9 ey

Reserves Uncertainty Non-Life Insurance Forum 2011

Society of Actuaries of Thailand (SOAT)

Overview

RBC Framework ► ► ►

► ► ►

3

Aim for companies to put in place systems and processes to comply with the RBC requirements Encourage companies to operate more competitively A regime that allows greater freedom But also demands greater risk management responsibility Changes are expected in business models and product ranges To understand the risks that the company is facing

September 2011

Total Capital Required ►

4

Risk categories: ►

Credit risk capital charge

►

Market risk capital charge

►

Concentration risk capital charge

►

Liability risk capital charge (life and non-life)

September 2011

Non-Life Liability Risk Capital Charge ► ► ►

5

To address the risk of under-estimation of the insurance liabilities and adverse claims experience Fair Value of technical reserves is assessed at 75% confidence level, i.e. with PAD Liability risk charge is calculated as a factor of the Fair Value

September 2011

Standard PAD under RBC Framework Line of business

6

PAD at 75% confidence level

Voluntary Motor

8%

Compulsory Motor Health PA TA

15%

Cargo Engineering Other Property

20%

Industrial All Risks Fire

25%

Aviation Financial Hull Liability Other

30%

September 2011

Estimation of Reserves Uncertainty and PAD

Reserves Uncertainty ►

Methods for best estimate reserves

►

Modelling error:

8

►

Model error

►

Parameter error

►

Process error

September 2011

Bootstrapping Method Expected

Actual

Actual Triangle

Expected Triangle

Development Factors

Development Factors

Actual – Expected

Residuals Triangle

9

September 2011

Standardised Residuals

Bootstrapping Method

Standardised Residuals

Generate New Triangle

Resample

Repeat 1000 times to simulate 1000 reserves

New Triangle

Calculate Reserves

Development Factors

10

September 2011

Sim

Sim

Sim

1

2

3

Sim ......

1000

Reserves Distribution Distribution of reserves from the simulations

PAD at 75% confidence level

Reserves

11

September 2011

End of presentation