Updating the Berquist Sherman Paper

1
Updating the Berquist Sherman PaperThirty Years
LaterCLRS September 2007

• Joseph O. Thorne, ACAS
• Thorne Thorne, Inc.

2
Two Key Points

• I am not RES.
• I am not JRB.

3
Who Is Talking At You
4
Add An Another Key Point

• I am not RES.
• I am not JRB.
• I am Joe Thorne.

5
Why Here and Now?

• Why am I here?

6
Why Am I Here?THE ANSWER

• I was silly enough to have thoughts, to put them
  in writing, to have them snagged from the PCAS
  and put on the syllabus for thirty years.
• They are still there.
• I am still answering for it (bleeding).

7
Why Are You Here?THE ANSWER

• They were silly enough to have thoughts, to put
  them in writing, to have them snagged from the
  PCAS and put on the syllabus for thirty years.
• They are still there.
• You insist that we still answer for it (and
  rightfully so you did bleed).

8
The Historian

• 1973, 74, ..78

9
The HistorianA JRB Comment From 2002

• Joe, I had the contacts in the industry.

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The HistorianJRB Quote From 2002

• One of the prime motivators for writing our
  paper was that the accountants were moving in on
  our turf.

11
The HistorianJRB Quote From 2002

• One of the prime motivators for writing our
  paper was that the accountants were moving in on
  our turf.
• Editorial comment by Joe I worried about FSAs
  more.

12
Why Here and Now?

• Why were we there?

13
What was said?

• Title/Authors
• Text
• Appendix
• Thorne Discussion
• 2002 Roundtable

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Title

• LOSS RESERVE ADEQUACY TESTING A COMPREHENSIVE,
  SYSTEMATIC APPROACH

15
AuthorshipAll Ten Of Us

• Dick Fallquist
• Jim Foote
• David Hu

16
Thorne Discussion Shifts In SOL RES Quote From
2002

• RES Few insurers even have size of loss data.
  Thats surprising but true.
• JOT It is interesting that corporate clients
  .... do have (it).

17
2002 Roundtable MotivationComment From Amsterdam

• An actuary who shows up at a rate hearing with
  nothing but the chain-link method would get run
  out of the room.

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Updating the Berquist Sherman PaperThirty Years
Later

• Updating/What have we learned?

19
Ad Hoc Survey

• Have you seen reserve studies of PC insurance
  companies performed by other actuaries?
• Have any of these studies not included a claims
  disposed adjustment (CD adj.)?
• Of these studies with no CD adj, in the
  workpapers did all of them evaluate the need for
  such an adjustment?

20
Ad Hoc Survey

• Have you seen reserve studies of PC corporate
  self-insureds performed by other actuaries?
• Have any of these studies not included a claims
  disposed adjustment (CD adj.)?
• Of these studies with no CD adj, in the
  workpapers did all of them evaluate the need for
  such an adjustment?

21
Ad Hoc SurveySame Questions

• Insurance Company Reserve Studies CD Adj
• Corp Self-Insured Reserve Studies CD Adj
• All Reserve Studies - Adjustment For Changes in
  Size Of Loss Distribution (Thorne Discussion)
• Claims Disposed Adjustment In Rate Filings For
  Insurance Companies and Rating Bureaus

22
Ad Hoc SurveyConversations Before CLRS

• Rodney Kreps
• Leigh Halliwell
• Joe Marker
• Mark Shapland
• Frank Schmid
• Tom Hettinger
• Gary Venter (N/A)

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Summary

• New Historical Perspective When Reviewing
  Thoughts Of 1977/1978/2002

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Summary

• New Historical Perspective When Reviewing
  Thoughts Of 1977/1978/2002
• Ad Hoc Surveys On Reserving and Ratemaking

25
Summary

• New Historical Perspective When Reviewing
  Thoughts Of 1977/1978/2002
• Ad Hoc Surveys On Reserving and Ratemaking
• Frequency Of Actual Application Of These Thoughts
  In Practice Implies They Are Not State Of the Art
  Even Thirty Years Later

26
Summary

• New Historical Perspective When Reviewing
  Thoughts Of 1977/1978/2002
• Ad Hoc Surveys On Reserving and Ratemaking
• Frequency Of Actual Application Of These Thoughts
  In Practice Implies They Are Not State Of the Art
  Even Thirty Years Later
• Rodney Kreps In 2007

27
Summary

• As actuaries lets look to the future.
• Weve squared triangles (link ratio technique)
  long enough.

28
Report Last Week

• Over the past few years there has been a
  transition in workers compensation from the old
  TPA to the new TPA (see Background section). It
  is our understanding that the old TPA is no
  longer in the WC TPA. The active claim
  management of the new TPA that started in April
  of last year may explain the higher level of
  claims under the old TPA in Fiscal Accident Years
  2005 and 2006 and the lower level under the new
  TPA for Fiscal Accident Year 2007 (see V-WC page
  3). It is our understanding that there was a
  cleanup with closing of claims by the new TPA.
  This cleanup and the inherent acceleration in
  payments can artificially inflate the actuarial
  methods. This possible artificial affect on
  actuarial methods was considered in our analysis
  and in the final selection of our estimates of
  this report.
• In Fiscal Accident Year 2006 OTS experienced two
  large liability fatality claims. For one claim
  only legal expense has been paid. We have
  accepted the indemnity reserve for that claim as
  estimated by the TPA. The other claim closed
  during the two months after receipt of the June
  30, 2007 data used in this report. This claim
  was settled for 400,000 more than the case
  reserve. We have reflected the settlement of
  this second claim in our estimates by increasing
  the Fiscal Accident Year 2006 reserves as of June
  30, 2007 by 400,000 (see the footnote on Exhibit
  3). Though these claims contribute to a spike in
  loss costs for that year (see Exhibit VII-LIAB)
  the level for Fiscal 2007 has returned to
  historical levels, and we continue to estimate
  loss costs consistent with historical pre-2006
  levels and the loss cost trend as flat or 0 per
  year.