,171 | 6,159 | 6,159 | 7,151 | ||||||||||||||||||||||||||||||||||||||||||||||||
Jun-00 | 4,778 | 5,342 | 5,383 | 5,465 | 5,489 | 5,617 | 5,653 | 5,661 | 5,651 | 5,710 | 5,677 | 5,687 | 5,688 | 5,677 | 5,677 | 7,448 | ||||||||||||||||||||||||||||||||||||||||||||||||
Dec-00 | 4,153 | 4,765 | 4,971 | 4,988 | 5,030 | 4,974 | 5,078 | 5,124 | 5,118 | 5,174 | 5,145 | 5,154 | 5,154 | 5,144 | 5,144 | 7,613 | ||||||||||||||||||||||||||||||||||||||||||||||||
Jun-01 | 4,315 | 5,241 | 5,457 | 5,704 | 5,786 | 5,787 | 5,822 | 5,865 | 5,889 | 5,953 | 5,919 | 5,929 | 5,930 | 5,918 | 5,918 | 11,170 | ||||||||||||||||||||||||||||||||||||||||||||||||
Dec-01 | 4,830 | 5,839 | 5,985 | 5,975 | 6,088 | 6,058 | 6,068 | 6,136 | 6,161 | 6,228 | 6,193 | 6,204 | 6,205 | 6,192 | 6,192 | 13,273 | ||||||||||||||||||||||||||||||||||||||||||||||||
Jun-02 | 6,277 | 6,306 | 6,180 | 6,140 | 6,283 | 6,269 | 6,307 | 6,378 | 6,403 | 6,473 | 6,436 | 6,448 | 6,449 | 6,436 | 6,436 | 13,985 | ||||||||||||||||||||||||||||||||||||||||||||||||
Dec-02 | 5,440 | 5,411 | 5,274 | 5,440 | 5,456 | 5,497 | 5,530 | 5,592 | 5,614 | 5,675 | 5,643 | 5,653 | 5,654 | 5,643 | 5,643 | 10,304 | ||||||||||||||||||||||||||||||||||||||||||||||||
Jun-03 | 6,155 | 6,126 | 6,269 | 6,366 | 6,461 | 6,509 | 6,548 | 6,622 | 6,648 | 6,721 | 6,683 | 6,694 | 6,695 | 6,682 | 6,682 | 10,100 | ||||||||||||||||||||||||||||||||||||||||||||||||
Dec-03 | 5,657 | 5,850 | 6,189 | 6,356 | 6,451 | 6,499 | 6,538 | 6,611 | 6,638 | 6,710 | 6,672 | 6,684 | 6,685 | 6,671 | 6,671 | 8,129 | ||||||||||||||||||||||||||||||||||||||||||||||||
Jun-04 | 5,513 | 6,756 | 6,959 | 7,147 | 7,253 | 7,307 | 7,351 | 7,434 | 7,463 | 7,545 | 7,502 | 7,515 | 7,516 | 7,501 | 7,501 | 8,727 | ||||||||||||||||||||||||||||||||||||||||||||||||
Dec-04 | 5,289 | 6,453 | 6,647 | 6,826 | 6,928 | 6,979 | 7,021 | 7,100 | 7,129 | 7,206 | 7,166 | 7,178 | 7,179 | 7,165 | 7,165 | 9,673 | ||||||||||||||||||||||||||||||||||||||||||||||||
1-2 | 2-3 | 3-4 | 4-5 | 5-6 | 6-7 | 7-8 | 8-9 | 9-10 | 10-11 | 11-12 | 12-13 | 13-14 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-98 | 1.015 | 1.009 | 0.937 | 1.024 | 1.019 | 0.999 | 1.034 | 1.005 | 0.997 | 0.995 | 0.998 | 1.000 | 0.998 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-98 | 1.111 | 0.903 | 1.064 | 0.984 | 0.978 | 1.049 | 1.025 | 0.993 | 1.015 | 0.995 | 1.007 | 1.000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-99 | 1.000 | 0.953 | 1.182 | 0.971 | 1.027 | 1.000 | 0.999 | 1.008 | 1.004 | 0.999 | 1.002 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-99 | 1.087 | 1.016 | 1.012 | 1.027 | 1.035 | 1.018 | 1.003 | 1.006 | 1.015 | 0.989 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-00 | 1.118 | 1.008 | 1.015 | 1.004 | 1.023 | 1.006 | 1.001 | 0.998 | 1.010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-00 | 1.147 | 1.043 | 1.003 | 1.009 | 0.989 | 1.021 | 1.009 | 0.999 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-01 | 1.215 | 1.041 | 1.045 | 1.014 | 1.000 | 1.006 | 1.007 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-01 | 1.209 | 1.025 | 0.998 | 1.019 | 0.995 | 1.002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-02 | 1.005 | 0.980 | 0.993 | 1.023 | 0.998 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-02 | 0.995 | 0.975 | 1.031 | 1.003 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-03 | 0.995 | 1.023 | 1.016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-03 | 1.034 | 1.058 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Jun-04 | 1.225 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss Development Factors | Adequacy | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Last 4 | 3,835 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2nd to Last Diagonal | 1,951 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Last Diagonal | 3,154 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selected Avg Inc Indication | 932 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Selected Ultimate Indication | 654 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Avg Last 5 x HiLo | 1.011 | 1.009 | 1.015 | 1.014 | 0.998 | 1.010 | 1.004 | 1.001 | 1.010 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Avg Last 4 | 1.062 | 1.009 | 1.010 | 1.015 | 0.996 | 1.009 | 1.005 | 1.003 | 1.011 | 0.994 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prior Sel @ 6 Mth | 1.014 | 1.001 | 1.022 | 1.016 | 1.002 | 1.008 | 1.003 | 1.004 | 1.007 | 0.997 | 1.001 | 1.002 | 1.000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Prior Sel @ 3 Mth | 1.130 | 1.030 | 1.007 | 1.021 | 1.007 | 1.011 | 1.009 | 1.006 | 0.997 | 1.006 | 0.998 | 1.000 | 1.000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Select | 1.220 | 1.030 | 1.027 | 1.015 | 1.007 | 1.006 | 1.011 | 1.004 | 1.011 | 0.994 | 1.002 | 1.000 | 0.998 | Tail | ||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative | 1.355 | 1.110 | 1.078 | 1.050 | 1.034 | 1.027 | 1.020 | 1.009 | 1.005 | 0.994 | 1.000 | 0.998 | 0.998 | 1.000 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Dec-04 | Jun-04 | Dec-03 | Jun-03 | Dec-02 | Jun-02 | Dec-01 | Jun-01 | Dec-00 | Jun-00 | Dec-99 | Jun-99 | Dec-98 | Jun-98 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Ult. Severity | 7,165 | 7,501 | 6,671 | 6,682 | 5,643 | 6,436 | 6,192 | 5,918 | 5,144 | 5,677 | 6,159 | 6,899 | 5,969 | 5,950 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Ult. Counts | 1,350 | 1,164 | 1,219 | 1,512 | 1,826 | 2,173 | 2,144 | 1,888 | 1,480 | 1,312 | 1,161 | 773 | 714 | 595 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Ultimate Loss | 9,673 | 8,727 | 8,129 | 10,100 | 10,304 | 13,985 | 13,273 | 11,170 | 7,613 | 7,448 | 7,151 | 5,333 | 4,262 | 3,540 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Ultimate LR | 59.9 | % | 61.3 | % | 55.8 | % | 68.5 | % | 65.8 | % | 79.1 | % | 70.8 | % | 64.5 | % | 46.2 | % | 48.1 | % | 54.5 | % | 53.3 | % | 48.4 | % | 43.3 | % | ||||||||||||||||||||||||||||||||||||
Ultimate PP | 185 | 195 | 171 | 198 | 183 | 223 | 211 | 212 | 168 | 185 | 215 | 213 | 191 | 167 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Page 4
(1) | (2) | (4) | (5) | (7) | (8) | (9) | ||||||||||||||||||||||||||||||||||||||||||||||||
Record | Paid | Avg. Paid | Incurred | Avg. Incurred | Adj. Inc. @ | Pd. Loss @ | Indicated | |||||||||||||||||||||||||||||||||||||||||||||||
Semesters | Projection | Projection | Projection | Projection | 12/31/2004 | 12/31/2004 | Ultimate | |||||||||||||||||||||||||||||||||||||||||||||||
Ending | Ult ($000) | Ult ($000) | Ult ($000) | Ult ($000) | ($000) | ($000) | Loss ($000) | |||||||||||||||||||||||||||||||||||||||||||||||
PRIOR 3 yrs | 34,764 | 34,720 | 34,729 | 34,727 | 34,672 | 34,324 | 34,729 | |||||||||||||||||||||||||||||||||||||||||||||||
Jun-2001 | 9,723 | 9,720 | 9,934 | 9,944 | 9,867 | 9,368 | 9,937 | |||||||||||||||||||||||||||||||||||||||||||||||
Dec-2001 | 12,772 | 12,662 | 12,658 | 12,724 | 12,573 | 11,966 | 12,681 | |||||||||||||||||||||||||||||||||||||||||||||||
Jun-2002 | 14,159 | 14,183 | 14,656 | 14,692 | 14,440 | 12,747 | 14,666 | |||||||||||||||||||||||||||||||||||||||||||||||
Dec-2002 | 10,455 | 10,318 | 10,588 | 10,658 | 10,482 | 8,918 | 10,611 | |||||||||||||||||||||||||||||||||||||||||||||||
Jun-2003 | 10,108 | 9,948 | 10,923 | 10,955 | 10,802 | 7,770 | 10,928 | |||||||||||||||||||||||||||||||||||||||||||||||
Dec-2003 | 7,063 | 6,813 | 8,067 | 8,067 | 7,995 | 4,535 | 8,067 | |||||||||||||||||||||||||||||||||||||||||||||||
Jun-2004 | 8,484 | 8,264 | 8,584 | 8,727 | 8,771 | 3,565 | 8,631 | |||||||||||||||||||||||||||||||||||||||||||||||
Dec-2004 | 11,901 | 12,037 | 9,486 | 9,161 | 9,597 | 1,768 | 9,350 | |||||||||||||||||||||||||||||||||||||||||||||||
Total | 119,430 | 118,664 | 119,627 | 119,656 | 119,199 | 94,961 | 119,577 | |||||||||||||||||||||||||||||||||||||||||||||||
Paid Loss | 94,961 | 94,961 | 94,961 | 94,961 | 94,961 | |||||||||||||||||||||||||||||||||||||||||||||||||
Required Reserves | 24,468 | 23,703 | 24,666 | 24,694 | Required Reserves | 24,615 | ||||||||||||||||||||||||||||||||||||||||||||||||
Held Reserves | 23,587 | 23,587 | 23,587 | 23,587 | Held Reserves | 23,587 | ||||||||||||||||||||||||||||||||||||||||||||||||
Reserve Adequacy | (882 | ) | (116 | ) | (1,079 | ) | (1,108 | ) | Reserve Adequacy | -4.2 | % | (1,029 | ) | |||||||||||||||||||||||||||||||||||||||||
Average Last 4 | 1,021 | (2,991 | ) | 559 | 1,378 | |||||||||||||||||||||||||||||||||||||||||||||||||
2nd to Last Diagonal | 1,284 | (3,280 | ) | (1,436 | ) | 242 | ||||||||||||||||||||||||||||||||||||||||||||||||
Last Diagonal | (8,089 | ) | (7,008 | ) | 1,646 | 1,614 | ||||||||||||||||||||||||||||||||||||||||||||||||
(10) | (11) | (12) | (13) | (14) | (15) | ||||||||||||||||||||||||||||
Incurred | Indicated | ||||||||||||||||||||||||||||||||
Record Semesters | Avg. Paid | Avg. Incurred | Ultimate | Change In | Counts | Ultimate | |||||||||||||||||||||||||||
Ending | Severity | Severity | Severity | Severity | Projection | Counts | |||||||||||||||||||||||||||
PRIOR 3 yrs | 5,867 | 5,868 | 5,867 | 5,919 | 5,919 | ||||||||||||||||||||||||||||
Jun-2001 | 5,287 | 5,409 | 5,404 | 1,839 | 1,839 | ||||||||||||||||||||||||||||
Dec-2001 | 6,262 | 6,293 | 6,265 | 16.0 | % | 2,024 | 2,024 | ||||||||||||||||||||||||||
Jun-2002 | 6,438 | 6,669 | 6,651 | 6.2 | % | 2,205 | 2,205 | ||||||||||||||||||||||||||
Dec-2002 | 5,371 | 5,548 | 5,521 | -17.0 | % | 1,922 | 1,922 | ||||||||||||||||||||||||||
Jun-2003 | 6,173 | 6,798 | 6,770 | 22.8 | % | 1,614 | 1,614 | ||||||||||||||||||||||||||
Dec-2003 | 5,605 | 6,637 | 6,618 | -2.1 | % | 1,219 | 1,219 | ||||||||||||||||||||||||||
Jun-2004 | 7,118 | 7,517 | 7,333 | 12.0 | % | 1,177 | 1,177 | ||||||||||||||||||||||||||
Dec-2004 | 9,259 | 7,047 | 6,622 | -3.5 | % | 1,412 | 1,412 | ||||||||||||||||||||||||||
Chg Dec 04 | |||||||||||||||||||||||||||||||||
4 Point Ann Exp Trend | 0.7 | % | vs. Dec 03 | 19,331 | 19,331 | ||||||||||||||||||||||||||||
8 Point Ann Exp Trend | 5.9 | % | 0.1% |
Page 5
(1) | (2) | (3) | (4) | (5) | (6) | (7) | (8) | (9) | (10) | (11) | ||||||||||||||||||||||||||||||||
Calculated | Quarterly | IBNR | 6-mo emerg | |||||||||||||||||||||||||||||||||||||||
Prior Review | PP using | Rec w/n Acc | Total | Indicated | Current | Emerged | Indicated | |||||||||||||||||||||||||||||||||||
Future | 6 month | Periods | Future | Earned | Earned | Indicated | IBNR | IBNR | Since | IBNR | ||||||||||||||||||||||||||||||||
Pure Premium | Emerged | Ending | Pure Prem | Exposures | Premium | IBNR | Factors | Factors | Jun-2004 | Factors | ||||||||||||||||||||||||||||||||
1.17 | 0.89 | Sep-2000 | 0.60 | 22,103 | 8,156,777 | 13,163 | 0.2 | % | 6,110 | 0.2 | % | |||||||||||||||||||||||||||||||
1.65 | 1.22 | Dec-2000 | 0.78 | 23,265 | 8,307,946 | 18,249 | 0.2 | % | 6,110 | 0.3 | % | |||||||||||||||||||||||||||||||
2.12 | 0.87 | Mar-2001 | 0.98 | 24,674 | 8,417,123 | 24,058 | 0.3 | % | 1.1 | % | 17,913 | 0.5 | % | |||||||||||||||||||||||||||||
2.43 | 1.05 | Jun-2001 | 1.16 | 27,968 | 8,907,753 | 32,482 | 0.4 | % | 1.1 | % | 17,913 | 0.6 | % | |||||||||||||||||||||||||||||
2.74 | 1.70 | Sep-2001 | 1.35 | 30,751 | 9,331,069 | 41,499 | 0.4 | % | 1.1 | % | 17,913 | 0.6 | % | |||||||||||||||||||||||||||||
