Risk Analysis ASAP
by Actuarial Services and Programs
Evaluating Experience of
Individual Accounts or
Program Groups
Purpose of Program
 Evaluate Actual Experience
 Loss Ratio
 Combined Ratio
 Project Future Experience
 Indicated Rate Level Change
 Indicated Loss Cost
 Particularly useful for monthly or
quarterly monitoring of results.
Designed for Use by:
 Senior Underwriting Officer
 Program Managers
 Senior Underwriters
 Large Risk Underwriters
 Managing General Agents
 Risk Managers
 Agents with Large Accounts
Risk Analysis ASAP Model
 Actual Earned Premium
 Paid Losses
 Adjustment to Current
 Case Loss Reserves
Rate Level
 Trend Exposure to
Future Period
 Permissible Loss Ratio
 Reserves for




Unreported Losses
Loss Adjustment
Expenses
Adjustment to Current
Benefit/Coverage Level
Trend to Future Period
Claim Count
Built-in User Conveniences
 Entries on Summary Exhibit transferred to
LOB Exhibit for: state, program, experience
period, evaluation date, effective date.
 Can select level of detail to include, and data
entry modified accordingly. Deleted entries
may be recovered.
 Tab sequenced through program, with
current focus highlighted in yellow.
 Required steps highlighted and cannot be
extinguished until executed.
Built-in User Conveniences (cont)
 Can select to include or exclude: LDF, LAE,
Loss Trend, Premium Trend, On-Level
Factors (RLAF or BLAF), and can manually
over-ride factors.
 Summary Exhibit displays criteria included in
Indication.
 Creates output file for later retrieval in full
detail or e-mailing.
 Table development screens included with
worksheets.
Program Flexibility includes:
 Individual Risk or Group of Risks
adjusts length trend, loss development type
& effective dates
 Most Lines of Business & Coverages included
but user selects the level of detail to enter
 Up to 5 Years of Experience
 (handles partial or truncated years)
 Handles policy terms of 1, 2, 3, 4, 6, or 12 mos
Program Flexibility (cont.)
 Calendar, Accident, Policy or Report Year
Data
 Loss Development Factors (LDF) vary by
 Line of Business, Coverage & Limit
 Paid or Incurred
 Accident, Policy or Report Year
 Tort, No-Fault or Add-on No-Fault for
Automobile Liability
 LDFs interpolated between evaluation ages
 May include LAE as loss factor or in PLR
Program Flexibility (cont.)
 Trend factors by Line of Business & State
 Defaults
to countrywide, if state not found
 Rate (RLAF) & Benefit (BLAF) On-Level
factors by State, Line of Business, Program
 Up to 10 revisions applying to either
 applied to new or outstanding business
 On Calendar, Accident, Policy, Report Year
(including partial or truncated years)
Graphic: Policy Year vs
Calendar Accident Year
AREA BETWEEN VERTICLE LINES IS CALENDAR-ACCIDENT YEAR
AREA IN BLUE IS POLICY YEAR
Premium (or Exposure) Definitions
 Written Premium (WP)
 Unearned Premium (UEP)
 Earned Premium (EP) = WP +UEP at start
–UEP at end
 Current Level EP (CLEP) = EP x Rate
Level Adjustment Factors (RLAF)
 Projected EP = CLEP x Trend Factor
When Will RLAFs Be Needed
 Change in rate level implemented
 Change in rating modifier on policy
(experience, schedule, retro, etc.)
