lloyd’s sao review process...6 ©lloyd’s statements of actuarial opinion - uk actuarial...
TRANSCRIPT
Lloyd’s SAO review process
Jerome Kirk
Senior Manager, Lloyd’s Market Reserving & Capital
27 November 2009
Presentation to Society of Actuaries in Ireland
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Agenda
Background
Review Process
Results
Impact over time
Closing thoughts / Questions
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Background
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Lloyd’s is an active Market
80 Syndicates
51 Managing Agents
£16bn Premiums
£28bn Net Reserves
….which need professional oversight if it is to work
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Statements of Actuarial Opinion
Worldwide technical provisions on each open syndicate year of account are subject to annual Statement of Actuarial Opinion (SAO)
“One-way” test. The provisions held must be at least as large as actuary’s best estimate
SAOs cover Gross and Net Solvency Technical Provisions which: Are not discounted for the time value of money Cover Outstanding Claims, IBNR, UPR and URP Do not allow the release of profits on unearned business Allow for reinsurance bad debt and claims handling expenses
Large loss wordings highlight areas of increased uncertainty
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Statements of Actuarial Opinion- UK Actuarial Standards
Specific UK actuarial guidance issued by Board for Actuarial Standards:
GN12: General Insurance: Actuarial Reports
GN20: Actuarial Reporting under Lloyd’s Valuation of Liabilities Rules
GN33: Actuarial Reporting for Lloyd’s syndicates writing US business
Practising certificates required
Provides additional technical advice papers
Bad debt / ULAE
Regular liaison with Lloyd’s
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Review Process
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Formal Reports support SAOs
SAOs are supported by formal actuarial reports
Reports are submitted to Lloyd’s
113 reports for year-end 2008
42 signing actuaries
9 consulting firms and 9 in-house
Deadline is mid-April
After the opinions have been submitted !
Electronic copies help our review
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MRC reviews these reports…..
MRC team at Lloyd’s review the reports
12 people / 1 day per report
Structured review
Fixed questions
Based on GN12
Includes subjectivity / qualitative comments
Consistency is important
Guidance for reviewers
Peer review
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…and feeds back to the producers
Reports are scored per section
Leads to an overall “score” per report
Feedback document
For producers not recipients
Highlights strengths and weakness and includes “scores”
Including examples of good practice
Provide (anonymous) market data for comparison
Introduces some competition
Follow up meetings
Very positive feedback from producers
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Example feedback chart…..
Performance Across All Syndicates
62%67%
80%
70%76%
55%
75% 72%68%
65%
Syndic
ate 1
Syndic
ate 2
Syndic
ate 3
Syndic
ate 4
Syndic
ate 5
Syndic
ate 6
Syndic
ate 7
Syndic
ate 8
Syndic
ate 9
Syndic
ate 10
Average
Unacceptable
Poor
Meets Requirements
Good
Excellent
Note: Based on dummy data
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Lloyd’s role extends beyond SAOs
We actively manage reserving risk
Main corporation tools to understand reserving risk are:
- Independent projections
- Monitor IBNR usage through year / Early warning
- Benchmark syndicate reserves
- Monitor catastrophe claims development
Strong link to capital setting
Can’t cover this in detail today
but will give some ideas on benchmarking syndicate reserves
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Benchmarking syndicate reserves
Calculate the relative reserving levels of syndicates NOT a measure of reserve adequacy
Index results to rank syndicates
Analyse key areas via KPIs
Results are fed back to syndicates
Detailed report for technical staff
Summary for senior staff
Input into ICA process as linked to reserving risk
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Benchmarking syndicate reserves
1 2 3 4Reserve Benchmarking Quartile
Av. Reserve Risk as % of
Reseves
VisualFeedback
Linked to ICA
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Benchmarking syndicate reserves
GROSS QuartileReserve Benchmarking Index Portfolio Benchmark Deviation
1. Reserve Strength 1.1 Reserve as % Ultimate Claims 31.6% 29.1% 2.5%1.2 IBNR as % Ultimate Claims 12.2% 12.8% (0.6%)1.3 Case Reserve as a % of Incurred 22.1% 18.6% 3.4%1.4 Survival Ratio (years) 2.3 2.3 0.0
2. IBNR Utilisation 2.1 IBNR Burn (1 year) During 2006 50.3% 35.8% (14.5%)2.2 IBNR Burn (1 year) During 2005 47.4% 39.2% (8.1%)2.3 IBNR Burn (1 year) During 2004 20.6% 30.4% 9.8%
3. Reserving over time 3.1 Ultimate(@now) as % Ultimate(@YOA) 97.3% 98.8% 1.6%3.2 Ultimate(@now) as % Ultimate(@YOA+2) 93.2% 99.4% 6.1%
4. Quality of business 4.1 Paid Loss Ratio 62.9% 60.3% (2.6%)
5. Speed of Development 5.1 Paid Claims Development Deviation 0.4%
Other KPIs5. Reinsurance N/A 6.1 % Premium Ceded 32.8% 30.5% 2.3%
6.2 RI ULR 97.3% 100.9% (3.6%)6.3 RI Ultimate as % of Gross Ultimate Claims 34.7% 36.2% (1.5%)6.4 RI Reserve as % Gross Reserve 28.1% 28.3% (0.1%)
6. Ultimate Loss Ratio N/A 7.1 ULR 91.9% 85.0% (6.9%)
Source: Dummy Reserve Benchmarking Report based on Lloyd’s SRD database
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Results
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What are we aiming for in the reviews?