3.05 | 1.80 | Dec-2001 | 1.54 | 32,076 | 9,413,188 | 49,381 | 0.5 | % | 1.1 | % | 17,913 | 0.7 | % | |||||||||||||||||||||||||||||
3.36 | 1.93 | Mar-2002 | 1.73 | 31,817 | 9,094,404 | 55,086 | 0.6 | % | 2.1 | % | 30,074 | 0.9 | % | |||||||||||||||||||||||||||||
3.80 | 2.10 | Jun-2002 | 2.15 | 30,918 | 8,575,229 | 66,559 | 0.8 | % | 2.1 | % | 30,074 | 1.1 | % | |||||||||||||||||||||||||||||
4.24 | 2.68 | Sep-2002 | 2.58 | 29,011 | 7,995,863 | 74,802 | 0.9 | % | 2.1 | % | 30,074 | 1.3 | % | |||||||||||||||||||||||||||||
4.69 | 3.13 | Dec-2002 | 3.01 | 27,276 | 7,655,772 | 82,052 | 1.1 | % | 2.1 | % | 30,074 | 1.5 | % | |||||||||||||||||||||||||||||
5.14 | 3.62 | Mar-2003 | 3.44 | 26,502 | 7,425,622 | 91,225 | 1.2 | % | 3.1 | % | 45,060 | 1.8 | % | |||||||||||||||||||||||||||||
5.69 | 4.11 | Jun-2003 | 4.00 | 24,379 | 7,323,851 | 97,579 | 1.3 | % | 3.0 | % | 39,863 | 1.9 | % | |||||||||||||||||||||||||||||
6.81 | 5.14 | Sep-2003 | 4.78 | 24,375 | 7,367,666 | 116,551 | 1.6 | % | 4.1 | % | 37,814 | 2.1 | % | |||||||||||||||||||||||||||||
7.58 | 5.64 | Dec-2003 | 5.47 | 23,292 | 7,189,243 | 127,483 | 1.8 | % | 4.5 | % | 82,033 | 2.9 | % | |||||||||||||||||||||||||||||
8.95 | 6.33 | Mar-2004 | 6.59 | 22,123 | 7,035,903 | 145,689 | 2.1 | % | 4.9 | % | 160,243 | 4.3 | % | |||||||||||||||||||||||||||||
11.31 | 9.00 | Jun-2004 | 8.92 | 22,681 | 7,197,385 | 202,219 | 2.8 | % | 5.7 | % | 570,118 | 10.7 | % | |||||||||||||||||||||||||||||
15.82 | 13.83 | Sep-2004 | 11.74 | 25,217 | 7,724,378 | 295,929 | 3.8 | % | 6.9 | % | ||||||||||||||||||||||||||||||||
35.65 | 34.05 | Dec-2004 | 33.52 | 26,942 | 8,437,252 | 903,099 | 10.7 | % | 11.6 | % | ||||||||||||||||||||||||||||||||
2,560,917 | 475,370 | 145,556,425 | 2,437,105 | Total | 1,139,299 | |||||||||||||||||||||||||||||||||||||
Zero Runoff | IBNR Reserves ($000) | 6 Mth Runoff | ||||||||||||||||||||||||||||||||||||||||
2,437 | Indicated | 2,377 | ||||||||||||||||||||||||||||||||||||||||
4,452 | Held | 4,196 | ||||||||||||||||||||||||||||||||||||||||
2,015 | Adequacy | 1,819 | ||||||||||||||||||||||||||||||||||||||||
Page 6
Page 1
Quarterly | ||||||||||||||||||||||||||||||||||||||||
Rec w/n Acc | ||||||||||||||||||||||||||||||||||||||||
Periods | INCURRED LOSSES QUARTERLY LAG 1 - IBNR ANALYSIS | |||||||||||||||||||||||||||||||||||||||
Ending | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | Ultimate | ||||||||||||||||||||||||||||||
Sep-00 | 496,686 | 518,026 | 470,878 | 478,747 | 444,503 | 444,244 | 434,161 | 423,421 | 421,999 | 402,689 | ||||||||||||||||||||||||||||||
Dec-00 | 563,065 | 602,907 | 574,026 | 582,766 | 533,957 | 521,264 | 519,834 | 510,883 | 508,050 | 496,017 | ||||||||||||||||||||||||||||||
Mar-01 | 701,628 | 724,404 | 683,572 | 722,382 | 756,639 | 873,140 | 849,821 | 858,810 | 866,299 | 841,951 | ||||||||||||||||||||||||||||||
Jun-01 | 926,112 | 992,882 | 936,052 | 1,074,640 | 1,040,663 | 990,419 | 882,542 | 936,217 | 922,570 | 893,998 | ||||||||||||||||||||||||||||||
Sep-01 | 762,137 | 742,380 | 710,141 | 696,527 | 614,613 | 598,305 | 587,628 | 580,404 | 575,320 | 559,296 | ||||||||||||||||||||||||||||||
Dec-01 | 1,403,988 | 1,429,926 | 1,328,895 | 1,282,623 | 1,223,390 | 1,217,221 | 1,222,239 | 1,219,462 | 1,209,300 | 1,182,188 | ||||||||||||||||||||||||||||||
Mar-02 | 1,153,489 | 1,091,243 | 941,836 | 889,421 | 866,636 | 858,661 | 874,015 | 836,479 | 848,368 | 834,987 | ||||||||||||||||||||||||||||||
Jun-02 | 1,273,559 | 1,032,051 | 895,131 | 827,142 | 819,180 | 787,061 | 741,515 | 750,787 | 725,020 | 687,127 | ||||||||||||||||||||||||||||||
Sep-02 | 950,170 | 902,377 | 796,609 | 748,899 | 725,726 | 705,040 | 698,794 | 692,021 | 674,166 | 674,166 | ||||||||||||||||||||||||||||||
Dec-02 | 945,192 | 904,793 | 884,895 | 836,910 | 796,854 | 766,037 | 749,239 | 745,902 | 745,902 | |||||||||||||||||||||||||||||||
Mar-03 | 905,649 | 794,721 | 860,296 | 820,179 | 805,707 | 803,143 | 832,359 | 833,632 | ||||||||||||||||||||||||||||||||
Jun-03 | 473,607 | 400,046 | 393,187 | 374,912 | 353,414 | 326,284 | 320,368 | |||||||||||||||||||||||||||||||||
Sep-03 | 523,663 | 444,461 | 382,911 | 458,488 | 390,422 | 372,461 | ||||||||||||||||||||||||||||||||||
Dec-03 | 772,190 | 700,711 | 604,762 | 577,760 | 524,747 | |||||||||||||||||||||||||||||||||||
Mar-04 | 553,743 | 496,540 | 466,983 | 414,268 | ||||||||||||||||||||||||||||||||||||
Jun-04 | 559,263 | 621,759 | 508,232 | |||||||||||||||||||||||||||||||||||||
Sep-04 | 673,829 | 527,186 |
0-1 | 1-2 | 2-3 | 3-4 | 4-5 | 5-6 | 6-7 | 7-8 | 8-9 | ||||||||||||||||||||||||||||||||
Sep-00 | 1.043 | 0.909 | 1.017 | 0.928 | 0.999 | 0.977 | 0.975 | 0.997 | 0.973 | |||||||||||||||||||||||||||||||
Dec-00 | 1.071 | 0.952 | 1.015 | 0.916 | 0.976 | 0.997 | 0.983 | 0.994 | 0.990 | |||||||||||||||||||||||||||||||
Mar-01 | 1.032 | 0.944 | 1.057 | 1.047 | 1.154 | 0.973 | 1.011 | 1.009 | 0.973 | |||||||||||||||||||||||||||||||
Jun-01 | 1.072 | 0.943 | 1.148 | 0.968 | 0.952 | 0.891 | 1.061 | 0.985 | 0.970 | |||||||||||||||||||||||||||||||
Sep-01 | 0.974 | 0.957 | 0.981 | 0.882 | 0.973 | 0.982 | 0.988 | 0.991 | 0.992 | |||||||||||||||||||||||||||||||
Dec-01 | 1.018 | 0.929 | 0.965 | 0.954 | 0.995 | 1.004 | 0.998 | 0.992 | 0.991 | |||||||||||||||||||||||||||||||
Mar-02 | 0.946 | 0.863 | 0.944 | 0.974 | 0.991 | 1.018 | 0.957 | 1.014 | 0.990 | |||||||||||||||||||||||||||||||
Jun-02 | 0.810 | 0.867 | 0.924 | 0.990 | 0.961 | 0.942 | 1.013 | 0.966 | 0.948 | |||||||||||||||||||||||||||||||
Sep-02 | 0.950 | 0.883 | 0.940 | 0.969 | 0.971 | 0.991 | 0.990 | 0.974 | ||||||||||||||||||||||||||||||||
Dec-02 | 0.957 | 0.978 | 0.946 | 0.952 | 0.961 | 0.978 | 0.996 | |||||||||||||||||||||||||||||||||
Mar-03 | 0.878 | 1.083 | 0.953 | 0.982 | 0.997 | 1.036 | ||||||||||||||||||||||||||||||||||
Jun-03 | 0.845 | 0.983 | 0.954 | 0.943 | 0.923 | |||||||||||||||||||||||||||||||||||
Sep-03 | 0.849 | 0.862 | 1.197 | 0.852 | ||||||||||||||||||||||||||||||||||||
Dec-03 | 0.907 | 0.863 | 0.955 | |||||||||||||||||||||||||||||||||||||
Mar-04 | 0.897 | 0.940 | ||||||||||||||||||||||||||||||||||||||
Jun-04 | 1.112 | |||||||||||||||||||||||||||||||||||||||
Straight Avg | 0.963 | 0.919 | 0.973 | 0.954 | 0.970 | 0.999 | 0.997 | 1.008 | 1.009 | |||||||||||||||||||||||||||||||
Avg x HiLo | 0.963 | 0.918 | 0.971 | 0.951 | 0.968 | 0.990 | 0.996 | 1.004 | 1.001 | |||||||||||||||||||||||||||||||
Wtd Avg All | 0.957 | 0.921 | 0.975 | 0.959 | 0.980 | 0.988 | 1.000 | 1.000 | 0.998 | |||||||||||||||||||||||||||||||
Avg Last 8 | 0.924 | 0.932 | 0.977 | 0.952 | 0.972 | 0.980 | 1.002 | 0.991 | 0.978 | |||||||||||||||||||||||||||||||
Wt Avg.8 | 0.926 | 0.931 | 0.961 | 0.959 | 0.977 | 0.980 | 1.002 | 0.991 | 0.979 | |||||||||||||||||||||||||||||||
Avg Last 4 | 0.941 | 0.912 | 1.015 | 0.932 | 0.963 | 0.987 | 0.989 | 0.986 | 0.980 | |||||||||||||||||||||||||||||||
Wt Avg.4 | 0.940 | 0.905 | 0.996 | 0.942 | 0.970 | 0.987 | 0.987 | 0.988 | 0.981 | |||||||||||||||||||||||||||||||
Select | 0.957 | 0.921 | 0.977 | 0.952 | 0.972 | 0.980 | 1.002 | 1.000 | 1.000 | |||||||||||||||||||||||||||||||
Cumulative | 0.782 | 0.817 | 0.887 | 0.908 | 0.954 | 0.982 | 1.002 | 1.000 | 1.000 | |||||||||||||||||||||||||||||||
Ultimate Loss | 527,186 | 508,232 | 414,268 | 524,747 | 372,461 | 320,368 | 833,632 | 745,902 | 674,166 | |||||||||||||||||||||||||||||||
Page 7
Page 2
Quarterly | ||||||||||||||||||||||||||||||||
Rec w/n Acc | ||||||||||||||||||||||||||||||||
Periods | INCURRED LOSSES QUARTERLY LAG 0-7 EMERGENCE - IBNR ANALYSIS | |||||||||||||||||||||||||||||||
Ending | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | ||||||||||||||||||||||||
Sep-00 | 2,618,475 | 402,689 | 137,687 | 20,484 | 35,110 | 5,112 | 24,319 | 22,365 | ||||||||||||||||||||||||
Dec-00 | 3,340,158 | 496,017 | 226,614 | 96,699 | 34,548 | 22,026 | 19,872 | 9,514 | ||||||||||||||||||||||||
Mar-01 | 3,930,469 | 841,951 | 89,797 | 359,298 | 79,781 | 80,585 | 26,712 | 17,874 | ||||||||||||||||||||||||
Jun-01 | 4,092,147 | 893,998 | 255,026 | 144,934 | 117,008 | 50,989 | 28,301 | 19,937 | ||||||||||||||||||||||||
Sep-01 | 5,225,296 | 559,296 | 185,020 | 191,422 | 36,711 | 59,504 | 107,033 | 21,442 | ||||||||||||||||||||||||
Dec-01 | 4,830,247 | 1,182,188 | 250,533 | 281,475 | 42,245 | 32,341 | 16,295 | 10,619 | ||||||||||||||||||||||||
Mar-02 | 6,405,308 | 834,987 | 128,883 | 112,328 | 34,996 | 119,103 | 89,602 | 6,863 | ||||||||||||||||||||||||
Jun-02 | 4,924,350 | 687,127 | 134,681 | 169,119 | 91,889 | (58,356 | ) | 81,906 | 14,844 | |||||||||||||||||||||||
Sep-02 | 4,186,260 | 674,166 | 139,948 | 115,327 | 17,039 | 14,286 | 13,298 | 21,573 | ||||||||||||||||||||||||
Dec-02 | 4,028,433 | 745,902 | 69,329 | 30,049 | 35,935 | 15,788 | 17,576 | 7,043 | ||||||||||||||||||||||||
Mar-03 | 4,370,268 | 833,632 | 189,272 | 37,264 | 24,374 | 16,504 | 29,907 | 15,153 | ||||||||||||||||||||||||
Jun-03 | 3,946,033 | 320,368 | 77,327 | 52,106 | 13,905 | 23,755 | 16,108 | |||||||||||||||||||||||||
Sep-03 | 3,375,799 | 372,461 | 34,944 | 53,028 | 29,579 | 8,235 | ||||||||||||||||||||||||||
Dec-03 | 3,252,471 | 524,747 | 40,514 | 48,554 | 33,479 | |||||||||||||||||||||||||||
Mar-04 | 3,751,012 | 414,268 | 106,068 | 54,175 | ||||||||||||||||||||||||||||
Jun-04 | 3,283,120 | 508,232 | 61,886 | |||||||||||||||||||||||||||||
Sep-04 | 3,631,092 | 527,186 | ||||||||||||||||||||||||||||||
Dec-04 | 3,209,628 | |||||||||||||||||||||||||||||||
Avg 3 Emergence | 3,374,613 | 483,229 | 69,489 | 51,919 | 25,654 | 16,165 | 21,197 | 14,590 |
Quarterly | ||||||||||||||||||||||||||||||||
Rec w/n Acc | ||||||||||||||||||||||||||||||||
Periods | INFLATED INCURRED LOSSES QUARTERLY LAG 0-7 EMERGENCE - IBNR ANALYSIS | |||||||||||||||||||||||||||||||
Ending | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | ||||||||||||||||||||||||
Sep-00 | 3,093,429 | 471,089 | 159,503 | 23,498 | 39,883 | 5,750 | 27,089 | 24,669 | ||||||||||||||||||||||||
Dec-00 | 3,907,512 | 574,608 | 259,958 | 109,845 | 38,862 | 24,535 | 21,919 | 10,392 | ||||||||||||||||||||||||
Mar-01 | 4,553,228 | 965,836 | 102,005 | 404,161 | 88,867 | 88,887 | 29,176 | 19,333 | ||||||||||||||||||||||||
Jun-01 | 4,694,268 | 1,015,535 | 286,870 | 161,440 | 129,062 | 55,693 | 30,610 | 21,353 | ||||||||||||||||||||||||
Sep-01 | 5,935,663 | 629,132 | 206,092 | 211,142 | 40,098 | 64,360 | 114,637 | 22,741 | ||||||||||||||||||||||||
Dec-01 | 5,433,371 | 1,316,826 | 276,343 | 307,443 | 45,692 | 34,639 | 17,282 | 11,153 | ||||||||||||||||||||||||
Mar-02 | 7,134,798 | 921,007 | 140,773 | 121,494 | 37,482 | 126,320 | 94,104 | 7,138 | ||||||||||||||||||||||||
Jun-02 | 5,431,656 | 750,520 | 145,671 | 181,134 | 97,457 | (61,288 | ) | 85,182 | 15,287 | |||||||||||||||||||||||
Sep-02 | 4,572,474 | 729,178 | 149,891 | 122,315 | 17,895 | 14,857 | 13,695 | 22,000 | ||||||||||||||||||||||||
Dec-02 | 4,357,153 | 798,896 | 73,530 | 31,559 | 37,372 | 16,259 | 17,924 | 7,112 | ||||||||||||||||||||||||
Mar-03 | 4,680,760 | 884,147 | 198,782 | 38,755 | 25,102 | 16,831 | 30,202 | 15,153 | ||||||||||||||||||||||||
Jun-03 | 4,185,147 | 336,466 | 80,420 | 53,661 | 14,180 | 23,989 | 16,108 | |||||||||||||||||||||||||
Sep-03 | 3,545,425 | 387,359 | 35,987 | 54,078 | 29,870 | 8,235 | ||||||||||||||||||||||||||
Dec-03 | 3,382,570 | 540,412 | 41,316 | 49,032 | 33,479 | |||||||||||||||||||||||||||