 Change in increased limits sold
(change in Financial Responsibility Limit)
Current Level Earned Premium
(does not apply to Exposure)
1.265
Latest Rate Level
1.100
Average
Rate
Level
1.000
Rate
Change
Base
Cumulative
Change
1.000
Rate Level
Adj. Factor =
10%
15%
1.100
1.265
Latest Rate Level
Average Rate Level
Types of Exposure Trend Measured
 Automobile Physical Damage Age &
Symbol Drift
 Effect of Inflation of Sales Receipts
 Effect of Inflation on Payroll
Premium/Exposure Length Trend
1-Yr Experience Period
Under Indicated Rate Level
Experience Period
Start
Effective
Date
Individual Policy
Group of Policies - between Mid-Points
Loss Definitions
•Case Losses = Paid Losses + Case Reserves
•Ultimate Losses = Case Losses + IBNR
•Ultimate L&LAE = Ultimate Losses + Loss
Adjustment Expenses
•Ultimate L&LAE on Level = Ulti. L&LAE
x Adjustment to Today’s Benefit Level
•Project L&LAE = Ulti. L&LAE on Level x
Trend Factor
Loss Emergence Patterns
1.2
Percentage
1
IBNR
0.8
Reserves
0.6
0.4
Paid
0.2
0
1
2
3
4
5
Time
Year
1
LDF - Paid 2.500
-Incurred 1.333
2
3
4
5
1.538
1.149
1.250
1.053
1.111
1.042
1.053
1.010
Loss Adjustment Expenses
 Loss Adjustment Expenses (LAE) =
Allocated (ALAE) + Unallocated(ULAE)
= Defense & Cost Containment (D&CC)
and Adjusting & Other (ao) LAE
 LAE Factor = Ultimate L&LAE
Ultimate Losses
Types of Trends on Losses
 Change in claim frequency
 Change in average claim cost
 Change in pure premium
Trend from Mid-Point of Experience
Calendar
Accident
Year
Policy
Year
Length of Loss Trend Period
Experience
Period
Mid-Point
Experience Period Under
Under Indicated Rate Level
Group of Policies
Individual
Last
Policy
Policy Term
Effective
Date
MidPoints
Single Multi
Expiration of last
policy under rate level
When Will BLAFs Be Needed
 Common for Workers Compensation to have




state revise benefit levels
Tort law change, or court interpretation of
coverage
Change in limits or deductibles sold under
program
Coverage expansion for program.
Change in Financial Responsibility Limit
Adjusting to Current Benefit Level
1.134
Latest Benefit Level
1.050
1.000
Benefit/Coverage
Change
Base
Cumulative
Change
1.000
Average Benefit Level
during experience period
5%
1.050
8%
1.134
Benefit Level
Latest Benefit Level
Adj. Factor (BLAF)= Average Benefit Level
Graphic of On-Level Areas
Average
Change Affecting
New Business Only
Change Affecting
All Outstanding Business
Calendar-Accident Year
Policy Year
Truncated
by Evaluation
NEW
OUT
Truncated
Assumptions Included:
Premium/Exposure Losses
 If Group of policies,
 No Seasonality
then evenly spread
throughout year, and
annual rate revisions.
 Changes in Rating
Mods (experience ,
schedule, etc) handled
as rate changes.
 Fixed expenses added
manually by user.
 No development applies
 Age of partial period is
adjusted to 12 month
period equivalent.
 Linear interpolation of
LDFs valid between
evaluation dates.
General Observations about:
Loss Dev Factors
Annual Trends
 Less mature (age)
 Trends increase as
claims have larger LDF
 Paid LDF >
Incurred LDF
 Policy Year LDF >
Accident Year LDF
 Increased Limit LDF >
Basic Limit LDF
limits increase.
 Excess layer trend >=
primary layer trend.
 Trends compound
geometrically.
Model Requirements
 Visual Basic Program for PC use
 Need Windows platform
 Size: 12 MB
 Reads and writes ASCII text files
created by program or easily obtained
from Excel files and editable as
notebook files: .txt, .txb, .txd, .txe
Risk Analysis ASAP
 Risk Analysis ASAP is designed, produced and marketed by:
R. Stephen Pulis, ACAS, MAAA
Actuarial Services and Programs
1155 Flagmore Drive
Katy, TX 77450
(281) 579-2474
[email protected]
www.ACTUARIAL.BIZ
See Price Sheet for costs to purchase or rent.