1 / 17

John Kerper, FSA, MAAA JHK Company

Reserving for Automobile Warranty and Other Long Duration Contracts Gap & Residual Value 2002 Casualty Loss Reserve Seminar - Session 7. John Kerper, FSA, MAAA JHK Company. Purpose.

juro
Télécharger la présentation

John Kerper, FSA, MAAA JHK Company

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Reserving for Automobile Warranty and Other Long Duration ContractsGap & Residual Value2002 Casualty Loss Reserve Seminar - Session 7 John Kerper, FSA, MAAA JHK Company

  2. Purpose • Introduce Gap and Residual Value coverages and the methods of estimating unearned premium reserve for these coverages.

  3. Topics of Discussion • Description of Coverages • Sellers • Underwriters • UEP Reserve for Residual Value • UEP Reserve for Gap

  4. Description of Coverages

  5. Description of Coverages • Excess of loan balance over book value: • Purchase price above book value • Low, zero or negative down payment • Loan amortization vs. vehicle depreciation • Optimistic residual values • After-market extras • Financed insurance coverages

  6. Description of Coverages • Covered Events • Gap - total loss of vehicle (e.g. theft or collision) • Residual Value - maturity of loan

  7. Description of Coverages • Common Additional Benefits - Gap • auto insurance deductible • 1 or 2 delinquent payments • New car purchase bonus

  8. Sellers • Auto dealers • Financing source • Auto insurer

  9. Underwriters • Service Contract or Credit Insurer • Auto Insurer • Bank / Finance Company (Debt Cancellation)

  10. UEP Reserve for Residual Value • No refund value • Timing of losses known • Probability of loss unknown at inception • Base reserve on assumed combined ratio • As business matures, adjust combined ratio assumption

  11. UEP Reserve for Gap • Refund Value (Rule of 78, Pro-Rata) • Other tests

  12. UEP Reserve for Gap • Estimating Exposure for each month

  13. UEP Reserve for Gap • Estimating Exposure for each month - example

  14. UEP Reserve for Gap

  15. UEP Reserve for Gap

  16. UEP Reserve for Gap • Estimating Probability of Loss (frequency) • Experience under existing book of gap contracts • Separate determination of severity (based on exposure) and frequency. • Total loss data from auto insurance statistics

  17. Conclusion • UEP Reserve for Residual Value is a guess at inception and must be adjusted as residual values develop • UEP Reserve for Gap is generally determined by refund value • Other tests can reveal inadequate pricing or longer exposure period

More Related