Mar-04 | 3,862,989 | 422,472 | 107,113 | 54,175 | ||||||||||||||||||||||||||||
Jun-04 | 3,348,139 | 513,240 | 61,886 | |||||||||||||||||||||||||||||
Sep-04 | 3,666,871 | 527,186 | ||||||||||||||||||||||||||||||
Dec-04 | 3,209,628 |
Page 8
Page 3
Quarterly | ||||||||||||||||||||||||||||||||||||||||
Rec w/n Acc | INFLATED INCURRED LOSSES QUARTERLY LAG 0-7 PURE PREMIUMS - IBNR ANALYSIS | |||||||||||||||||||||||||||||||||||||||
Periods | ||||||||||||||||||||||||||||||||||||||||
Ending | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | ||||||||||||||||||||||||||||||||
Sep-00 | 139.957 | 21.314 | 7.216 | 1.063 | 1.804 | 0.260 | 1.226 | 1.116 | ||||||||||||||||||||||||||||||||
Dec-00 | 167.954 | 24.698 | 11.174 | 4.721 | 1.670 | 1.055 | 0.942 | 0.447 | ||||||||||||||||||||||||||||||||
Mar-01 | 184.538 | 39.144 | 4.134 | 16.380 | 3.602 | 3.602 | 1.182 | 0.784 | ||||||||||||||||||||||||||||||||
Jun-01 | 167.842 | 36.310 | 10.257 | 5.772 | 4.615 | 1.991 | 1.094 | 0.763 | ||||||||||||||||||||||||||||||||
Sep-01 | 193.022 | 20.459 | 6.702 | 6.866 | 1.304 | 2.093 | 3.728 | 0.740 | ||||||||||||||||||||||||||||||||
Dec-01 | 169.390 | 41.053 | 8.615 | 9.585 | 1.424 | 1.080 | 0.539 | 0.348 | ||||||||||||||||||||||||||||||||
Mar-02 | 224.248 | 28.947 | 4.425 | 3.819 | 1.178 | 3.970 | 2.958 | 0.224 | ||||||||||||||||||||||||||||||||
Jun-02 | 175.682 | 24.275 | 4.712 | 5.859 | 3.152 | (1.982 | ) | 2.755 | 0.494 | |||||||||||||||||||||||||||||||
Sep-02 | 157.611 | 25.134 | 5.167 | 4.216 | 0.617 | 0.512 | 0.472 | 0.758 | ||||||||||||||||||||||||||||||||
Dec-02 | 159.741 | 29.289 | 2.696 | 1.157 | 1.370 | 0.596 | 0.657 | 0.261 | ||||||||||||||||||||||||||||||||
Mar-03 | 176.618 | 33.361 | 7.501 | 1.462 | 0.947 | 0.635 | 1.140 | 0.572 | ||||||||||||||||||||||||||||||||
Jun-03 | 171.668 | 13.801 | 3.299 | 2.201 | 0.582 | 0.984 | 0.661 | |||||||||||||||||||||||||||||||||
Sep-03 | 145.453 | 15.892 | 1.476 | 2.219 | 1.225 | 0.338 | ||||||||||||||||||||||||||||||||||
Dec-03 | 145.225 | 23.202 | 1.774 | 2.105 | 1.437 | |||||||||||||||||||||||||||||||||||
Mar-04 | 174.614 | 19.096 | 4.842 | 2.449 | ||||||||||||||||||||||||||||||||||||
Jun-04 | 147.619 | 22.629 | 2.729 | |||||||||||||||||||||||||||||||||||||
Sep-04 | 145.414 | 20.906 | ||||||||||||||||||||||||||||||||||||||
Dec-04 | 119.133 | |||||||||||||||||||||||||||||||||||||||
Straight Avg | 166.289 | 25.495 | 5.461 | 4.640 | 2.019 | 1.118 | 1.387 | 0.575 | ||||||||||||||||||||||||||||||||
Avg x HiLo | 165.689 | 25.268 | 5.352 | 4.096 | 1.936 | 1.137 | 1.269 | 0.557 | ||||||||||||||||||||||||||||||||
Avg Last 8 | 153.218 | 22.272 | 3.685 | 2.708 | 1.314 | 0.767 | 1.614 | 0.520 | ||||||||||||||||||||||||||||||||
Avg Last 4 | 146.695 | 21.458 | 2.705 | 2.243 | 1.048 | 0.638 | 0.732 | 0.521 | ||||||||||||||||||||||||||||||||
Select | 146.695 | 21.458 | 2.705 | 2.243 | 1.048 | 0.638 | 0.732 | 0.521 | ||||||||||||||||||||||||||||||||
Quarterly | ||||||||||||||||||||||||||||||||||||||||
Rec w/n Acc | FUTURE PURE PREMIUMS BY QUARTERLY LAG, INFLATED | Total | ||||||||||||||||||||||||||||||||||||||
Periods | Future | |||||||||||||||||||||||||||||||||||||||
Ending | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 - 27 | Pure Prem | ||||||||||||||||||||||||||||||
Sep-00 | 0.596 | 0.60 | ||||||||||||||||||||||||||||||||||||||
Dec-00 | 0.784 | 0.78 | ||||||||||||||||||||||||||||||||||||||
Mar-01 | 0.975 | 0.98 | ||||||||||||||||||||||||||||||||||||||
Jun-01 | 1.161 | 1.16 | ||||||||||||||||||||||||||||||||||||||
Sep-01 | 1.350 | 1.35 | ||||||||||||||||||||||||||||||||||||||
Dec-01 | 1.540 | 1.54 | ||||||||||||||||||||||||||||||||||||||
Mar-02 | 1.731 | 1.73 | ||||||||||||||||||||||||||||||||||||||
Jun-02 | 2.153 | 2.15 | ||||||||||||||||||||||||||||||||||||||
Sep-02 | 2.578 | 2.58 | ||||||||||||||||||||||||||||||||||||||
Dec-02 | 3.008 | 3.01 | ||||||||||||||||||||||||||||||||||||||
Mar-03 | 3.442 | 3.44 | ||||||||||||||||||||||||||||||||||||||
Jun-03 | 0.526 | 3.476 | 4.00 | |||||||||||||||||||||||||||||||||||||
Sep-03 | 0.740 | 0.532 | 3.510 | 4.78 | ||||||||||||||||||||||||||||||||||||
Dec-03 | 0.645 | 0.747 | 0.537 | 3.545 | 5.47 | |||||||||||||||||||||||||||||||||||
Mar-04 | 1.058 | 0.651 | 0.754 | 0.542 | 3.580 | 6.59 | ||||||||||||||||||||||||||||||||||
Jun-04 | 2.266 | 1.069 | 0.657 | 0.762 | 0.548 | 3.615 | 8.92 | |||||||||||||||||||||||||||||||||
Sep-04 | 2.732 | 2.288 | 1.079 | 0.664 | 0.769 | 0.553 | 3.651 | 11.74 | ||||||||||||||||||||||||||||||||
Dec-04 | 21.670 | 2.759 | 2.310 | 1.090 | 0.670 | 0.777 | 0.558 | 3.687 | 33.52 | |||||||||||||||||||||||||||||||
Inflation rate used in IBNR calculation: | 4.0 | % |
Page 9
• | COLUMNS (1) — (6):Estimated ultimate losses resulting from six different sets of projections, along with the resulting required reserves and reserve adequacy for each respective projection, as well as the adequacy that would have resulted using 3 different types of “default” selections of loss development factors for four of the projections |
• | COLUMNS (7) and (8):Cumulative adjuster-incurred losses (i.e., paid losses plus adjuster-set reserves) and paid losses as of the evaluation date of 12/31/2004 |
• | COLUMN (9):Indicated ultimate losses which have been judgmentally selected by the loss reserving area considering all information obtained during the analysis, along with the resulting required reserves and reserve adequacy |
• | COLUMNS (10) and (11):Estimated ultimate average paid and average incurred severities, based upon the projections of average paid and average incurred losses |
• | COLUMN (12):Average adjuster case reserves, as of the first evaluation point (i.e. the evaluation date is the end-date of each respective accident semester, which is at 6 months development) |
• | COLUMN (13):Closure Rate @ 6 months = [(The number of claims closed with payment) at 6 months development] divided by [Selected ultimate incurred claim count] |
• | COLUMNS (14) and (15):CWP Rate (i.e. percentage of reported claims which are closed without payment), as of the first evaluation point (6 months), and projection to ultimate |
• | COLUMNS (16) — (19):Estimated ultimate incurred counts resulting from four different sets of projections |
• | COLUMN (20):Indicated ultimate incurred counts which have been judgmentally selected by the loss reserving area, considering all of the information obtained during the analysis |
• | COLUMNS (21) and (22):Indicated ultimate severities which result from the ultimate selections of losses and counts, along with the change from period to period, and the 4-point and 8-point fitted exponential trends. Fitted exponential trends tell us the estimated average annual change in severity (or another parameter) considering our selections over the past two years (4 points) and four years (8 points). The year over year change is also presented for the most recent semester |
• | COLUMNS (23) and (24):Indicated ultimate frequencies which result from the selected ultimate counts, along with the change from period to period, the 4-point and 8-point fitted exponential trends, and the year over year change |
Page 10
• | COLUMNS (25) and (26):The pure premiums and loss ratios which result from the selected ultimate losses, along with the 4-point and 8-point fitted exponential pure premium trends |
• | COLUMNS (27) — (30):Earned premium and earned exposures, which are used in some of the other calculations, along with average earned premium, changes in average earned premium, and the 4-point and 8-point fitted exponential trends for average earned premium |
Page 11
(1) | (2)=(10)X(20) | (3) | (4) | (5)=(11)X(20) | (6) | |||||||
(see Exhibit B) | ||||||||||||
Accident | Paid | Avg. Paid | BF Paid | Incurred | Avg. Incurred | BF Incurred | ||||||
Semesters | Projection | Projection | Method | Projection | Projection | Method | ||||||
Ending | Ult ($000) | Ult ($000) | Ult ($000) | Ult ($000) | Ult ($000) | Ult ($000) | ||||||
PRIOR 3 yrs | 35,427 | 35,385 | 35,427 | 35,395 | 35,347 | 35,395 | ||||||
Jun-2001 | 10,930 | 10,940 | 10,931 | 11,193 | 11,170 | 11,193 | ||||||
Dec-2001 | 13,257 | 13,163 | 13,254 | 13,249 | 13,273 | 13,250 | ||||||
Jun-2002 | 13,534 | 13,781 | 13,603 | 14,012 | 13,985 | 14,141 | ||||||
Dec-2002 | 9,962 | 9,868 | 9,954 | 10,324 | 10,304 | 10,324 | ||||||
Jun-2003 | 9,485 | 9,492 | 9,435 | 10,149 | 10,100 | 10,127 | ||||||
Dec-2003 | 7,187 | 6,928 | 8,001 | 8,181 | 8,129 | 8,216 | ||||||
Jun-2004 | 9,689 | 8,667 | 9,207 | 8,842 | 8,727 | 8,846 | ||||||
Dec-2004 | 11,020 | 12,069 | 10,285 | 9,665 | 9,673 | 9,748 | ||||||
Tot Ult Loss | 120,492 | 120,293 | 120,095 | 121,011 | 120,708 | 121,241 | ||||||
Tot Paid Loss | 93,602 | 93,602 | 93,602 | 93,602 | 93,602 | 93,602 | ||||||
Required Reserves | 26,890 | 26,691 | 26,494 | 27,409 | 27,106 | 27,639 | ||||||
Held Reserves | 28,038 | 28,038 | 28,038 | 28,038 | 28,038 | 28,038 | ||||||
Reserve Adequacy | 1,148 | 1,347 | 1,545 | 629 | 932 | 400 | ||||||
Avg Last 4 | 3,132 | (2,025) | 3,261 | 3,835 | ||||||||
2nd to Last Diag | 2,865 | (3,318) | 624 | 1,951 | ||||||||
Last Diag | (7,001) | (6,264) | 3,470 | 3,154 |
Page 12
Reserve Adequacy = Held Reserves – Required Reserves
• | Each data point in theAverage Paid Lossdevelopment triangle= [paid loss dollars] divided by [paid count] where paid count = Claim features (closed or open) with loss payment | |
• | Each data point in theAverage Incurred Lossdevelopment triangle (shown in Exhibit B) = [incurred loss dollars] divided by [incurred count] where incurred count = Claim features closed with loss payment + open features |
[Indicated Ultimate Counts (column (20))]
Page 13
(10) | (20) | (2)=(10)X(20) | (11) | (20) | (5)=(11)X(20) | ||||||||||||||||||||||
Accident | Indicated | Avg. Paid | [Per Exh B] | Indicated | Avg. Incr | ||||||||||||||||||||||
Semesters | Avg. Paid | Ultimate | Projection | Avg. Incr | Ultimate | Projection | |||||||||||||||||||||
Ending | Severity | Counts | Ult ($000) | Severity | Counts | Ult ($000) | |||||||||||||||||||||
PRIOR 3 yrs | 5,863 | 6,035 | 35,385 | 5,857 | 6,035 | 35,347 | |||||||||||||||||||||
Jun-2001 | 5,796 | 1,888 | 10,940 | 5,918 | 1,888 | 11,170 | |||||||||||||||||||||
Dec-2001 | 6,141 | 2,144 | 13,163 | 6,192 | 2,144 | 13,273 | |||||||||||||||||||||
Jun-2002 | 6,342 | 2,173 | 13,781 | 6,436 | 2,173 | 13,985 | |||||||||||||||||||||
Dec-2002 | 5,404 | 1,826 | 9,868 | 5,643 | 1,826 | 10,304 | |||||||||||||||||||||
Jun-2003 | 6,280 | 1,512 | 9,492 | 6,682 | 1,512 | 10,100 | |||||||||||||||||||||
Dec-2003 | 5,686 | 1,219 | 6,928 | 6,671 | 1,219 | 8,129 | |||||||||||||||||||||
Jun-2004 | 7,449 | 1,164 | 8,667 | 7,501 | 1,164 | 8,727 | |||||||||||||||||||||
Dec-2004 | 8,940 | 1,350 | 12,069 | 7,165 | 1,350 | 9,673 | |||||||||||||||||||||
[The number of claims closed with payment] divided by
[Selected ultimate incurred claim count]
Page 14
(Data) | (20) | (13) | ||||||||||
Accident | Features | Indicated | =(Data)/(20) | |||||||||
Semesters | Closed w/ Pay | Ultimate | Closure Rate | |||||||||
Ending | @ 6 Months | Counts | @ 6 Months | |||||||||
Jun-2001 | 636 | 1,888 | 33.7% | |||||||||
Dec-2001 | 613 | 2,144 | 28.6% | |||||||||
Jun-2002 | 568 | 2,173 | 26.1% | |||||||||
Dec-2002 | 589 | 1,826 | 32.3% | |||||||||
