Rate Making - Part 1 - Anti Selection, Rate Relativity, and Credibility

WHY IS THERE A NEED FOR RATE RELATIVES?
1. Individual Insureds differ in potential risk and amount of insurance coverage.

2. We can ensure each group pays its share of losses and avoid anti-selection while ensuring fair discrimination.

Thoughts on Business Intelligence For General Insurance Detariff

This post discusses the common types of underwriting levels, impact from competition during detariff and some thoughts and expectations on the detariff market.

[Framework] Insurer's Financial Rating - Part 2 - ERM

ERM

1.  ERM should become a natural extension of an insurer’s fundamental risk management practices, with the foundation still rooted in sound traditional controls and policies encompassing the five key categories of risk: credit, market, underwriting, operational and strategic.

2.  ERM encompasses three key areas - Culture, Identification and Management, and Measurement.

[Framework] Insurer's Financial Rating - Part 1 - Risk Management

RISK MANAGEMENT
1. Risk management is the process by which companies systematically identify, measure
and manage the various types of risk inherent within their operations.

2 Important to note that the objective of risk management is not to eliminate
risk and volatility, but to understand it and manage it.

3. Below are the key risk management trends in the insurance industry and describes how risk management impacts the overall rating process and the development of capital requirements. 

Re/insurers Risk Accumulation - Part 2 - Measuring Risks Accumulation

1. This post will cover a brief summary of the capabilities of loss severity models (LSM)

2. We will look at how technology assists in identification and management of risk accumulations.

3. And to highlight the crucial validations and steps in the underwriting process.

Re/insurers Risk Accumulation - Part 1 - How Risks Accumulates

1. In previous post I have covered business nature of reinsurers, RI's diversification, asset-liability management, & capital management.

2. Link as follow <http://levelnineatwork.blogspot.my/2014/12/products-3-in-1-liablity-product-bundle.html>

3. The rapid increase of insurable assets in areas prone to natural catastrophes creates accumulation risks which offers both challenges and opportunities for re/insurers in the region.

4. Re/insurers must find ways to manage risks accumulation.

[Misconduct] Transitions Management Failings

"State Street UK has been fined £22,885,000 by the Financial Conduct Authority (FCA). State Street UK’s Transitions Management (TM) business had developed and executed a deliberate strategy to charge clients substantial mark-ups on certain transitions, in addition to the agreed management fee or commission."
Published:  31/01/2014
Source: fca.org.uk

Understanding A Detariff Market - Part 3

Continuation from Understanding A Detariff Market - Part 2

Understanding A Detariff Market - Part 2

Continuation from Understanding A Detariff Market - Part 1

Understanding A Detariff Market - Part 1

MARKETS ARE CHANGING
1. Global trends are increasing competition and creating customers who demand more.

2. Trends such as rate deregulation, distribution changes, IT, consumer awareness and claims inflation are leading towards higher costs.

3. This brings data-driven strategy into our discussion on market detariffication.

4.In a de-tariffed market, there is a penalty for bad pricing and it increases with competition.

Insurance Rate Monitoring - Part 2

YEARLY VARIATIONS

1. If we consider a base underwriting year where nothing major happened, then a policy renewing in January the following year on ‘as before’ terms can be treated in the same way as if it renewed ‘as before’ in August (base year). 

2. However, if the base underwriting year had a large systemic event in July, then a policy renewing ‘as before’ in January would be on considerably weaker terms than if it renewed ‘as before’ in August. This is allowed by tracking the IELR at a policy level.

3. Below is an example to explain the importance of tracking the IELR between a policy and class level.

Insurance Rate Monitoring - Part 1

1. Rate monitoring has become one of the hot topics in general insurance. 

2.Underwriters are starting to see the importance of managing the underwriting cycle in a softening market. 

3. It is important to monitor the rate movements on business quickly and accurately in order to shorten the period before any disruption to the business plan assumptions are detected and acted upon.

4. Many people focus solely on the rate movements on renewal business while neglecting the absolute profitability of the renewing business (not just its relative profitability as compared to last year) and the profitability of lapsed and new business.

