Bootstrapping and reserve variability

You may remember a few weeks ago, Guy Carpenter gave a peek into their study that indicates bootstrapping understates reserve variability. I asked a couple of questions: Do the outliers have much in common with each other? Are they smaller companies or larger ones? The study works from net data. Would you get the same [...]

Does bootstrapping understate reserve variability?

Over at Guy Carpenter land, actuary Jessica Leong posits that the bootstrapping method of estimating reserve variability understates that variability. Bootstrapping, of course, is a method of using the company’s own data to drive a random sampling process; said process re-estimates the reserve. Sample enough times, keep track of the results, and you’ve got a [...]

A new wrinkle in IBNR

Behind its firewall, SNL writes about reinsurers establishing cat IBNR reserves that aren’t tied to an event: Typically, reinsurers establish IBNR reserves to cover future payments on individual losses that have occurred but have yet to be reported or reported losses that have not been recorded in full. Unallocated IBNR reserves are a slightly different [...]

Actuaries – the eternal optimists

Update: An earlier version suggested that every accident year was inadequate. Reader GB points out that the article I cite almost certainly refers to the adequacy of the loss reserve on the balance sheet each year end. My misunderstanding also led me to wonder why the article dwelt on asbestos and environmental reserves, but with [...]

Q2 reserve releases: Not much left

Fitch estimates that P/C reserves were redundant by $6B to $16B at year-end, according to this P/C 360 report. So far this year, insurers have pushed prior-year reserves down $7.4B, which indicates the well must be about dry. The $7.4B takedown comes via Quarterly Statement data released last week (gathered by SNL). The table breaks [...]

Insolvency: What was the actuary’s role?

Time Flies Department: The Reliance Insurance insolvency turned 10 this year, and Best’s Review (sub. req., I think) was all over it. Reliance was one of three big insurers that went under in a 10-month span ending in March 2002, the others being Legion Insurance and Phico. The accompanying chart, which ranks the largest insolvencies [...]

In comp, the good gets better; the bad gets worse

Guy Carpenter had an interesting idea buried in its recent post, Workers Compensation Reserve Risk Development: The Cat That May Be Lurking in Your Balance Sheet. GC notes that companies have a hard time getting their comp reserves right. If they are inadequate, said inadequacy may hurt earnings as much as a catastrophe would. Thus, [...]

Berkshire gobbles up AIG’s asbestos reserves

Shouldn’t have been surprised by this one. Bloomberg with the call, via Business Week: April 20 (Bloomberg) — Warren Buffett’s Berkshire Hathaway Inc. will get $1.65 billion from American International Group Inc. for assuming the risk of asbestos policies from the bailed- out insurer. The deal with Omaha, Nebraska-based Berkshire’s National Indemnity will result in [...]

A premature call on the hard market

Business Insurance surprised me with this one: U.S. commercial property/casualty premiums grew last year at their fastest rate since 2006 due to underwriting losses and “unfavorable reserve development,” SNL Financial said in its analysis of fourth-quarter statutory insurance data. The analysis includes data on reinsurance, investments, loss reserve schedules and other factors, the Charlottesville, Va.-based [...]

The importance of loss reserving in one chart

  AIG is such a big company, and its reserves have deteriorated so much in recent years that with yesterday’s release of its 10-K, I decided to look here and here. Yipes! I took a couple of shortcuts, but they don’t affect things much. I haven’t adjusted for the discount in loss reserves, which is [...]