Jun-2003 | 466 | 1,512 | 30.8% | |||||||||
Dec-2003 | 322 | 1,219 | 26.4% | |||||||||
Jun-2004 | 273 | 1,164 | 23.5% | |||||||||
Dec-2004 | 290 | 1,350 | 21.5% | |||||||||
Page 15
Page 16
Assume: | (1) All open claims are reserved at their ultimate payment amount | |
(2) The lower severity claims close before the higher severity claims | ||
(3) The distribution of claims is as follows: |
Total Incurred | ||||||||||||||||||||
# of Claims: | 25 | 25 | 50 | 100 | ||||||||||||||||
Severity: | 5,000 | 10,000 | 16,000 | 11,750 | ||||||||||||||||
Incurred Loss: | 125,000 | 250,000 | 800,000 | 1,175,000 | ||||||||||||||||
Scenario I: Closure Rate = 50%
Closed | Open | Total Incurred | ||||||||||||||||||
# of Claims: | 50 | 50 | 100 | |||||||||||||||||
Severity: | 7,500 | 16,000 | 11,750 | |||||||||||||||||
Incurred Loss: | 375,000 | 800,000 | 1,175,000 | |||||||||||||||||
Scenario II: Closure Rate = 25%
Closed | Open | Total Incurred | ||||||||||||||
# of Claims: | 25 | 75 | 100 | |||||||||||||
Severity: | 5,000 | 14,000 | 11,750 | |||||||||||||
Incurred Loss: | 125,000 | 1,050,000 | 1,175,000 |
Page 17
(12) | (13) | ||||||||||
Accident | Avg. Adjuster | ||||||||||
Semesters | Case Reserves | Closure Rate | |||||||||
Ending | @ 6 Months | @ 6 Months | |||||||||
Jun-2001 | 4,207 | 33.7 | % | ||||||||
Dec-2001 | 4,321 | 28.6 | % | ||||||||
Jun-2002 | 5,341 | 26.1 | % | ||||||||
Dec-2002 | 5,291 | 32.3 | % | ||||||||
Jun-2003 | 5,462 | 30.8 | % | ||||||||
Dec-2003 | 5,213 | 26.4 | % | ||||||||
Jun-2004 | 4,606 | 23.5 | % | ||||||||
Dec-2004 | 4,153 | 21.5 | % | ||||||||
• | There may have been a lower percentage of large claims | ||
• | There may have been a significant change in the mix of business by limit | ||
• | We may have made changes to the averages in the case tables that caused part of the decrease | ||
• | There may have been process changes, causing: |
º | Adjusters to leave claims at the case table average for a longer period of time before assigning their own estimates | ||
º | Adjusters to estimate the value of the claims differently | ||
º | Higher severity claims to settle more quickly |
• | There may have been external (legal, regulatory, or environmental) forces causing severity of open claims (or all claims) to decrease |
Page 18
Accident | ||||||||||
Semester | ||||||||||
Bornhuetter-Ferguson using Incurred Loss Development | Ending Dec-04 | |||||||||
(a) | Earned Premium (column (27)) | 16,161,630 | ||||||||
(b) | Expected Loss Ratio (judgment) | 63.0 | % | |||||||
(c)=(a)X(b) | Expected Ultimate Losses | 10,181,827 | ||||||||
(d) | Cumulative Loss Development Factor (6 mo to Ultimate) Per Incurred Loss Development | 1.192 | ||||||||
(e)=1-1/(d) | % Unreported | 16.1 | % | |||||||
(f) | Actual Incurred Loss @ 12/31/04 (column (7)) | 8,106,511 | ||||||||
(f)+((c)X(e)) | Estimated Ultimate Loss (column (6)) | 9,748,218 | ||||||||
Page 19
(9) | (20) | (21) | (22) | (25) | (26) | ||||||||||||||||||||||
Accident | Indicated | Indicated | =(9)/(20) | Semi-Annual | |||||||||||||||||||||||
Semesters | Ultimate | Ultimate | Ultimate | Change In | Pure | Loss | |||||||||||||||||||||
Ending | Loss ($000) | Counts | Severity | Severity | Premium | Ratio | |||||||||||||||||||||
PRIOR 3 yrs | 35,379 | 6,035 | 5,862 | 189 | 49.1 | % | |||||||||||||||||||||
Jun-2001 | 11,186 | 1,888 | 5,926 | 212 | 64.6 | % | |||||||||||||||||||||
Dec-2001 | 13,257 | 2,144 | 6,185 | 4.4% | 211 | 70.7 | % | ||||||||||||||||||||
Jun-2002 | 14,046 | 2,173 | 6,464 | 4.5% | 224 | 79.5 | % | ||||||||||||||||||||
Dec-2002 | 10,318 | 1,826 | 5,650 | -12.6% | 183 | 65.9 | % | ||||||||||||||||||||
Jun-2003 | 10,125 | 1,512 | 6,699 | 18.6% | 199 | 68.6 | % | ||||||||||||||||||||
Dec-2003 | 8,175 | 1,219 | 6,709 | 0.2% | 172 | 56.2 | % | ||||||||||||||||||||
Jun-2004 | 8,805 | 1,164 | 7,568 | 12.8% | 197 | 61.9 | % | ||||||||||||||||||||
Dec-2004 | 9,695 | 1,350 | 7,182 | -5.1% | 186 | 60.0 | % | ||||||||||||||||||||
Total | 120,987 | 19,309 | 6.8 | % | 4 pt ann exp trend | -1.4 | % | ||||||||||||||||||||
6.5 | % | 8 pt ann exp trend | -4.7 | % | |||||||||||||||||||||||
Tot Paid Loss | 93,602 | ||||||||||||||||||||||||||
Required Reserves | 27,385 | ||||||||||||||||||||||||||
Held Reserves | 28,038 | ||||||||||||||||||||||||||
Reserve Adequacy | 654 | 2.4 | % | ç Percent of required reserves | |||||||||||||||||||||||
Pure Premium= Ultimate Losses / Earned Exposures
Loss Ratio= Ultimate Losses / Earned Premium
Reserve Adequacy = Held Reserves – Required Reserves = 654
Page 20
(14) | (15) | (16) | (17) | (18) | (19) | ||||||||||||||||||||||
Accident | Paid | Closed w/ Pay | Incurred | Recorded | |||||||||||||||||||||||
Semesters | CWP Rate | Ultimate | Counts | Counts | Counts | Counts | |||||||||||||||||||||
Ending | @ 6 Months | CWP Rate | Projection | Projection | Projection | Projection | |||||||||||||||||||||
PRIOR 3 yrs | 6,030 | 6,029 | 6,032 | 6,035 | |||||||||||||||||||||||
Jun-2001 | 26.3 | % | 37.9 | % | 1,885 | 1,886 | 1,888 | 1,887 | |||||||||||||||||||
Dec-2001 | 29.4 | % | 40.4 | % | 2,144 | 2,145 | 2,145 | 2,142 | |||||||||||||||||||
Jun-2002 | 27.6 | % | 41.3 | % | 2,132 | 2,134 | 2,175 | 2,171 | |||||||||||||||||||
Dec-2002 | 26.3 | % | 39.8 | % | 1,821 | 1,822 | 1,827 | 1,825 | |||||||||||||||||||
Jun-2003 | 30.7 | % | 41.8 | % | 1,483 | 1,486 | 1,514 | 1,509 | |||||||||||||||||||
Dec-2003 | 29.2 | % | 42.5 | % | 1,198 | 1,196 | 1,222 | 1,215 | |||||||||||||||||||
Jun-2004 | 32.4 | % | 47.2 | % | 1,080 | 1,074 | 1,179 | 1,148 | |||||||||||||||||||
Dec-2004 | 28.7 | % | 43.1 | % | 1,177 | 1,104 | 1,449 | 1,379 | |||||||||||||||||||
18,950 | 18,876 | 19,431 | 19,311 | ||||||||||||||||||||||||
• | ThePaid Count Projection(column (16)) uses feature counts for claims that have had loss payments, whether the features are currently open or closed. | |
• | TheClosed With Pay Count Projection(column (17)) uses only feature counts for claims that have closed with loss payment. | |
• | TheIncurred Count Projection(column (18)) uses feature counts for claims that have closed with loss payment, plus claims that are currently open (whether or not there have been payments on them). | |
• | TheRecorded Count Projection(column (19)) uses feature counts for all claims that have been recorded. The projected ultimate recorded counts are multiplied by [100% minus the ultimate CWP rates in column (15)] for the same respective accident periods to derive the ultimate counts in column (19). We do this to get the ultimate counts for claims with loss payment. |
Page 21
(20) | (23) | (24) | ||||||||||||||||||
Accident | Indicated | (28) | = (20) / (28) | Semi-Annual | ||||||||||||||||
Semesters | Ultimate | Earned | Ultimate | Change In | ||||||||||||||||
Ending | Counts | Exposures | Frequency | Frequency | ||||||||||||||||
PRIOR 3 yrs | 6,035 | 187,526 | 3.22 | % | ||||||||||||||||
Jun-2001 | 1,888 | 52,642 | 3.59 | % | ||||||||||||||||
Dec-2001 | 2,144 | 62,827 | 3.41 | % | -4.8 | % | ||||||||||||||
Jun-2002 | 2,173 | 62,734 | 3.46 | % | 1.5 | % | ||||||||||||||
Dec-2002 | 1,826 | 56,287 | 3.24 | % | -6.3 | % | ||||||||||||||
Jun-2003 | 1,512 | 50,881 | 2.97 | % | -8.4 | % | ||||||||||||||
Dec-2003 | 1,219 | 47,667 | 2.56 | % | -13.9 | % | ||||||||||||||
Jun-2004 | 1,164 | 44,804 | 2.60 | % | 1.6 | % | ||||||||||||||
Dec-2004 | 1,350 | 52,158 | 2.59 | % | -0.3 | % | ||||||||||||||
Total | 19,309 | 617,528 | -7.6 | % | 4 pt annual exp trend | |||||||||||||||
-10.5 | % | 8 pt annual exp trend |
Page 22
Page 23
Semiannual | ||||||||||||||||||||||||||||||||||||||
Accident | ||||||||||||||||||||||||||||||||||||||
Periods | Ultimate | |||||||||||||||||||||||||||||||||||||
Ending | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | Severity | |||||||||||||||||||||||||||||
Jun-01 | 4,315 | 5,241 | 5,457 | 5,704 | 5,786 | 5,787 | 5,822 | 5,865 | 5,918 | |||||||||||||||||||||||||||||
Dec-01 | 4,830 | 5,839 | 5,985 | 5,975 | 6,088 | 6,058 | 6,068 | 6,136 | 6,192 | |||||||||||||||||||||||||||||
Jun-02 | 6,277 | 6,306 | 6,180 | 6,140 | 6,283 | 6,269 | 6,307 | 6,378 | 6,436 | |||||||||||||||||||||||||||||
Dec-02 | 5,440 | 5,411 | 5,274 | 5,440 | 5,456 | 5,497 | 5,530 | 5,592 | 5,643 | |||||||||||||||||||||||||||||
Jun-03 | 6,155 | 6,126 | 6,269 | 6,366 | 6,461 | 6,509 | 6,548 | 6,622 | 6,682 | |||||||||||||||||||||||||||||
Dec-03 | 5,657 | 5,850 | 6,189 | 6,356 | 6,451 | 6,499 | 6,538 | 6,611 | 6,671 | |||||||||||||||||||||||||||||
Jun-04 | 5,513 | 6,756 | 6,959 | 7,147 | 7,253 | 7,307 | 7,351 | 7,434 | 7,501 | |||||||||||||||||||||||||||||
Dec-04 | 5,289 | 6,453 | 6,647 | 6,826 | 6,928 | 6,979 | 7,021 | 7,100 | 7,165 | |||||||||||||||||||||||||||||
[Incurred loss dollars] divided by [Incurred count]
where incurred count = claim features closed with loss payment + open features
Page 24
Accident Semester | Evaluated at Month-End | ||||||||||||||||
Ending Dec-03 | Dec, 2003 | Jun, 2004 | Dec, 2004 | ||||||||||||||
(a) | Paid Losses ($000) | 646 | 2,414 | 4,238 | |||||||||||||
(b) | Adjuster Case Reserves ($000) | 6,719 | 5,295 | 3,653 | |||||||||||||
(c)=(a)+(b) | Incurred Losses ($000) | 7,365 | 7,709 | 7,891 | |||||||||||||
(d) | Features closed w/ Payment | 322 | 677 | 969 | |||||||||||||
(e) | Open features | 980 | 641 | 307 | |||||||||||||
(f)=(d)+(e) | Incurred Count | 1,302 | 1,318 | 1,275 | |||||||||||||
(g)=(c)/(f) | Average Incurred Loss ($) | 5,657 | 5,850 | 6,189 | |||||||||||||
Page 25
Semiannual | Average Incurred Losses | |||||||||||||||||||||||||||
Accident | Age-to-Age Development Factors | |||||||||||||||||||||||||||
Periods | ||||||||||||||||||||||||||||
Ending | 1-2 | 2-3 | 3-4 | 4-5 | 5-6 | 6-7 | 7-8 | |||||||||||||||||||||
Jun-01 | 1.215 | 1.041 | 1.045 | 1.014 | 1.000 | 1.006 | 1.007 | |||||||||||||||||||||
Dec-01 | 1.209 | 1.025 | 0.998 | �� | 1.019 | 0.995 | 1.002 | |||||||||||||||||||||
Jun-02 | 1.005 | 0.980 | 0.993 | 1.023 | 0.998 | |||||||||||||||||||||||
Dec-02 | 0.995 | 0.975 | 1.031 | 1.003 | ||||||||||||||||||||||||
Jun-03 | 0.995 | 1.023 | 1.016 | |||||||||||||||||||||||||
Dec-03 | 1.034 | 1.058 | ||||||||||||||||||||||||||
Jun-04 | 1.225 | |||||||||||||||||||||||||||
Average Factors and Selected Factors | ||||||||||||||||||||||||||||
1-2 | 2-3 | 3-4 | 4-5 | 5-6 | 6-7 | 7-8 | ||||||||||||||||||||||
Avg. Last 4 | 1.062 | 1.009 | 1.010 | 1.015 | 0.996 | 1.009 | 1.005 | |||||||||||||||||||||
Prior Select @ 6 Months | 1.014 | 1.001 | 1.022 | 1.016 | 1.002 | 1.008 | 1.003 | |||||||||||||||||||||
Prior Select @ 3 Months | 1.130 | 1.030 | 1.007 | 1.021 | 1.007 | 1.011 | 1.009 | |||||||||||||||||||||
Selected Factor (a) | 1.220 | 1.030 | 1.027 | 1.015 | 1.007 | 1.006 | 1.011 | |||||||||||||||||||||
Cumulative Factor (b) = (next (b)) X (a) | 1.355 | 1.110 | 1.078 | 1.050 | 1.034 | 1.027 | 1.020 | |||||||||||||||||||||
Accident Semester Ending | ||||||||||||||||||||||||||||
Dec-04 | Jun-04 | Dec-03 | Jun-03 | Dec-02 | Jun-02 | Dec-01 | ||||||||||||||||||||||
Last Diagonal (c) (from Average Incurred Loss Triangle) | 5,289 | 6,756 | 6,189 | 6,366 | 5,456 | 6,269 | 6,068 | |||||||||||||||||||||
Ultimate Severity (d) = (b) X (c) | 7,165 | 7,501 | 6,671 | 6,682 | 5,643 | 6,436 | 6,192 | |||||||||||||||||||||
Avg. Last 4= (.995+.995+1.034+1.225) / 4 =1.062.
