1 presented by Marcus Beverly, CPCU, AIC, ARM-P Vice President, Alliant Insurance Services and Mujtaba Datoo, ACAS, MAAA, FCA Actuarial Practice Leader, Aon Risk Consulting PARMA Conference 2014 0 Outline the objective and subjective criteria used to evaluate an appropriate Self-Insured Retention (SIR) or retained risk for your agency. 1
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Outline the objective and subjective criteria used to ... · $150k SIR = + $10k $250k SIR = + $50k Pessimistic – total losses $650k – start circulating resume $150k SIR = (-$180k)
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Transcript
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presented by
Marcus Beverly, CPCU, AIC, ARM-PVice President, Alliant Insurance Services
andMujtaba Datoo, ACAS, MAAA, FCA
Actuarial Practice Leader, Aon Risk Consulting
PARMA Conference 2014
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Outline the objective and subjective criteria used to evaluate an appropriate
Self-Insured Retention (SIR) or retained risk for your agency.
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Risk Financing Objectives Objective Criteria – “the numbers” Subjective Criteria – “the gut feeling” Putting them all together Case studies
From there it’s a crapshoot!
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=+
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Hazard + Outrage*Objective and Subjective
Components
*http://www.psandman.com
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We all want lower premiums with more coverage and services
We all need a way to finance our losses4
“No pulse, no chance”
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You are now a Risk Financing “Vehicle”
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Money to pay the claims!
Stability – avoid swings in funding or assets Efficiency – lower cost of risk than insurance Services - risk control, claims, admin, other Compliance - regulatory or business
Losses above SIR Nature & scope of individual claims Major causes of loss Predictability Reserve changes Reserving practices Administration
Trends of above
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New/emerging
Existing and unknown
Claims v. other agencies/companies
Legislation
Case law
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Change in coverage Change in self-insured retention level Change in excess insurance company Industry rating of excess insurance co. Reputation of and relationship with insurer Total limits, aggregates, stop-loss
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HARD
Raise SIR?
Lower Limit?
Less Coverage?
Less Service?
Longer Term?
SOFT
Lower SIR?
Higher Limit?
More Coverage
More Service?
Change Term?
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Financial objectives & strategies Financial position as compared to
recommended levels Stability of funding, cash flow Premiums/funding levels Interest
Trends of above
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Actuary projections Do the numbers make common sense?
How compare to insurance/other options Number of years to fully fund at various SIRs
Change in actuary? Full extent of actual ultimate liabilities Confidence levels
Will the future look like the past?
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Attitude & Ability re Assessments/Retros Size – numbers and trends SIR – size and Excess insurance stability Board engaged, experienced, get along?
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Strategic Objectives Change in administration/programs/staff; Services desired/needed Political
Others?
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What’s Your Objective?
Run it through your mission statement
Stable, long-term funding of losses
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It’s a crapshoot!
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Review the numbers and subjective criteria and make decision
Roll the die! See how your decision plays out under
three scenarios
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Small entity with $150K SIR Considering increase to $250K SIR Conservative Funding (>90% CL) Losses fluctuate +/- 10% to 40% per year Average 24 claims per year
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Past Loss Funding Actual Projected Difference % Change
Liabilities at 50% CL $550,000 $400,000 ($150,000) -27%
Equals
Net Assets/Surplus $2,150,000 $2,500,000 $350,000 16%
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Actual Projected
Benchmarks (Goal Ratio) 6/30/2013 6/30/2014
Net Assets/$150K SIR (> 5-10) 14.33 16.67
Net Assets/$250k SIR (> 5-10) 8.60 10.00
Liabilities to Net Assets (< 1.5 to 1.0) 0.26 0.16
Net Premium to Net Assets (< 1.0 to .5) 0.14 0.11
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Future Loss Funding2013-14 2014-15 Difference 2014 to 15
Loss Funding $150K SIR (75% CL) $300,000 $270,000 ($30,000)
Excess Coverage $180,000 $200,000 $20,000
Total Funding $150k $480,000 $470,000 ($10,000)
$250K SIR OptionsDifference From
$150k SIR
Years tofund increase
Loss Funding $250K SIR (75% CL) n/a $310,000 $40,000 2.50
Excess Coverage n/a $120,000 ($80,000) 1.25
Total Funding $250K $430,000 ($40,000) n/a
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Sharing risk in excess pool Legislative reforms increasing TD rates Desire for more risk control services Pressure to raid surplus for general fund Conservative funding philosophy Maintain potential to raise SIR if needed Frequency down, severity creeping up Market is hardening
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$150K? $250K?
Now …let’s roll the die!
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Optimistic – total losses $100k – you’re a “Hero!”
$150k SIR = + $170k
$250k SIR = + $210k Expected – total losses $260k – your actuary’s a “genius”
$150k SIR = + $10k
$250k SIR = + $50k Pessimistic – total losses $650k – start circulating resume
$150k SIR = (-$180k) (limited losses = $450k)
$250k SIR = (-$340K) (limited losses = $650k)
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Medium-sized entity $1 Million GL SIR since 2010, was $500K Never had a claim over $500K Had 3 claims over $1M since raising SIR Conservative, with funds > 90%CL,
though they are projected to disappear Considering going back to $500K SIR
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Losses were trending down with more focus on risk management
RM training and funds cut in recent years Recent >$1MM losses = 2 EPL & 1 MVA EPL related to budget cuts, morale low EPL defense costs > $500k per claim Budget is stabilizing after years of cuts,
want to restore RM funding
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Political pressure to reduce EPL and overall “bleeding” from big losses
Excess Pool - recent member disputes over coverage, net assets declining
Insurance Market is stable Lower SIR from $1 mil to $500,000?
Raise limit from $10 mil?
Change excess coverage?
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Liability Program Actual Projected Difference Change
Balance Sheet Comparison 6/30/2013 6/30/2014 2013 to 14 2013 to 14