The keys to a reliable actuarial analysis are good data and reasonable underlying assumptions for the program being analyzed. Therefore, any information regarding the insurance program which could materially affect the analysis should be provided to your actuary.
The two most common types of actuarial reports are the loss projection analysis and a reserve analysis. A loss projection analysis provides a range of confidence intervals around the projected losses in which the actual losses will lie. If the risk being analyzed is relatively stable, this type of analysis may only be completed for a single retention level. However, it can also be completed at multiple retentions to help determine the associated cost of risk calculations. It is typically scheduled to be completed prior to the renewal of an insurance program so it can be used in market negotiations and internal budgeting for upcoming periods.
A reserve analysis, on the other hand, provides an estimate of all retained liabilities incurred prior to a specified accounting date. These estimates are used for financial statement purposes and are often completed near a year-end evaluation.
Gathering the appropriate data for these reports can be daunting, especially if one is new to the process. To help with this task, the following checklist can be used to provide a general structure of the necessary items.
Data Requirement Checklist:
- A detailed loss run as of a current evaluation date, in Excel format, for each coverage. It is preferred to have at least the ten most recent accident years of data for a loss projection analysis. For a reserve analysis, all years for which some amount of loss is retained and which have open claims should be provided.
- Exposure information for each of the coverages corresponding to the timeframe of the historical periods. Typical exposures include payroll for workers compensation, revenue for general and product liability, and number of vehicles or miles driven for automobile liability.
- Projected exposure information for the upcoming policy period by coverage. For workers compensation, estimated payroll by class code is helpful, if available.
- Retention scenarios by coverage for the upcoming year.
- Retention summaries by coverage for all historical years.
- Any qualitative information about safety, claims handling, or other recent changes impacting the quality of the risk portfolio.
- If available, copies of the excess insurance contracts.
If the actuarial project involves either a collateral negotiation component or a captive feasibility study, our popular Collateral Overview and Captive Overview brochures have specific data requirement sections. In particular, our captive brochure has details related to the type of data needed in the evaluation of complex or emerging risks.
At the end of 2021, we offered guidance on preparing for a year-end actuarial analysis. The suggestions from that blog offer additional tips in preparing for an actuarial analysis which extend beyond the data collection phases.
If you need more information about data requirements for actuarial loss projections or reserve analyses, please contact us at support@SIGMAactuary.com or schedule a call with one of our consulting actuaries.
© SIGMA Actuarial Consulting Group, Inc.