Page 26
Reserve Adequacy = Held Reserves – Required Reserves
Reserve Adequacy based on defaulted and actual selections
of loss development factors using Average Incurred Development
Adequacy | |||||||
Loss Development Factors | ($000) | ||||||
Average Last 4 | 3,835 | ||||||
2nd to Last Diagonal | 1,951 | ||||||
Last Diagonal | 3,154 | ||||||
Selected Avg Inc Indication | 932 | ||||||
Selected Ultimate Indication | 654 | ||||||
Page 27
Page 28
(1) | (2) | (3) | (4) | (5) | (6) | (9) | ||||||||||||||||||||||||||
Paid | Avg. Paid | BF Paid | Incurred | Avg. Incurred | BF Incurred | |||||||||||||||||||||||||||
Reserve | Projection | Projection | Method | Projection | Projection | Projection | Indicated | |||||||||||||||||||||||||
Adequacy | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | |||||||||||||||||||||||||
Accident Period Analysis (Exhibit A) | ||||||||||||||||||||||||||||||||
Selected | 1,148 | 1,347 | 1,545 | 629 | 932 | 400 | 654 | |||||||||||||||||||||||||
Avg Last 4 | 3,132 | (2,025 | ) | 3,261 | 3,835 | |||||||||||||||||||||||||||
2nd Last Diag | 2,865 | (3,318 | ) | 624 | 1,951 | |||||||||||||||||||||||||||
Last Diag | (7,001 | ) | (6,264 | ) | 3,470 | 3,154 | ||||||||||||||||||||||||||
Record Period Analysis (Exhibit C) | ||||||||||||||||||||||||||||||||
Selected | (882 | ) | (116 | ) | (1,079 | ) | (1,108 | ) | (1,029 | ) | ||||||||||||||||||||||
Avg Last 4 | 1,021 | (2,991 | ) | 559 | 1,378 | |||||||||||||||||||||||||||
2nd Last Diag | 1,284 | (3,280 | ) | (1,436 | ) | 242 | ||||||||||||||||||||||||||
Last Diag | (8,089 | ) | (7,008 | ) | 1,646 | 1,614 | ||||||||||||||||||||||||||
Page 29
Ultimate Severity | |||||||||||
Exh A (21) | Exh C (12) | ||||||||||
Semesters | Accident | Record | |||||||||
Ending | Periods | Periods | |||||||||
Jun-2001 | 5,926 | 5,404 | |||||||||
Dec-2001 | 6,185 | 6,265 | |||||||||
Jun-2002 | 6,464 | 6,651 | |||||||||
Dec-2002 | 5,650 | 5,521 | |||||||||
Jun-2003 | 6,699 | 6,770 | |||||||||
Dec-2003 | 6,709 | 6,618 | |||||||||
Jun-2004 | 7,568 | 7,333 | |||||||||
Dec-2004 | 7,182 | 6,622 | |||||||||
Page 30
Adequacy of total reserves, per accident period analysis = | 654 | |
Adequacy of case reserves, per record period analysis = | (1,029) |
Expected Adequacy of IBNR Reserves | |||||||||||
= | Adequacy of Total Reserves | – | Adequacy of Case Reserves | ||||||||
= | 654 | – | (1,029 | ) | |||||||
= | 1,683 |
Page 31
Column | Description | Amount | ||||
(1) | Prior Review Future Pure Premium | $ | 35.65 | |||
(2) | Calculated Pure Premium using 6-mo. Emerged | $ | 34.05 | |||
(3) | Quarterly Record w/in Accident Period Ending | Dec-2004 | ||||
(4) | Total Future Pure Premium | $ | 33.52 | |||
(5) | Earned Exposures | 26,942 | ||||
(6) | Earned Premium | $ | 8,437,252 | |||
(7) | Indicated IBNR =(4) X (5) | $ | 903,099 | |||
(8) | Indicated IBNR Factor =(7) / (6) | 10.7 | % | |||
(9) | Current IBNR Factor | 11.6 | % |
Page 32
Column | Data for Acc Qtr June-2004 | Amount | ||||
(10) | IBNR Emerged since June-2004 | $ | 570,118 | |||
(7) | Estimated Future Indicated IBNR | $ | 202,219 | |||
(sum) | Retrospective Indicated IBNR @ Jun-04 =(10)+(7) | $ | 772,337 | |||
(6) | Earned Premium | $ | 7,197,385 | |||
(11) | Retro Required IBNR Factor @ Jun-04 =(sum)/(6) | 10.7 | % | |||
(5) | Earned Exposures | 22,681 | ||||
Dec-04 (2) | Retro 6 month emerged pure premium =(sum)/(5) | $ | 34.05 |
(1) | (2) | (3) | (4) | |||||||||||||
Calculated | Quarterly | Selected | ||||||||||||||
Prior Review | Pure Premium | Record within | Total | |||||||||||||
Future | Using 6 month | Accident Periods | Future | |||||||||||||
Pure Premium | Emerged | Ending | Pure Prem | |||||||||||||
5.14 | 3.62 | Mar-2003 | 3.44 | |||||||||||||
5.69 | 4.11 | Jun-2003 | 4.00 | |||||||||||||
6.81 | 5.14 | Sep-2003 | 4.78 | |||||||||||||
7.58 | 5.64 | Dec-2003 | 5.47 | |||||||||||||
8.95 | 6.33 | Mar-2004 | 6.59 | |||||||||||||
11.31 | 9.00 | Jun-2004 | 8.92 | |||||||||||||
15.82 | 13.83 | Sep-2004 | 11.74 | |||||||||||||
35.65 | 34.05 | Dec-2004 | 33.52 | |||||||||||||
• | Fewer claims than expected were reported (i.e., lower frequency than expected) |
• | The severity of the “late reported claims” has been lower than expected |
• | There may have been a process change that impacts the timing of claim reporting and/or the severity of late reported claims |
• | There may be external forces that impact timing of claim reporting and/or the severity of the late reported claims |
Page 33
(3) | (4) | (5) | (6) | (7)=(4)´ (5) | (8)=(7)/(6) | (9) | ||||||||||||||||||||||||
Quarterly | ||||||||||||||||||||||||||||||
Rec w/n Acc | Total | Indicated | Current | |||||||||||||||||||||||||||
Periods | Future | Earned | Earned | Indicated | IBNR | IBNR | ||||||||||||||||||||||||
Ending | Pure Prem | Exposures | Premium | IBNR | Factors | Factors | ||||||||||||||||||||||||
Mar-2003 | 3.44 | 26,502 | 7,425,622 | 91,225 | 1.2 | % | 3.1 | % | ||||||||||||||||||||||
Jun-2003 | 4.00 | 24,379 | 7,323,851 | 97,579 | 1.3 | % | 3.0 | % | ||||||||||||||||||||||
Sep-2003 | 4.78 | 24,375 | 7,367,666 | 116,551 | 1.6 | % | 4.1 | % | ||||||||||||||||||||||
Dec-2003 | 5.47 | 23,292 | 7,189,243 | 127,483 | 1.8 | % | 4.5 | % | ||||||||||||||||||||||
Mar-2004 | 6.59 | 22,123 | 7,035,903 | 145,689 | 2.1 | % | 4.9 | % | ||||||||||||||||||||||
Jun-2004 | 8.92 | 22,681 | 7,197,385 | 202,219 | 2.8 | % | 5.7 | % | ||||||||||||||||||||||
Sep-2004 | 11.74 | 25,217 | 7,724,378 | 295,929 | 3.8 | % | 6.9 | % | ||||||||||||||||||||||
Dec-2004 | 33.52 | 26,942 | 8,437,252 | 903,099 | 10.7 | % | 11.6 | % | ||||||||||||||||||||||
Indicated IBNR | = | [Future Pure Premium] | ´ | [Earned Exposures] | ||||||||||
= | 33.52 | ´ | 26,942 | |||||||||||
= | 903,099 |
Indicated IBNR Factor | = | [Indicated IBNR] | / | [Earned Premium] | ||||||||||
= | 903,099 | / | 8,437,252 | |||||||||||
= | 10.7 | % |
Page 34
(11) | ||||||||||
(3) | 6-mo | |||||||||
Quarterly | (8) | Emerged | ||||||||
Record within | Indicated | Indicated | ||||||||
Accident Periods | IBNR | IBNR | ||||||||
Ending | Factors | Factors | ||||||||
Sep-2002 | 1.3% | |||||||||
Dec-2002 | 1.5% | |||||||||
Mar-2003 | 1.2% | 1.8% | ||||||||
Jun-2004 | 1.3% | 1.9% | ||||||||
Sep-2003 | 1.6% | 2.1% | ||||||||
Dec-2003 | 1.8% | 2.9% | ||||||||
Mar-2004 | 2.1% | 4.3% | ||||||||
Jun-2004 | 2.8% | 10.7% | ||||||||
Sep-2004 | 3.8% | |||||||||
Dec-2004 | 10.7% | |||||||||
($000) | IBNR Reserves | ||||
2,437 | Indicated (Sum column 7) | ||||
4,452 | Held IBNR | ||||
2,015 | Adequacy = Held - Required | ||||
3-month-ending earned premiums in column (6). The calculation shows that our IBNR reserves are 2,015 conservative.
Page 35
= [Adequacy of Total Reserves (Exhibit A)] – [Adequacy of Case Reserves (Exhibit C)]
= 654 – (1,029) = 1,683
= [Adequacy per IBNR analysis] – [Adequacy per accident and record period analyses]
= 2,015 - 1,683 = 332
Page 36
INCURRED LOSSES QUARTERLY LAG 1 – IBNR ANALYSIS
Quarterly | ||||||||||||||||||||||||||
Record w/in Accident | ||||||||||||||||||||||||||
Period End | 0 | 1 | 2 | 3 | 4 | Ultimate | ||||||||||||||||||||
Jun-03 | 473,607 | 400,046 | 393,187 | 374,912 | 353,414 | 320,368 | ||||||||||||||||||||
Sep-03 | 523,663 | 444,461 | 382,911 | 458,488 | 390,422 | 372,461 | ||||||||||||||||||||
Dec-03 | 772,190 | 700,711 | 604,762 | 577,760 | 524,747 | |||||||||||||||||||||
Mar-04 | 553,743 | 496,540 | 466,983 | 414,268 | ||||||||||||||||||||||
Jun-04 | 559,263 | 621,759 | 508,232 | |||||||||||||||||||||||
Sep-04 | 673,829 | 527,186 | ||||||||||||||||||||||||
Loss Development | ||||||||||||||||||||||||||
Factors (LDF) | 0-1 | 1-2 | 2-3 | 3-4 | 4-5 | |||||||||||||||||||||
Jun-03 | 0.845 | 0.983 | 0.954 | 0.943 | 0.923 | |||||||||||||||||||||
Sep-03 | 0.849 | 0.862 | 1.197 | 0.852 | ||||||||||||||||||||||
Dec-03 | 0.907 | 0.863 | 0.955 | |||||||||||||||||||||||
Mar-04 | 0.897 | 0.940 | ||||||||||||||||||||||||
Jun-04 | 1.112 | |||||||||||||||||||||||||
Average Last 4 | 0.941 | 0.912 | 1.015 | 0.932 | 0.963 | |||||||||||||||||||||
Weighted Avg. Last 4 | 0.940 | 0.905 | 0.996 | 0.942 | 0.970 | |||||||||||||||||||||
Select | 0.957 | 0.921 | 0.977 | 0.952 | 0.972 | |||||||||||||||||||||
Cumulative | 0.782 | 0.817 | 0.887 | 0.908 | 0.954 | |||||||||||||||||||||
Ultimate Loss = [Incurred Loss (last diag)] ´ [Cumulative LDF] | 527,186 | 508,232 | 414,268 | 524,747 | 372,461 | |||||||||||||||||||||
Page 37
ULTIMATE LOSSES QUARTERLY LAG 1-6 EMERGENCE
Quarterly | ||||||||||||||||||||||||||
Rec w/n Acc | ||||||||||||||||||||||||||
Periods | ||||||||||||||||||||||||||
Ending | 1 | 2 | 3 | 4 | 5 | 6 | ||||||||||||||||||||
Jun-03 | 320,368 | 77,327 | 52,106 | 13,905 | 23,755 | 16,108 | ||||||||||||||||||||
Sep-03 | 372,461 | 34,944 | 53,028 | 29,579 | 8,235 | |||||||||||||||||||||
Dec-03 | 524,747 | 40,514 | 48,554 | 33,479 | ||||||||||||||||||||||
Mar-04 | 414,268 | 106,068 | 54,175 | |||||||||||||||||||||||
Jun-04 | 508,232 | 61,886 | ||||||||||||||||||||||||
Sep-04 | 527,186 | |||||||||||||||||||||||||
INFLATED ULTIMATE LOSSES QUARTERLY LAG 1-6 EMERGENCE
(using a +4.0% Pure Premium Trend)
Quarterly | |||||||||||||||||||||||||||
Rec w/n Acc | |||||||||||||||||||||||||||
Periods | |||||||||||||||||||||||||||
Ending | 1 | 2 | 3 | 4 | 5 | 6 | |||||||||||||||||||||
Jun-03 | 336,466 | 80,420 | 53,661 | 14,180 | 23,989 | 16,108 | |||||||||||||||||||||
Sep-03 | 387,359 | 35,987 | 54,078 | 29,870 | 8,235 | ||||||||||||||||||||||
Dec-03 | 540,412 | 41,316 | 49,032 | 33,479 | |||||||||||||||||||||||
Mar-04 | 422,472 | 107,113 | 54,175 | ||||||||||||||||||||||||
Jun-04 | 513,240 | 61,886 | |||||||||||||||||||||||||
Sep-04 | 527,186 | ||||||||||||||||||||||||||
Page 38
INFLATED PURE PREMIUMS — QTRLY LAG 1-6
(Inflated Ultimate Losses / Earned Exposures)
[From col (5) | Quarterly | |||||||||||||||||||||||||||
of Exh D] | Rec w/n Acc | |||||||||||||||||||||||||||
Earned | Periods | |||||||||||||||||||||||||||
Exposures | Ending | 1 | 2 | 3 | 4 | 5 | 6 | |||||||||||||||||||||
24,379 | Jun-03 | 13.801 | 3.299 | 2.201 | 0.582 | 0.984 | 0.661 | |||||||||||||||||||||
24,375 | Sep-03 | 15.892 | 1.476 | 2.219 | 1.225 | 0.338 | ||||||||||||||||||||||
23,292 | Dec-03 | 23.202 | 1.774 | 2.105 | 1.437 | |||||||||||||||||||||||
22,123 | Mar-04 | 19.096 | 4.842 | 2.449 | ||||||||||||||||||||||||
22,681 | Jun-04 | 22.629 | 2.729 | |||||||||||||||||||||||||
25,217 | Sep-04 | 20.906 | ||||||||||||||||||||||||||
Avg Last 8 | 22.272 | 3.685 | 2.708 | 1.314 | 0.767 | 1.614 | ||||||||||||||||||||||
Avg Last 4 | 21.458 | 2.705 | 2.243 | 1.048 | 0.638 | 0.732 | ||||||||||||||||||||||
Select | 21.458 | 2.705 | 2.243 | 1.048 | 0.638 | 0.732 | ||||||||||||||||||||||
Page 39
Selected Pure Premiums from chart above: | ||||||||||||||||||||||||||||||||||||
21.458 | 2.705 | 2.243 | 1.048 | 0.638 | 0.732 | 0.521 | ||||||||||||||||||||||||||||||
Quarterly | ||||||||||||||||||||||||||||||||||||
Rec w/n Acc | FUTURE PURE PREMIUMS BY QUARTERLY LAG, INFLATED | Total | ||||||||||||||||||||||||||||||||||
Periods | Future | |||||||||||||||||||||||||||||||||||
Ending | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 - 27 | Pure Prem | |||||||||||||||||||||||||||
Jun-03 | 0.526 | 3.476 | 4.00 | |||||||||||||||||||||||||||||||||
Sep-03 | 0.740 | 0.532 | 3.510 | 4.78 | ||||||||||||||||||||||||||||||||
Dec-03 | 0.645 | 0.747 | 0.537 | 3.545 | 5.47 | |||||||||||||||||||||||||||||||
Mar-04 | 1.058 | 0.651 | 0.754 | 0.542 | 3.580 | 6.59 | ||||||||||||||||||||||||||||||
Jun-04 | 2.266 | 1.069 | 0.657 | 0.762 | 0.548 | 3.615 | 8.92 | |||||||||||||||||||||||||||||
Sep-04 | 2.732 | 2.288 | 1.079 | 0.664 | 0.769 | 0.553 | 3.651 | 11.74 | ||||||||||||||||||||||||||||
Dec-04 | 21.670 | 2.759 | 2.310 | 1.090 | 0.670 | 0.777 | 0.558 | 3.687 | 33.52 |
Lag 1 | = | claims expected to be recorded in the first quarter of 2005 | ||
= | future pure premium of 21.670 | |||
Lag 2 | = | claims expected to be recorded in the second quarter of 2005 | ||
= | future pure premium of2.759 |
Page 40
Page 41
• | “Defense and Cost Containment” (DCC) Expenses. This category is comparable to, but not exactly the same as, what was called Allocated Loss Adjustment Expenses (ALAE) prior to the definition change by the National Association of Insurance Commissioners (NAIC) in 1998. Since 1998, this category includes: |
° | Defense and litigation-related expenses, whether internal or external | ||
° | Medical cost containment | ||
° | Other related expenses incurred in the defense of claims |
• | “Adjusting & Other” (A&O) Expenses. This category is comparable to, but not exactly the same as, what was called Unallocated Loss Adjustment Expenses (ULAE) prior to the definition change by the NAIC in 1998. Since 1998, this category includes: |
° | Fees of external vendors involved in adjusting our claims | ||
° | Salaries and related overhead expenses relative to Company employees involved in a claim adjusting function | ||
° | Other related expenses incurred in determination of coverage |
• | ReviseCase LAE Reservesby changing: |
° | Average reservesfor DCC and/or A&O, which are applied to open claims below the threshold. (Note that the threshold for DCC expense reserves is usually $15,000 per claim, although very few case reserve amounts exceed that threshold. There is no threshold for A&O expense reserves). | ||
° | Theinflation factor, which can differ between DCC and A&O and which is applied to the averages in subsequent months |
• | ReviseIBNR LAE Reservesby changing: |
° | IBNR factorsfor DCC and/or A&O, which are applied to IBNR loss reserves |
Page 42
are made are not necessarily the same as those that we would make in an actual review. The results of this case study are also not intended to represent the actual results of the Company. Our intent is to illustrate and discuss many of the issues that we consider during our analysis, in order to make reasonable selections. The calculations involved in the process will also be explained.
The identities for loss reserves are also relevant for LAE reserves, as follows:
[Required (or Indicated) LAE Reserves] =
[Total Indicated (or Selected or Estimated) Ultimate LAE] –
[Total Paid LAE]
[LAE Reserve Adequacy] =
[Carried (or Held) LAE Reserves] –
[Required (or Indicated) LAE Reserves]
Ultimate LAE is derived differently for each of the two major LAE categories (DCC and A&O). In general, we attempt to determine how these expenses will develop in the future based upon how they developed in the past. In order to make reasonable selections, we look at several parameters and also consider the business issues that underlie the data.
We include several exhibits in our reviews to summarize our analysis that are also used in our discussions with the relevant business units. In this section, we present and describe the summary exhibits — Exhibit DCC, which summarizes the DCC expense analysis, and Exhibit ADJ, which summarizes the A&O expense analysis. Each exhibit is followed by an explanation of the calculations and a discussion of some of the issues that may be involved in the underlying data, as well as certain judgments we make in the selection process. We also discuss how different components of the analysis relate to each other.