[Misconduct] Fined For Investment Advice Failings

"Santander UK Plc has been fined £12,377,800 by the Financial Conduct Authority (FCA) after the regulator uncovered serious failings in the way it offered financial advice from its bank." Published:- 26/03/2014
Source: fca.org.uk

[Misconduct] AXA Fined For Advice Failings In Investment Sales

"The Financial Conduct Authority (FCA) has fined AXA Wealth Services Ltd (AXA) £1,802,200 for failing to ensure it gave suitable investment advice to its customers." Published:- 13/09/2013
Source: fca.org.uk

Guide to Commercial Insurance Pricing - Part 3 - Adding Value & Modelling

EFFECTS OF RELYING ON NON-ANALYTICAL AND HISTORICAL DATA ON RISK SELECTION AND PRICING OF COMMERCIAL INS.

1. The pricing and profitability of the overall segment has historically been very cyclical, starting from super-profits by early players followed by entry capital into the market driving the price down to unprofitable levels.

2. Insurers tend to focus selecting policies with lower risk exposure regardless of the market price which may be unprofitable in the long run.

3. Insurers may focus on writing high hazard risks for the high premium charged. Due to the typical low frequency and high severity claims for a typical Corporate portfolio, the high hazard risks can make super profits for a number of years but are susceptible to large losses which can result in a significant loss larger than all of the achieved profits over the period.

Guide to Commercial Insurance Pricing - Part 2 - Corporate Portfolio & Pricing Methods

CORPORATE SEGMENT
1. Key differences with SME segments are as follow:

2. Higher level of case underwriting with more exclusions or higher deductibles due to different insurance risk.

3. Poor quality of data due to business complexity and uniqueness.

4. With more capital and able to retain more insurance risk, majority of claim costs are from infrequent large claims.

5. Higher gross written premium & level of reinsurance. 

[Misconduct] Fined and Banned For Delaying The Allocation Of Trades

"Between January 2010 and October 2012, Mr Miah exploited weaknesses in the trading systems and controls at Aviva Investors in order to delay the booking and allocation of trades." 
Published : 17/11/2015
Source: fca.org.uk

Guide to Commercial Insurance Pricing - Part 1 - SME Portfolio

OVERVIEW OF COMMERCIAL INSURANCE
1. This post aims to provide an overview of the main features of Commercial insurance and  the roles of portfolio managers and case underwriters in the pricing process.

2. Issues covered would also include the key differences between the Corporate and Small Medium Enterprise segments of Commercial Insurance and the drivers behind the market prices.

Actuarial Valuation for Pension Plans - Part 2 - Cost Methods

1. There are two widely used actuarial cost methods to calculate the Actuarial Accrued Liability (AAL) and Normal Cost (NC).

2.Pre-funded Defined Benefit Plans require a periodic Actuarial Valuation to determine the recommended contribution amount.

3. Actuaries apply a discount rate to future benefit payments in order to calculate a present value or value in today’s dollars.

Note: The higher the discount rate, the lower the present value, and vice versa.

COST METHODS - ENTRY AGE NORMAL (EAN) & PROJECTED UNIT CREDIT (PUC)

1. The AAL is based on projected pay and current service.

2. EAN method defines the normal cost as a level percent of pay from entry age until retirement (Puts more of the liability into the AAL and less into PVFNC)

3. PUC methods dicates the normal cost for each member increases as a percent of pay as the member. (puts less of the liability into the AAL and more into the PVFNC than EAN)

Actuarial Valuation for Pension Plans - Part 1 - Amortization Methods

TYPES OF PENSION PLANS

1. Defined Benefit Plan - Pension plan where a monthly benefit, payable at a certain retirement age, is defined in the plan.  

2. Defined Contribution Plan - Pension plan in which specified contributions are made to each participant’s account.  The contributions and interest earned on the investments serve as the total retirement amount for the retiree.

3. The equation of pension plan financing is  Contributions(C) + Income (I) = Benefits (B) + Expenses (E)