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Managing a Company in a Soft Market

Managing a Company in a Soft Market. The Role of the Actuary. Determine and maintain adequate rates and rating plans Project appropriate reserves Monitor and communicate how the business is performing Make decisions based on analytics

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Managing a Company in a Soft Market

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  1. Managing a Company in a Soft Market

  2. The Role of the Actuary • Determine and maintain adequate rates and rating plans • Project appropriate reserves • Monitor and communicate how the business is performing • Make decisions based on analytics • Stochastic modeling (e.g. catastrophe management, confidence levels) • Provide consistent, objective indications

  3. Illustrative Planning Assumptions

  4. The Trade-off between Retention and RateImpact of a 5 Pt Increase in Retention vs. Various Reductions in Rate

  5. Not All Lines of Business are Impacted EquallyReduction in Rate which Negates a 5 Point Increase in Retention

  6. Deviation from Manual Rate • Manual Rate • External source (e.g. ISO, NCCI) • Internal source such as “actuarial indication” for loss-rated business (e.g. Large Accounts, Med Mal) • Deviations • At the underwriter’s discretion (e.g. underwriting tier, schedule credits/debits, package mods) • Excludes loss cost changes, experience mods • Metrics to Monitor • Renewing vs. expiring deviations • New business vs. renewal deviations

  7. Examples of DFM Monitoring Tools Note: Data is for illustrative purposes only.

  8. Price-to-Exposure Analysis – Multivariate • Increased computing power makes multivariate analysis more practical • Personal Lines to Small Commercial Accounts to . . . • Statistical testing of “Underwriting Lore” • Avoid mistakes made in prior soft markets • “Moneyball” • Joint effort with Underwriting, Claims, and Risk Control • Data quality and quantity relevant • Need to capture deeper level detail accurately

  9. Underwriting (Non-Rate) Effects • Actuary has responsibility to quantify such and reflect appropriately in the loss ratio • Examples of Non-Rate Effects • Implementing predictive model based on multivariate analysis • Shifts in portfolio mix (portfolio optimization) • Exit portion of the book (e.g. state, industry group, class) • Changes in Coverage (e.g. reduced limits, endorsements limiting coverage) • Monitors must be put in place to verify such actions are occurring as predicted

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