Note that the LAE reserve review for a segment is usually not done in the same month as the loss reserve review for that segment. Therefore, when loss projections are used in the LAE review, they are comparable but not equal to the projections from the loss review. Also note that rounding in the exhibits, as well as the order of calculation, may make some of the figures in the case study appear slightly out of balance.
Page 43
Exhibit DCC
State LMN Auto BI DCC (ALAE) as of September 30, 2004
ESTIMATED ULTIMATE DCC — ACCIDENT PERIOD ANALYSIS
(1) | (2)= | (3)= | (6)= | (7)= | (8) | (9) | (10) | (11)= | (12) | (13)= | (14) | (15) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Proj Pd Trgl) | (12) X (21) | (27) X (16) | (4) | (5) | (15)X(17)X(24) | (14)x(17)x(23) | use (1),(2),(3) | (Proj Ct Trgl) | (Proj Util Trgl) | (17) X (10) | use (9),(11) | (12) / (17) | (Proj Util Trgl) | (Proj Util Trgl) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Semiannual | Avg | Paid DCC | Paid | Paid | Indicated | Indicated | Selected | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accident | Paid DCC | Paid DCC | to Paid Loss | Total DCC | Att. & Legal | Ultimate | Ultimate | Ultimate | Ultimate | Ultimate | Selected | Selected | Indicated | Indicated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Periods | Projection | Projection | Projection | To Date | To Date | Med & Oth | Att. & Legal | DCC Total | DCC | Projected | Projected | DCC | Total | Attorney | Medical | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending | Ult ($000) | Ult ($000) | Ult ($000) | ($000) | ($000) | ($000) | ($000) | ($000) | Counts | Utilization | Counts | Counts | Utilization | Utilization | Utilization | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prior 3 Years | 3,178 | 3,178 | 3,184 | 3,119 | 2,925 | 184 | 2,811 | 3,180 | 2,149 | 2,149 | 2,149 | 18.1 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2001 | 646 | 646 | 656 | 569 | 535 | 33 | 576 | 650 | 448 | 26.4 | % | 448 | 448 | 26.4 | % | 14.7 | % | 13.3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2001 | 956 | 956 | 988 | 766 | 729 | 38 | 865 | 967 | 373 | 20.8 | % | 373 | 373 | 20.8 | % | 10.4 | % | 11.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2002 | 943 | 943 | 988 | 634 | 595 | 44 | 845 | 961 | 491 | 25.1 | % | 491 | 491 | 25.2 | % | 14.7 | % | 12.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2002 | 1,165 | 1,165 | 1,218 | 554 | 519 | 47 | 1,054 | 1,183 | 492 | 26.5 | % | 492 | 492 | 26.5 | % | 14.4 | % | 14.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2003 | 921 | 921 | 897 | 284 | 261 | 43 | 827 | 913 | 342 | 17.2 | % | 342 | 342 | 17.2 | % | 10.0 | % | 8.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2003 | 1,071 | 1,069 | 1,091 | 178 | 157 | 59 | 991 | 1,077 | 416 | 21.4 | % | 416 | 416 | 21.4 | % | 12.2 | % | 12.6 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2004 | 1,125 | 1,214 | 1,123 | 68 | 57 | 73 | 1,151 | 1,154 | 483 | 20.5 | % | 463 | 500 | 22.2 | % | 12.0 | % | 12.4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2004 | 1,612 | 1,560 | 1,667 | 10 | 5 | 81 | 1,575 | 1,613 | 599 | 26.4 | % | 631 | 615 | 25.8 | % | 15.0 | % | 12.5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 11,617 | 11,653 | 11,823 | 6,182 | 5,784 | 602 | 10,694 | 11,698 | 5,793 | 5,804 | 5,826 | 21.0 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Paid DCC | 6,182 | 6,182 | 6,182 | 398 | 5,784 | 6,182 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Required Reserves | TOTAL | ATTORNEY | MEDICAL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
204 | 4,911 | DCC | & LEGAL | & OTHER | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,436 | 5,471 | 5,641 | Required Reserves | 5,115 | 5,516 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,089 | 5,089 | 5,089 | Held Reserves | (Med.& Oth)+(Att & Legal) | 5,089 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(346 | ) | (382 | ) | (552 | ) | Reserve Adequacy | (427 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(16) | (17) | (21) | (22)= | (23) | (24) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(Proj Loss Trgl) | (Proj Ct Trgl) | (18) | (19) | (Proj Sev Trgl) | (8) / (12) | (Proj Sev Trgl) | (Proj Sev Trgl) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Semiannual | Indicated | Indicated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accident | Ultimate | Ultimate | Earned | Projected | Selected | Indicated | Indicated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Periods | Loss | Loss | Premium | Earned | Paid DCC | Total DCC | Att. & Legal | Med. & Oth. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending | ($000) | Counts | ($000) | Exposures | Severity | Severity | Severity | Severity | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prior 3 Years | 55,956 | 11,858 | 110,303 | 415,310 | 1,480 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2001 | 7,375 | 1,695 | 16,893 | 65,209 | (20) | 1,442 | 1,450 | 2,308 | 148 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2001 | 7,944 | 1,796 | 17,808 | 71,798 | DCC Reserves / Loss Reserves | 2,562 | 2,591 | 4,621 | 193 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2002 | 9,849 | 1,951 | 19,990 | 81,197 | Current: | 16.4 | % | 1,922 | 1,958 | 2,949 | 180 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2002 | 11,640 | 1,855 | 22,326 | 86,394 | Indicated: | 19.0 | % | 2,368 | 2,404 | 3,942 | 177 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2003 | 9,877 | 1,985 | 23,173 | 88,720 | 2,693 | 2,669 | 4,174 | 251 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2003 | 10,969 | 1,939 | 23,898 | 95,008 | 2,571 | 2,591 | 4,200 | 241 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2004 | 11,142 | 2,256 | 24,471 | 103,970 | 2,428 | 2,308 | 4,250 | 260 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2004 | 13,091 | 2,387 | 27,766 | 119,015 | 2,537 | 2,623 | 4,400 | 270 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total | 137,843 | 27,722 | 241,210 | 955,611 | 4 pt Ann Exp Trend | -4.63 | % | -3.30 | % | 3.46 | % | 5.99 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
8 pt Ann Exp Trend | 11.81 | % | 11.35 | % | 13.23 | % | 17.95 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
(25)= | (26)= | (27) | CWAPO = Closed With DCC (ALAE) Payment Only | (34)= | (35)= | (36)= | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Semiannual | (1) / (16) | (2) / (16) | (Proj Pd/Pd) | (28) | (29) | (30) | (31) | (32) | (33) | (8) / (16) | (7) / (16) | (6) / (16) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accident | Average | Paid | CWAPO | Ultimate | Ultimate | Ultimate | % Outside | % Inside | Selected | Indicated | Indicated | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Periods | Paid Ult | Paid Ult | to Paid Ult | Count Ratio | CWAPO | CWAPO Ct / | CWAPO $ / | Attorney Per | Attorney Per | Total | Att. & Legal | Med. & Oth. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending | DCC/Loss | DCC/Loss | DCC/Loss | @ 6 Mths | Severity | DCC Count | DCC Amt | Tot. Att. Feat | Tot. Att. Feat | DCC/Loss $ | / Loss $ | / Loss $ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Prior 3 Years | 633 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2001 | 8.76 | % | 8.76 | % | 8.90 | % | 0.6 | % | 196 | 9.6 | % | 1.3 | % | 49.8 | % | 50.2 | % | 8.81 | % | 7.80 | % | 0.45 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2001 | 12.04 | % | 12.04 | % | 12.44 | % | 0.7 | % | 558 | 7.1 | % | 1.5 | % | 28.0 | % | 72.0 | % | 12.17 | % | 10.89 | % | 0.48 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2002 | 9.57 | % | 9.58 | % | 10.13 | % | 0.5 | % | 334 | 7.1 | % | 1.2 | % | 27.0 | % | 73.0 | % | 9.76 | % | 8.58 | % | 0.45 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2002 | 10.01 | % | 10.01 | % | 10.47 | % | 0.5 | % | 808 | 7.1 | % | 2.4 | % | 27.1 | % | 72.9 | % | 10.16 | % | 9.05 | % | 0.41 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2003 | 9.32 | % | 9.33 | % | 9.08 | % | 0.1 | % | 981 | 5.1 | % | 1.9 | % | 34.5 | % | 65.5 | % | 9.24 | % | 8.37 | % | 0.43 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2003 | 9.76 | % | 9.75 | % | 9.95 | % | 0.4 | % | 691 | 6.6 | % | 1.8 | % | 22.8 | % | 77.2 | % | 9.82 | % | 9.03 | % | 0.53 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Mar-2004 | 10.10 | % | 10.90 | % | 10.08 | % | 0.1 | % | 262 | 3.0 | % | 0.3 | % | 33.1 | % | 66.9 | % | 10.36 | % | 10.33 | % | 0.65 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
Sep-2004 | 12.31 | % | 11.92 | % | 12.73 | % | 0.1 | % | 1,807 | 2.4 | % | 1.7 | % | 34.6 | % | 65.4 | % | 12.32 | % | 12.03 | % | 0.62 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
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Exhibit DCC – Defense and Cost Containment Expense Reserve Analysis
This exhibit summarizes our accident period analysis of the adequacy of the DCC expense reserves for this segment. The claims are sorted and analyzed by accident date using 6-month accident periods (i.e., accident semesters). Each accident semester represents all claims that have occurred during the 6-month period ending at the end of the designated month (in the left-hand column of the exhibit).
Since this is an accident period analysis, it measures the adequacy of our total DCC expense reserves (case + IBNR). In other words, the estimated ultimate amounts for each accident period include DCC expenses for claims that have already been reported PLUS DCC expenses for claims that have not yet been reported.
In the following illustration, we discuss the analysis of total DCC, followed by the analyses of the two major components: Attorney & Legal and Medical & Other.
Total DCC Expense Analysis
The table below is a section from Exhibit DCC. It summarizes our selection of the estimated ultimate total DCC expenses by accident semester.
(1) | (2)= | (3)= | (8) | |||||||||||||||||
(Proj Pd Trgl) | (12) X (21) | (27) X (16) | (4) | use (1),(2),(3) | ||||||||||||||||
Semiannual | Avg | Paid DCC | Paid | Selected | ||||||||||||||||
Accident | Paid DCC | Paid DCC | to Paid Loss | Total DCC | Ultimate | |||||||||||||||
Periods | Projection | Projection | Projection | To Date | DCC Total | |||||||||||||||
Ending | Ult ($000) | Ult ($000) | Ult ($000) | ($000) | ($000) | |||||||||||||||
Mar-2001 | 646 | 646 | 656 | 569 | 650 | |||||||||||||||
Sep-2001 | 956 | 956 | 988 | 766 | 967 | |||||||||||||||
Mar-2002 | 943 | 943 | 998 | 634 | 961 | |||||||||||||||
Sep-2002 | 1,165 | 1,165 | 1,218 | 554 | 1,183 | |||||||||||||||
Mar-2003 | 921 | 921 | 897 | 284 | 913 | |||||||||||||||
Sep-2003 | 1,071 | 1,069 | 1,091 | 178 | 1,077 | |||||||||||||||
Mar-2004 | 1,125 | 1,214 | 1,123 | 68 | 1,154 | |||||||||||||||
Sep-2004 | 1,612 | 1,560 | 1,667 | 10 | 1,613 | |||||||||||||||
Total | 11,617 | 11,653 | 11,823 | 6,182 | 11,698 | |||||||||||||||
Paid DCC | 6,182 | 6,182 | 6,182 | ![]() | 6,182 | |||||||||||||||
5,436 | 5,471 | 5,641 | Required Reserves | 5,516 | ||||||||||||||||
5,089 | 5,089 | 5,089 | Held Reserves | 5,089 | ||||||||||||||||
(346 | ) | (382 | ) | (552 | ) | Reserve Adequacy | (427 | ) | ||||||||||||
Columns 1 through 3 contain three projections that we typically use to estimate the ultimate amount of DCC expenses by accident semester. We use the results of the 3 projections in columns (1), (2) and (3) to select the ultimate DCC amounts shown in column (8). Note the volatility inherent in the last couple accident periods. For example, for the Sep-2004 period we are selecting ultimate expenses of 1,613 when only 10 has been paid to date (as shown in column (4)). Also note that we compare these selections to those obtained by our analysis of the
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two major DCC components (Attorney & Legal and Medical & Other). This comparison is discussed later in this section.
The Paid and Average Paid projections (columns (1) and (2)), are similar to the loss projections.
For thePaid DCC projections (column (1)), we project the paid DCC expenses to ultimate amount by organizing the historical paid DCC amounts in a triangular format (by accident period and by evaluation period).
For theAverage Paid DCC projections (column (2)): Each data point in the Average Paid DCC development triangle = [Paid DCC expense dollars] divided by [Paid DCC counts], where Paid DCC counts = Claim features (closed or open) with DCC payment.
We project the average paid DCC to ultimate by accident period. This ultimate DCC severity (shown in column (21)) is then multiplied by the ultimate number of claims that are expected to incur DCC costs (from column (12)). The result (in column (2)) is the estimated ultimate DCC expense amount for each accident period. The following chart illustrates this calculation.
(2)= | ||||||||||||||||
(12) | (21) | (12) X (21) | ||||||||||||||
Semiannual | (Proj Sev Trgl) | Avg | ||||||||||||||
Accident | Selected | Projected | Paid DCC | |||||||||||||
Periods | DCC | Paid DCC | Projection | |||||||||||||
Ending | Counts | Severity | Ult ($000) | |||||||||||||
Mar-2001 | 448 | 1,442 | 646 | |||||||||||||
Sep-2001 | 373 | 2,562 | 956 | |||||||||||||
Mar-2002 | 491 | 1,922 | 943 | |||||||||||||
Sep-2002 | 492 | 2,368 | 1,165 | |||||||||||||
Mar-2003 | 342 | 2,693 | 921 | |||||||||||||
Sep-2003 | 416 | 2,571 | 1,069 | |||||||||||||
Mar-2004 | 500 | 2,428 | 1,214 | |||||||||||||
Sep-2004 | 615 | 2,537 | 1,560 | |||||||||||||
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Column (3) is thePaid DCC to Paid Loss or Paid-to-Paid projection. Similar to other projections, this one organizes the data in a triangular format, with each data point in the triangle being the ratio of paid DCC expense to paid loss. We project the ultimate Paid-to-Paid ratio by accident period, as shown in column (27). This ultimate ratio is then multiplied by the ultimate projected losses (as derived from analysis of the losses, and shown here in column (16)) for each respective accident period. The result (in column (3)) is the estimated ultimate DCC expense amount for each accident period. The following chart illustrates this calculation:
(3)= | ||||||||||||||||
(27) | (16) | (27) X (16) | ||||||||||||||
Semiannual | (Proj Pd/Pd) | (Proj Loss Trgl) | Paid DCC | |||||||||||||
Accident | Paid | Indicated | to Paid Loss | |||||||||||||
Periods | to Paid Ult | Ultimate Loss | Projection | |||||||||||||
Ending | DCC/Loss | ($000) | Ult ($000) | |||||||||||||
Mar-2001 | 8.90 | % | 7,375 | 656 | ||||||||||||
Sep-2001 | 12.44 | % | 7,944 | 988 | ||||||||||||
Mar-2002 | 10.13 | % | 9,849 | 998 | ||||||||||||
Sep-2002 | 10.47 | % | 11,640 | 1,218 | ||||||||||||
Mar-2003 | 9.08 | % | 9,877 | 897 | ||||||||||||
Sep-2003 | 9.95 | % | 10,969 | 1,091 | ||||||||||||
Mar-2004 | 10.08 | % | 11,142 | 1,123 | ||||||||||||
Sep-2004 | 12.73 | % | 13,091 | 1,667 | ||||||||||||
We calculate the required reserves and the reserve adequacy for each of the 3 projections and for the selected amounts by using the identities:
[Required(or Indicated)DCCExpenseReserves] =
[ Total Indicated (or Selected or Estimated)Ultimate DCCExpenses ] –
[ TotalPaid DCCExpenses ]
[DCCExpenseReserve Adequacy] =
[ Carried (orHeld)DCCExpenseReserves] –
[Required(or Indicated)DCCExpenseReserves]
The results are shown at the bottom of columns (1) through (3) and (8). For this segment, we determined that ourDCC expense reserves are inadequate by 427. As a result of this analysis, we may increase our reserves by changing the case averages and the IBNR factors for the DCC expense category.
When making selections for many of the DCC segments we tend to give greater weight to the Paid-to-Paid projection. The logic behind this is that the legal costs for claims tend to be related to their loss costs. Although the losses may develop at a different rate than the expenses, the ultimate relationship tends to be consistent over time.