Must be realistic
Reports need time to produce (and time is money)
Marginal returns as quality improves beyond good
High level objectives:
No poor reports
Maximise use to Lloyd’s
Understand budgetary constraints
Aim: All Reports Are assessed as “GOOD”
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We see high quality in nearly all areas…
Range of Results for all producers
0%10%20%30%40%50%60%70%80%90%
100%
Con
tent
Nat
ure
&Ac
cura
cy o
fD
ata
Met
hods
Assu
mpt
ions
Em
ergi
ngE
xper
ienc
e
Res
ult
Sel
ectio
n
Res
ults
Pre
sent
atio
n
Unc
erta
inty
Bus
ines
sK
now
ledg
e
Ove
rall
com
mun
icat
ion
Unacceptable Poor Meets Requirements Good Excellent
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Overall Communication
Business Knowledge
Uncertainty
Results Presentation
Result Selection
Emerging Experience
Assumptions
Methods
Nature & Accuracy of Data
Content
Produc
er1Prod
ucer2
Produc
er3Prod
ucer4
Produc
er5Prod
ucer6
Produc
er7Prod
ucer8
Produc
er9Prod
ucer1
0
ExcellentGoodMeets RequirementsPoorUnacceptable
…and across all producers
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Impact over Time
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The burning question…….
Has Lloyd’s review made a difference?
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….can analyses the results over time
Look at:
Overall impact
- via average score per year
Consistency
- via spread of scores between reports
Specific impact
- via areas Lloyd’s has specifically focussed on
This form of review gives 4 years of data to work with
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We have seen a steady increase in average scores….
Getting very close to our goal
Overall performance for all producers by year-end
60% 61%65%
69%
2005 2006 2007 2008
Unacceptable
Poor
Meets Requirements
Good
Excellent
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2005 SAO - Range of Results for all producers
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Con
tent
Nat
ure
&A
ccur
acy
of D
ata
Met
hods
Ass
umpt
ions
Em
ergi
ngE
xper
ienc
e
Res
ult S
elec
tion
Res
ults
Pre
sent
atio
n
Unc
erta
inty
Bus
ines
sK
now
ledg
e
Com
mun
icat
ion
Unacceptable Poor Meets Requirements Good Excellent
…and across every section2006 SAO - Range of Results for all producers
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Con
tent
Nat
ure
&A
ccur
acy
of D
ata
Met
hods
Ass
umpt
ions
Em
ergi
ngE
xper
ienc
e
Res
ult S
elec
tion
Res
ults
Pre
sent
atio
n
Unc
erta
inty
Bus
ines
sK
now
ledg
e
Com
mun
icat
ion
Unacceptable Poor Meets Requirements Good Excellent
2007 SAO - Range of Results for all producers
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Con
tent
Nat
ure
&A
ccur
acy
of D
ata
Met
hods
Ass
umpt
ions
Em
ergi
ngE
xper
ienc
e
Res
ult S
elec
tion
Res
ults
Pre
sent
atio
n
Unc
erta
inty
Bus
ines
sK
now
ledg
e
Com
mun
icat
ion
Unacceptable Poor Meets Requirements Good Excellent
2008 SAO - Range of Results for all producers
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Con
tent
Nat
ure
&A
ccur
acy
of D
ata
Met
hods
Ass
umpt
ions
Em
ergi
ngE
xper
ienc
e
Res
ult S
elec
tion
Res
ults
Pre
sent
atio
n
Unc
erta
inty
Bus
ines
sK
now
ledg
e
Com
mun
icat
ion
Unacceptable Poor Meets Requirements Good Excellent
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…..and an improvement in consistency
Note: 2 highest and lowest scores for each year have been excluded
Range of Results for all producers
0%
20%
40%
60%
80%
100%
2005 2006 2007 2008 2009
Mean Maximum Score Minimum Score
Excellent
Good
Meets Requirements
Poor
Unacceptable
Target?
Estim
ated
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Specific points of focus (1)Peer review
Reports stating work had been peer reviewed (by year-end)
7%
55%
74%
93%
2005 2006 2007 2008
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Specific points of focus (2)Quantifying uncertainty
Reports where uncertainty had been quantified (by year-end)
69%
79%
89%
2006 2007 2008
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How do people quantify uncertainty?
Methods Used to Quantify Uncertainty - 2008 year-end
15%
22%
48%
4%
11%
Range of ReasonableOutcomesStress/Sensitivity test
Bootstrap
Mack
Other
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Specific points of focus (3)Large loss wordings
Reports describing how large loss wordings were selected (by year-end)
47%
83%
95%
2006 2007 2008
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Specific points of focus (4)Emerging experience
Reports which included A vs. E (by year-end)
38%
54%
2007 2008
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Closing thoughts
Reviewing SAO reports is a valuable exercise
to both Lloyd’s and the profession
Requires significant resources
To be effective
consistency is required through structure
- but review can include subjectivity
feedback is essential
Lloyd’s review extends beyond SAOs
Seen a positive impact of the SAO reviews over last 4 years
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Questions
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