Trend Sources and Techniques A Comparison of US

Trend Sources and Techniques, A Comparison of US and European Methods Trending of Premium and Claims A Reinsurer’s Perspective FIT FOR PURPOSE London CARe Seminar 15 th September 2009 1 Niranjan Nathan Head of Actuarial Pricing Property and Casualty, Swiss Re UK

Trending Premiums Rate change indices Though need to be wary…. . Extract from EMB Motor Insurance Industry Report as at 31 December 2008 n 2 Rate indices are often used in the UK to rebase historic premiums to policy period

Trending Premiums Need to be wary…. Different index may be needed for different purposes (e. g QS vs Xo. L) 80% of clients indicated rate changes are higher than average premium shift 3

Trending Premiums Further thoughts 4 n No equivalent of rate filing process in the UK n LR volatility impact in “sticky” jurisdictions? n Further this may be the source of some subtle methodology differences

Claims Trending Not straightforward 5 n Loss volatility n Claim development pattern n Past “one off” legal shifts n Different trends for different claim sizes n FGU trends with censored data n BUT: need to make best estimate…

Application of Claims Inflation The danger of long term assumptions 6

Application of Claims Inflation Average claim size trends n Beware of mixing trends in average claim sizes with fixed deductibles / observation points Year 1 7 Year 2

Measurement of trends Where to look? Different inflation measurements will reflect calendar versus accident year trends 8

Application of claims inflation n Accident year trending projection n Development year trending projection – Need to ensure measurement basis is consistent with projection basis – Different Trends by different claim type / size n 9 No explicit trending projections

Conclusion 10 n Both US and UK actuaries are logical n Ensure indexes are fit to purpose n Ensure application is fit to index