However, there can be changes in the claim adjustment process that would potentially cause this relationship to change. This may be due to changes in the legal/regulatory environment or to changes in the Company’s loss adjustment process. We discuss these issues with management to better understand the underlying data. We use additional approaches in our projections for segments in which we observe process changes, because the historical development may be less relevant for the future.
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The following table shows the ratios of ultimate DCC expense dollars to ultimate loss dollars for this segment over the past 8 accident semesters.
(16) | (25)= | (26)= | (27) | (34)= | ||||||||||||||||||||
Indicated | Semiannual | (1) / (16) | (2) / (16) | (Proj Pd/Pd) | (8) / (16) | |||||||||||||||||||
Ultimate | Accident | Average | Paid | Selected | ||||||||||||||||||||
Loss | Periods | Paid Ult | Paid Ult | to Paid Ult | Ultimate | |||||||||||||||||||
($000) | Ending | DCC/Loss | DCC/Loss | DCC/Loss | DCC/Loss | |||||||||||||||||||
7,375 | Mar-2001 | 8.76 | % | 8.76 | % | 8.90 | % | 8.81 | % | |||||||||||||||
7,944 | Sep-2001 | 12.04 | % | 12.04 | % | 12.44 | % | 12.17 | % | |||||||||||||||
9,849 | Mar-2002 | 9.57 | % | 9.58 | % | 10.13 | % | 9.76 | % | |||||||||||||||
11,640 | Sep-2002 | 10.01 | % | 10.01 | % | 10.47 | % | 10.16 | % | |||||||||||||||
9,877 | Mar-2003 | 9.32 | % | 9.33 | % | 9.08 | % | 9.24 | % | |||||||||||||||
10,969 | Sep-2003 | 9.76 | % | 9.75 | % | 9.95 | % | 9.82 | % | |||||||||||||||
11,142 | Mar-2004 | 10.10 | % | 10.90 | % | 10.08 | % | 10.36 | % | |||||||||||||||
13,091 | Sep-2004 | 12.31 | % | 11.92 | % | 12.73 | % | 12.32 | % | |||||||||||||||
Each of the DCC/Loss ratios is equal to the
[Ultimate DCC dollars for the period (from each of the projections)] divided by the
[Ultimate loss dollars for the period]
As discussed above for the Paid-to-Paid projection, the ultimate DCC/Loss ratios in column (27) are projections based on a triangle of the historical ratios of paid DCC to paid loss. The selected ultimate DCC/Loss ratios in column (34) use our selected ultimate DCC expense dollars from column (8). We also compare these selected ratios to those obtained by our analysis of the two major DCC components (Attorney & Legal and Medical & Other), as discussed later in this section.
For this segment, the DCC/Loss ratios have been fluctuating over the past 4 accident years, but the last 4 semesters are showing an increasing trend. In this example, we began spending more on defense and cost containment expenses in an attempt to keep our total loss severities lower. This may be due to higher amounts spent on each claim (severity) and/or a higher proportion of claims may be utilizing defense and cost containment expenses. Changes in utilization and severity can occur for different reasons. We analyze these two parameters, and they are discussed below.
Utilization Ratio – One of the parameters we use in our analysis of DCC expenses is the percentage of claims for which we incur DCC expenses. We refer to this as the Utilization Ratio, which equals: [Ultimate DCC counts] / [Ultimate loss counts].
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We project our ultimate DCC counts in two different ways. We then make selections of the DCC counts by accident period, which give us selected utilization ratios. This is illustrated in the following excerpt from Exhibit DCC:
(17) | (9) | (10) | (11)= | (12) | (13)= | ||||||||||||||||||||||||||
(Proj Ct Trgl) | Semiannual | (Proj Ct Trgl) | (Proj Util Trgl) | (17) X (10) | use (9),(11) | (12) / (17) | |||||||||||||||||||||||||
Indicated | Accident | Ultimate | Ultimate | Projected | Selected | Selected | |||||||||||||||||||||||||
Ultimate | Periods | DCC | Projected | DCC | DCC | Ultimate | |||||||||||||||||||||||||
Loss Counts | Ending | Counts | Utilization | Counts | Counts | Utilization | |||||||||||||||||||||||||
1,695 | Mar-2001 | 448 | 26.4 | % | 448 | 448 | 26.4 | % | |||||||||||||||||||||||
1,796 | Sep-2001 | 373 | 20.8 | % | 373 | 373 | 20.8 | % | |||||||||||||||||||||||
1,951 | Mar-2002 | 491 | 25.1 | % | 491 | 491 | 25.2 | % | |||||||||||||||||||||||
1,855 | Sep-2002 | 492 | 26.5 | % | 492 | 492 | 26.5 | % | |||||||||||||||||||||||
1,985 | Mar-2003 | 342 | 17.2 | % | 342 | 342 | 17.2 | % | |||||||||||||||||||||||
1,939 | Sep-2003 | 416 | 21.4 | % | 416 | 416 | 21.4 | % | |||||||||||||||||||||||
2,256 | Mar-2004 | 483 | 20.5 | % | 463 | 500 | 22.2 | % | |||||||||||||||||||||||
2,387 | Sep-2004 | 599 | 26.4 | % | 631 | 615 | 25.8 | % | |||||||||||||||||||||||
27,722 | Total | 5,793 | 5,804 | 5,826 | 21.0 | % | |||||||||||||||||||||||||
Column (17) contains the estimated ultimate loss counts. They are comparable to the ultimate counts from our most recent analysis of losses for this segment.
Column (9) contains the estimated number of loss features that include a DCC expense by accident semester from this analysis. We project the paid DCC counts to ultimate after organizing the historical paid DCC counts in a triangular format (by accident period and by evaluation period).
Column (10) contains the estimated ultimate utilization ratios from this analysis, based upon an analysis of the triangle of utilization ratios.
Each data point in the utilization ratio development triangle is equal to
= [Paid DCC expense counts] divided by [Paid loss counts].
In Column (11), we calculate the projected DCC counts by multiplying the estimated utilization ratios in column (10) by the indicated ultimate loss counts in column (17).
The selected DCC counts in column (12) are then based upon two different projections in columns (9) and (11). For this segment, the two projections produce similar results for all periods except the last two. For the last two periods, we made judgmental selections that give us reasonable ultimate utilization ratios.
The selected ultimate utilization ratios in column (13) are the selected ultimate DCC counts (column (12)) divided by the indicated ultimate loss counts (column (17)). We compare these selections to those obtained by our analysis of the Attorney and Medical DCC components, as discussed later in this section.
We normally expect the utilization ratios to be relatively consistent over time. However, internal process changes or changes to the legal or regulatory environment in the state could cause the utilization ratios to change. If we observe changes, we investigate the reasons for those changes. For this segment, the ratios dipped down in the March 2003 period but have been
Page 49
trending back up since then. In other words, the proportion of claims for which we have DCC expenses has been increasing back to historical levels. Our investigation determined that this was reasonable as a result of changes in some claims processes in the state.
Severity — Another parameter we use in our analysis of DCC expenses is the amount of defense and cost containment we spend on each claim that has a DCC expense. This is the severity, and it is shown in the following chart.
(21) | (22)= | |||||||||
Semiannual | (Proj Sev Trgl) | (8) / (12) | ||||||||
Accident | Projected | Selected | ||||||||
Periods | Paid DCC | Total DCC | ||||||||
Ending | Severity | Severity | ||||||||
Mar-2001 | 1,442 | 1,450 | ||||||||
Sep-2001 | 2,562 | 2,591 | ||||||||
Mar-2002 | 1,922 | 1,958 | ||||||||
Sep-2002 | 2,368 | 2,404 | ||||||||
Mar-2003 | 2,693 | 2,669 | ||||||||
Sep-2003 | 2,571 | 2,591 | ||||||||
Mar-2004 | 2,428 | 2,308 | ||||||||
Sep-2004 | 2,537 | 2,623 | ||||||||
Column (21) was mentioned above relative to the average paid projection. It contains the projected paid DCC severity by accident semester from this analysis. We project the paid DCC severity to ultimate by organizing the historical paid DCC severities in a triangular format (by accident period and by evaluation period).
Column (22) contains the selected ultimate severities, calculated as the selected ultimate DCC expense dollars (column (8)) divided by the selected ultimate DCC counts (column (12)). Note that we compare these selections to those obtained by our analysis of the two major DCC components (Attorney & Legal and Medical & Other), as discussed later in this section.
The selected ultimate severities (i.e., average amount of DCC expenses for each claim for which there is DCC expense incurred) are higher than they were two years ago, but they have been relatively level since then. Investigation showed this was due to a change in process about two years ago in which we started spending more to defend against certain types of claims, in an attempt to reduce the amount of fraud.
The fluctuations in the DCC/Loss ratios were discussed above. The increasing trend in this ratio over the past 4 semesters was driven by increased utilization of defense and cost containment expenses. (We have been using these expenses more often, while the average amount we spend on them each time has not changed significantly). The fluctuations in the previous 4 semesters were driven by changes in the severity. Even though the severity tended to be lower in those two older years (Mar-2001 through Sep-2002), utilization during that period tended to be higher.
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DCC Expense Analysis by Component — Attorney & Legal and Medical & Other
As mentioned above, we also make projections of the utilization ratios and severities for the “Attorney & Legal” versus “Medical & Other” components of DCC expenses. We then calculate the resulting expense dollars for these components, as well as the ratios of these expense dollars to the loss dollars. For each of these parameters, we then compare the combination of the components with the results from the total DCC expense analysis. This allows us to better analyze the causes of fluctuations, identify trends, and check for reasonableness.
The following chart compares the utilization ratios for the components and the total:
(13)= | (14) | (15) | ||||||||||||||
(12) / (17) | (Proj Util Trgl) | (Proj Util Trgl) | ||||||||||||||
Semiannual | ||||||||||||||||
Accident | Selected | Indicated | Indicated | |||||||||||||
Periods | Total | Attorney | Medical | |||||||||||||
Ending | Utilization | Utilization | Utilization | |||||||||||||
Mar-2001 | 26.4 | % | 14.7 | % | 13.3 | % | ||||||||||
Sep-2001 | 20.8 | % | 10.4 | % | 11.0 | % | ||||||||||
Mar-2002 | 25.2 | % | 14.7 | % | 12.6 | % | ||||||||||
Sep-2002 | 26.5 | % | 14.4 | % | 14.5 | % | ||||||||||
Mar-2003 | 17.2 | % | 10.0 | % | 8.6 | % | ||||||||||
Sep-2003 | 21.4 | % | 12.2 | % | 12.6 | % | ||||||||||
Mar-2004 | 22.2 | % | 12.0 | % | 12.4 | % | ||||||||||
Sep-2004 | 25.8 | % | 15.0 | % | 12.5 | % | ||||||||||
The utilization ratios of the components are projected from triangles of the historical utilization ratios for each component. The sum of the components is consistently a couple points higher than the selected total utilization ratio for this segment. This can happen when there is attorney involvement and an independent medical report is also ordered for the claim. It is counted once for total DCC utilization and also once for each DCC component. The increase in total utilization in the last accident semester for this segment is due to additional attorney utilization.
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The following chart compares the severities for the components and the total:
(22)= | (23) | (24) | ||||||||||||||
Semiannual | (8) / (12) | (Proj Sev Trgl) | (Proj Sev Trgl) | |||||||||||||
Accident | Selected | Indicated | Indicated | |||||||||||||
Periods | Total DCC | Att. & Legal | Med. & Oth. | |||||||||||||
Ending | Severity | Severity | Severity | |||||||||||||
Mar-2001 | 1,450 | 2,308 | 148 | |||||||||||||
Sep-2001 | 2,591 | 4,621 | 193 | |||||||||||||
Mar-2002 | 1,958 | 2,949 | 180 | |||||||||||||
Sep-2002 | 2,404 | 3,942 | 177 | |||||||||||||
Mar-2003 | 2,669 | 4,174 | 251 | |||||||||||||
Sep-2003 | 2,591 | 4,200 | 241 | |||||||||||||
Mar-2004 | 2,308 | 4,250 | 260 | |||||||||||||
Sep-2004 | 2,623 | 4,400 | 270 | |||||||||||||
4 pt Ann Exp Trend | -3.30 | % | 3.46 | % | 5.99 | % | ||||||||||
8 pt Ann Exp Trend | 11.35 | % | 13.23 | % | 17.95 | % | ||||||||||
The severities of the components are projected from triangles of the historical severities for each component. The Attorney and Legal expenses over the two most recent accident years have generally been higher than the previous two years, which is the main driver of the increasing severity for total DCC expenses.
The DCC expense dollars for each component are based upon the indicated utilizations and severities for that segment. This calculation is shown here for Attorney & Legal expenses:
(14) | (17) | (23) | (7)= | ||||||||||||||||
Semiannual | (Proj Util Trgl) | (Proj Ct Trgl) | (Proj Sev Trgl) | (14)x(17)x(23) | |||||||||||||||
Accident | Indicated | Indicated | Indicated | Indicated Ult. | |||||||||||||||
Periods | Attorney | Ultimate | Att. & Legal | Att. & Legal | |||||||||||||||
Ending | Utilization | Loss Counts | Severity | ($000) | |||||||||||||||
Mar-2001 | 14.7 | % | 1,695 | 2,308 | 576 | ||||||||||||||
Sep-2001 | 10.4 | % | 1,796 | 4,621 | 865 | ||||||||||||||
Mar-2002 | 14.7 | % | 1,951 | 2,949 | 845 | ||||||||||||||
Sep-2002 | 14.4 | % | 1,855 | 3,942 | 1,054 | ||||||||||||||
Mar-2003 | 10.0 | % | 1,985 | 4,174 | 827 | ||||||||||||||
Sep-2003 | 12.2 | % | 1,939 | 4,200 | 991 | ||||||||||||||
Mar-2004 | 12.0 | % | 2,256 | 4,250 | 1,151 | ||||||||||||||
Sep-2004 | 15.0 | % | 2,387 | 4,400 | 1,575 | ||||||||||||||
The following identities are used in the calculations above:
Expense Count = [Utilization Ratio] X [Loss Count] = (14) X (17)
Expense Severity = [Expense Dollars] / [Expense Count] = (23)
Expense Dollars = [Expense Count] X [Expense Severity] = (14) X (17) X (23)
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We compare the required reserves for the sum of the two DCC expense components versus the total DCC expenses for reasonableness. This is shown at the bottom of columns (6), (7) and (8).
(6) | (7) | (8) | |||||||||
($000) | Medical & Other | Attorney & Legal | Sum | Total DCC | |||||||
Ultimate DCC | 602 | 10,694 | 11,296 | 11,698 | |||||||
- Paid DCC | 398 | 5,784 | 6,182 | 6,182 | |||||||
= Reqd DCC Resv | 204 | 4,911 | 5,115 | 5,516 | |||||||
The sum is reasonably close to the total. | |||||||||||
Therefore, the total is used in the calculation of DCC reserve adequacy: | |||||||||||
Held DCC Reserves | 5,089 | ||||||||||
DCC Reserve Adequacy = [Held] – [Required] | (427 | ) |
The other parameter for which we compare the sum of the DCC expense components to the total is the ratio of ultimate DCC expense dollars to loss dollars.
(34)= | (35)= | (36)= | ||||||||||||||
Semiannual | (8) / (16) | (7) / (16) | (6) / (16) | |||||||||||||
Accident | Selected | Indicated | Indicated | |||||||||||||
Periods | Total | Att. & Legal | Med. & Oth. | |||||||||||||
Ending | DCC/Loss $ | / Loss $ | / Loss $ | |||||||||||||
Mar-2001 | 8.81 | % | 7.80 | % | 0.45 | % | ||||||||||
Sep-2001 | 12.17 | % | 10.89 | % | 0.48 | % | ||||||||||
Mar-2002 | 9.76 | % | 8.58 | % | 0.45 | % | ||||||||||
Sep-2002 | 10.16 | % | 9.05 | % | 0.41 | % | ||||||||||
Mar-2003 | 9.24 | % | 8.37 | % | 0.43 | % | ||||||||||
Sep-2003 | 9.82 | % | 9.03 | % | 0.53 | % | ||||||||||
Mar-2004 | 10.36 | % | 10.33 | % | 0.65 | % | ||||||||||
Sep-2004 | 12.32 | % | 12.03 | % | 0.62 | % | ||||||||||
The selected DCC/Loss ratios use the ultimate DCC expense dollars for each of the components and the total. Since the Medical & Other expenses make up only a small proportion of the total DCC expense dollars for this segment, the DCC/Loss ratios are driven by the Attorney & Legal component.
The discussion above regarding the contribution of the utilization and severity parameters to the total DCC expense dollars is also relevant in the analysis of each DCC expense component. In order to make the most appropriate reserve change for DCC expenses, we have to be comfortable with each of the parameters for each of the components in the analysis.
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Other Parameters
There are also several other parameters shown on the exhibit that we use in our analysis. One of these is the analysis of CWAPO, which stands for claimsClosedWith DCC (ALAE)PaymentsOnly. In other words, they close with no loss payments, but they do have DCC expense payments. This is the CWAPO chart from the exhibit for this segment:
(28) | (29) | (30) | (31) | |||||||||||||||
Semiannual | CWAPO | Ultimate | Ultimate | Ultimate | ||||||||||||||
Accident | Count Ratio | CWAPO | CWAPO Ct / | CWAPO $ / | ||||||||||||||
Periods | @ 6 Mths | Severity | DCC Count | DCC Amt | ||||||||||||||
Ending | ||||||||||||||||||
Mar-2001 | 0.6 | % | 196 | 9.6 | % | 1.3 | % | |||||||||||
Sep-2001 | 0.7 | % | 558 | 7.1 | % | 1.5 | % | |||||||||||
Mar-2002 | 0.5 | % | 334 | 7.1 | % | 1.2 | % | |||||||||||
Sep-2002 | 0.5 | % | 808 | 7.1 | % | 2.4 | % | |||||||||||
Mar-2003 | 0.1 | % | 981 | 5.1 | % | 1.9 | % | |||||||||||
Sep-2003 | 0.4 | % | 691 | 6.6 | % | 1.8 | % | |||||||||||
Mar-2004 | 0.1 | % | 262 | 3.0 | % | 0.3 | % | |||||||||||
Sep-2004 | 0.1 | % | 1,807 | 2.4 | % | 1.7 | % | |||||||||||
For this segment, about 5% of the claims with DCC expense payments close with no loss payment, as shown in column (30). They make up between 1% and 2% of the total DCC expense dollars, as shown in column (31). When there are significant changes in these ratios, we would investigate the reasons to determine if they are reasonable. The average amount of DCC expense (severity) for each of these claims has fluctuated widely, due to the low volume for this segment.
We also look at the ratio of outside and in-house attorney usage relative to the total number of features that utilize attorneys. Changes in these ratios may be related to changes in severity. For example, we may expect in-house attorneys to be less expensive on a per-claim basis than outside attorneys. The correlation between these parameters is important to understand when there are changes in severity. The following chart shows that there have been fluctuations in these utilizations, but there has not been a noticeable trend in either category.
(32) | (33) | |||||||||
Semiannual | % Outside | % Inside | ||||||||
Accident | Attorney Per | Attorney Per | ||||||||
Periods | DCC Features | DCC Features | ||||||||
Ending | ||||||||||
Mar-2001 | 49.8 | % | 50.2 | % | ||||||
Sep-2001 | 28.0 | % | 72.0 | % | ||||||
Mar-2002 | 27.0 | % | 73.0 | % | ||||||
Sep-2002 | 27.1 | % | 72.9 | % | ||||||
Mar-2003 | 34.5 | % | 65.5 | % | ||||||
Sep-2003 | 22.8 | % | 77.2 | % | ||||||
Mar-2004 | 33.1 | % | 66.9 | % | ||||||
Sep-2004 | 34.6 | % | 65.4 | % | ||||||
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The final parameter to consider is the ratio of DCC expense reserves to loss reserves, as shown in column(20). The comparison of the current and indicated reserve/reserve ratios for this segment is as follows:
(20) | ||||||
DCC Reserves / Loss Reserves | ||||||
Current: | 16.4 | % | ||||
Indicated: | 19.0 | % | ||||
This is a final reasonableness check of our other selections. We expect this ratio to be fairly consistent over time for a given segment. If there is a significant change from one review to the next, we may look at the ratio by accident period, which could indicate a change in the claim adjustment process. These observations would be discussed with claims management to get a better understanding of any process changes. For this segment, the indicated ratio is higher than the current ratio because our DCC reserves are inadequate.
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Exhibit ADJ
PROGRESSIVE CORPORATION
State LMN Auto BI Adjusting & Other (ULAE) as of September 30, 2004
(1) | (2) | (3) | (4) | (5) | (6) | (7) | ||||||||||||||||||||||
[Apply to Case] | [Apply to IBNR] | |||||||||||||||||||||||||||
A&O | ||||||||||||||||||||||||||||
Charged | Ratio of A&O | Ratio of A&O | ||||||||||||||||||||||||||
Quarterly | Adjusted | Paid Loss | Total | Per A&O | to Capped | to Uncapped | ||||||||||||||||||||||
Calendar | A&O | Capped | Paid Loss | A&O | Count | Paid Loss | Paid Loss | |||||||||||||||||||||
End dates | Counts* | @50,000 | Uncapped | Charged | (4) / (1) | (4) / (2) | (4) / (3) | |||||||||||||||||||||
Dec-01 | 1,228 | 3,714,400 | 4,054,400 | 760,093 | 619 | 20.5% | 18.7% | |||||||||||||||||||||
Mar-02 | 1,318 | 3,926,551 | 4,096,439 | 868,607 | 659 | 22.1% | 21.2% | |||||||||||||||||||||
Jun-02 | 1,269 | 3,198,123 | 3,246,026 | 898,269 | 708 | 28.1% | 27.7% | |||||||||||||||||||||
Sep-02 | 1,202 | 3,629,395 | 3,910,898 | 959,142 | 798 | 26.4% | 24.5% | |||||||||||||||||||||
Dec-02 | 1,339 | 4,446,527 | 4,672,314 | 1,074,649 | 803 | 24.2% | 23.0% | |||||||||||||||||||||
Mar-03 | 1,181 | 4,155,283 | 4,656,783 | 1,124,520 | 952 | 27.1% | 24.1% | |||||||||||||||||||||
Jun-03 | 1,383 | 4,847,742 | 5,038,990 | 1,047,989 | 758 | 21.6% | 20.8% | |||||||||||||||||||||
Sep-03 | 1,250 | 4,721,039 | 5,202,139 | 1,032,713 | 826 | 21.9% | 19.9% | |||||||||||||||||||||
Dec-03 | 1,400 | 5,586,462 | 5,841,462 | 1,162,756 | 831 | 20.8% | 19.9% | |||||||||||||||||||||
Mar-04 | 1,319 | 5,169,460 | 5,585,959 | 1,182,213 | 896 | 22.9% | 21.2% | |||||||||||||||||||||
Jun-04 | 1,442 | 5,776,331 | 6,051,731 | 1,267,469 | 879 | 21.9% | 20.9% | |||||||||||||||||||||
Sep-04 | 1,535 | 5,694,208 | 5,978,108 | 1,305,950 | 851 | 22.9% | 21.8% | |||||||||||||||||||||
Wtd Avg for Oct-01 thru Sep-02 | 695 | 24.1% | 22.8% | |||||||||||||||||||||||||
Wtd Avg for Oct-02 thru Sep-03 | 831 | 23.6% | 21.9% | |||||||||||||||||||||||||
Wtd Avg for Oct-03 thru Sep-04 | 864 | 22.1% | 21.0% | |||||||||||||||||||||||||
Selected @ Sep-04 (current rev) | 22.1% | 21.0% | ||||||||||||||||||||||||||
Selected @ Mar-04 (prior rev) | 21.5% | 20.4% | ||||||||||||||||||||||||||
Carried A&O Paid to Paid Ratio | 22.1% |
* | Adjusted A&O Counts are a weighted average of the Number Recorded (60%) and Number Paid (40%). |
(6) & (7) | (8) | (9)= | (10) | (11)= | (12) | (13)= | (14) | |||||||||||||||||||||||||||
(8) X {(6) or (7)} | (9) X (10) | (12) - (11) | ||||||||||||||||||||||||||||||||
Selected | Indicated | Carried | Reserve | # A&O | ||||||||||||||||||||||||||||||
Pd to Pd Ratios | Loss Reserves | Incurred A&O | % Unpaid | A&O Reserve | A&O Reserve | Adequacy | Reserves | |||||||||||||||||||||||||||
Capped Case | 22.1% | 24,823,202 | 5,485,928 | 50% | 2,742,964 | 2,897,707 | 154,743 | 3,046 | ||||||||||||||||||||||||||
IBNR Reserve | 21.0% | 4,493,977 | 943,735 | 90% | 849,362 | 853,906 | 4,544 | |||||||||||||||||||||||||||
Total | 29,317,179 | 6,429,663 | 3,592,325 | 3,751,613 | 159,287 | |||||||||||||||||||||||||||||
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Exhibit ADJ – Adjusting and Other Expense Reserve Analysis
This exhibit is a calendar period analysis of the adequacy of the “Adjusting & Other” (A&O) expense reserves for this segment. We calculate the ratio of paid A&O expenses to paid losses for each calendar quarter over the past three years. We then estimate the expected ratio going forward, which we use to determine the required A&O expense reserves.
The calculation of the Paid-to-Paid ratios is shown in the following excerpt from Exhibit ADJ:
(2) | (3) | (4) | (6) | (7) | ||||||||||||||||
[Apply to Case] | [Apply to IBNR] | |||||||||||||||||||
Ratio of A&O | Ratio of A&O | |||||||||||||||||||
Quarterly | Paid Loss | Total | to Capped | to Uncapped | ||||||||||||||||
Calendar | Capped | Paid Loss | A&O | Paid Loss | Paid Loss | |||||||||||||||
End Dates | @ 50,000 | Uncapped | Charged | (4) / (2) | (4) / (3) | |||||||||||||||
Dec-02 | 4,446,527 | 4,672,314 | 1,074,649 | 24.2 | % | 23.0 | % | |||||||||||||
Mar-03 | 4,155,283 | 4,656,783 | 1,124,520 | 27.1 | % | 24.1 | % | |||||||||||||
Jun-03 | 4,847,742 | 5,038,990 | 1,047,989 | 21.6 | % | 20.8 | % | |||||||||||||
Sep-03 | 4,721,039 | 5,202,139 | 1,032,713 | 21.9 | % | 19.9 | % | |||||||||||||
Dec-03 | 5,586,462 | 5,841,462 | 1,162,756 | 20.8 | % | 19.9 | % | |||||||||||||
Mar-04 | 5,169,460 | 5,585,959 | 1,182,213 | 22.9 | % | 21.2 | % | |||||||||||||
Jun-04 | 5,776,331 | 6,051,731 | 1,267,469 | 21.9 | % | 20.9 | % | |||||||||||||
Sep-04 | 5,694,208 | 5,978,108 | 1,305,950 | 22.9 | % | 21.8 | % | |||||||||||||
Wtd Avg for Oct-01 thru Sep-02 | 24.1 | % | 22.8 | % | ||||||||||||||||
Wtd Avg for Oct-02 thru Sep-03 | 23.6 | % | 21.9 | % | ||||||||||||||||
Wtd Avg for Oct-03 thru Sep-04 | 22.1 | % | 21.0 | % | ||||||||||||||||
Select @ Sep-04 (current rev) | 22.1 | % | 21.0 | % | ||||||||||||||||
Select @ Mar-04 (prior rev) | 21.5 | % | 20.4 | % | ||||||||||||||||
Carried A&O Paid to Paid Ratio | 22.1 | % |
For this segment, the paid A&O expenses in column (4) are used to calculate the ratios to paid losses capped at $50,000 per feature, as well as the ratios to uncapped paid losses. We use $50,000 as the basis for the capping of losses, because our experience has shown it is reasonable to assume that staff involvement does not increase proportionally as the size of the claim increases for larger claims.
The capped paid-to-paid ratios in column (6) are used to determine the needed A&O expense reserve for settling claims that are currently open. The uncapped paid-to-paid ratios in column (7) are used to determine the needed A&O expense reserve for claims that are not yet reported (IBNR).
For segments in which we recover salvage and/or subrogation, in particular PIP and Physical Damage segments, the IBNR ratio is calculated based on gross paid losses.
Gross Paid Losses = Net Paid Losses + Salvage & Subrogation Recoveries
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The data we analyze for a typical review is net of salvage and subrogation. See section V for a further explanation.
Using the historical ratios as well as the 12-month-ending averages and the prior selected ratios, we select our estimated paid-to-paid ratios to be used in our reserve determination at the bottom of columns (6) and (7) (in Blue). Also note that the paid-to-paid ratio implied by our current carried A&O expense reserves is shown at the bottom of column (7).
For this segment, the ratios have been relatively level over the past six quarters, although they were higher during the year prior to that. As with other expense categories, we would look at reasons for changes in the ratios over time. The expenses allocated to this category are those related to the adjustment of claims, including fees of independent adjusters and salaries and related overhead expenses relative to Company employees involved in a claim adjusting function. Therefore, we would look at changes in claims staffing, claims inventory, claims processing and loss volume in order to determine reasons for changes in the ratios over time.
We also look at the average amount of A&O expense per claim (in column (5)) to see if there is a trend in the expense severity. The following excerpt illustrates this.
(1) | (4) | (5) | ||||||||||
A&O | ||||||||||||
Charged | ||||||||||||
Quarterly | Adjusted | Total | Per A&O | |||||||||
Calendar | A&O | A&O | Count | |||||||||
End Dates | Counts | Charged | (4) / (1) | |||||||||
Dec-02 | 1,339 | 1,074,649 | 803 | |||||||||
Mar-03 | 1,181 | 1,124,520 | 952 | |||||||||
Jun-03 | 1,383 | 1,047,989 | 758 | |||||||||
Sep-03 | 1,250 | 1,032,713 | 826 | |||||||||
Dec-03 | 1,400 | 1,162,756 | 831 | |||||||||
Mar-04 | 1,319 | 1,182,213 | 896 | |||||||||
Jun-04 | 1,442 | 1,267,469 | 879 | |||||||||
Sep-04 | 1,535 | 1,305,950 | 851 | |||||||||
Wtd Avg for Oct-01 thru Sep-02 | 695 | |||||||||||
Wtd Avg for Oct-02 thru Sep-03 | 831 | |||||||||||
Wtd Avg for Oct-03 thru Sep-04 | 864 |
The “Adjusted A&O Counts” in column (1) are the weighted average of the number of features recorded and the number paid for each calendar quarter. The A&O expense severity for this segment has been fluctuating somewhat, but the overall trend has been an increase.
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Columns (8) through (13) illustrate the calculation of our A&O expense reserve adequacy.
(6) &(7) | (8) | (9)= | (10) | (11)= | (12) | (13)= | ||||||||||||||||||||||||||
(8) X {(6) or (7)} | (9) X (10) | (12) – (11) | ||||||||||||||||||||||||||||||
Selected | Indicated | Carried | ||||||||||||||||||||||||||||||
Pd to Pd | Loss | % | A&O | A&O | Reserve | |||||||||||||||||||||||||||
Ratios | Reserves | Incurred A&O | Unpaid | Reserve | Reserve | Adequacy | ||||||||||||||||||||||||||
Capped Case | 22.1 | % | 24,823,202 | 5,485,928 | 50% | 2,742,964 | 2,897,707 | 154,743 | ||||||||||||||||||||||||
IBNR Reserve | 21.0 | % | 4,493,977 | 943,735 | 90% | 849,362 | 853,906 | 4,544 | ||||||||||||||||||||||||
Total | 29,317,179 | 6,429,663 | 3,592,325 | 3,751,613 | 159,287 | |||||||||||||||||||||||||||
The “Incurred A&O” in column (9) is the total ultimate incurred A&O expense for adjusting all claims that are currently reserved.
For claims that are currently open, this amount equals the [Selected capped Paid-to-Paid ratio of 22.1% (column (6)] times the [current case loss reserves capped at $50,000 (column (8))].
For claims that are not yet reported, it equals the [Selected uncapped Paid-to-Paid ratio of 21.0% (column (7)] times the [current IBNR loss reserves (column (8))].
For segments with significant salvage or subrogation recoveries, whether claims are currently open or are not yet reported, it equals the [Selected Gross Paid-to-Paid ratio] times the [current Gross IBNR loss reserves]
The “% Unpaid” in column (10) has been determined from our time tracking studies. The underlying concept is that much of the A&O expenses is paid when the claim is opened (or before it is opened), and the remainder is paid during the life of the claim until it is settled.
The “Indicated A&O Reserve” in column (11) represents the unpaid portion of the incurred A&O. This is compared to the carried reserve in column (12) in order to determine the adequacy of the A&O expense reserves in column (13).
Based on this analysis, our carried A&O expense reserves for this segment are conservative by about 159. Almost all of the conservatism is in the case portion so we would likely decrease our A&O case average that applies to open features.
Page 59