Friedland01.Overview

Reading: Friedland, J.F., Estimating Unpaid Claims Using Basic Techniques, Casualty Actuarial Society, Third Version, July 2010. The Appendices are excluded.

Chapter 1: Overview (with links to topics in chapters 1-6)

Study Tips

The Friedland source text is divided into 4 parts:

Part 1: Introduction – Chapters 1-2

Part 2: Information Gathering – Chapters 3-6

Part 3: Basic Methods for Estimating Unpaid Claims – Chapters 7-15

Part 4: Estimating Unpaid Claims Adjustment Expenses – Chapters 16-17

Parts 3 and 4 are highlighted in green because that's where 85-90% of the reserving questions come from and our good friend Alice-the-Actuary wants you to get to that material ASAP! Now, there is important basic information in Parts 1 & 2, but we're going to cover it quickly. You'll get plenty of opportunities to solidify your understanding of that basic material as you work through Parts 3 & 4.

This wiki article provides links to everything you need to know from Parts 1 & 2 (Chapters 1-6). Do not linger here (or you might upset Alice.) You'll absorb the important information as you work problems in chapters 7-17.

Estimated study time: 2 days for all of Parts 1 & 2 (then review as needed)

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

• fact A...
• fact B...

reference	part (a)	part (b)	part (c)	part (d)
E (2014.Fall #13)	redundant reserves: - why this is bad	inadequate reserves: - why this is bad

In Plain English!

Intro

My good friend Alice-the-Actuary is going to help me teach you about reserving. I've hidden her curriculum vitae as an Easter Egg within the system. I'll give a shout-out to the first person who emails me where she went to school. She is totally not a made-up person. ;-)

There is a separate wiki article for each of chapters 1 through 6 in Friedland that you can access through the links on the Ranking Table page. But this Chapter 1 article (which is what you're reading now) also has a concise listing of topics from chapters 1-6 with links to the appropriate material. You aim should be to get a quick overview of these first 6 chapters then use them as a reference on an as-needed basis. Most of the testable material is in chapters 7-17.

Part 1 - Chapter 1 - Overview

This half of Exam 5 is all about estimating reserves or equivalently unpaid claims so you should probably know what that is.

Let's say you you work at an auto insurer and one of your insureds bumps car another while while trying to parallel park. When he calls to report the accident, the claims adjuster may ask a few questions, then estimate the damage at $900. If his deductible is $500 then the reserve or unpaid claim estimate is $400. This is a liability for the insurer that appears on the insurer's balance sheet. If a check for $400 is mailed out the following week, then the claim is paid and the unpaid claim estimate becomes 0.

Note that the unpaid amount in the example above included only loss dollars but it would normally also include Loss Adjustment Expenses or LAE. LAE is further broken out into Allocated and Unallocated. This is covered later in Chapter 16 Estimating ALAE and Chapter 16 Estimating ULAE.

So a reserve or unpaid claim estimate is the amount of money an insurer sets aside for paying future claims. As claims are paid, the unpaid claims estimate is reduced. This is discussed in ridiculous detail in ASOP 43 - Property/Casualty Unpaid Claim Estimates but this all you need to know for now.

Question: define the term reserves

Question: identify 3 groups for whom accurate reserve estimates are important as well as a reason for each

• internal management

→ need accurate reserves for proper decision-making (pricing, underwriting, strategic/financial plans,...)

• investors

→ need accurate reserves because balance sheet liabilities are important in deciding whether to invest in a company

• regulators

→ need accurate reserves to perform supervisory & regulatory roles (solvency monitoring)

• key terminology

Part 1 - Chapter 2 - The Claims Process

Direct link to wiki article: Chapter 2 - The Claims Process

Subtopics:

• 5 elements of unpaid claim estimate

• A claim is reported

• Life of a claim

• Claim Fact Summary
  • Friedland's is too complicated. Do 2 or 3 separate simpler examples

• Characteristics of insured claims
  • claim activity extends over a period of time
  • estimated value of claims changes over life of claim
  • claim cam have different types of payments
  • many dates associated with each claim

→ make a simple practice template to reinforce these concepts

Part 2 - Chapter 3 - Understanding the Data

Direct link to wiki article: Chapter 3 - Understanding the Data

Part 2 - Chapter 4 - Meeting with Management

Direct link to wiki article: Chapter 4 - Meeting with Management

Part 2 - Chapter 5 - The Development Triangle

Direct link to wiki article: Chapter 5 - The Development Triangle

Part 2 - Chapter 6 - The Development Triangle as a Diagnostic Tool

Direct link to wiki article: Chapter 6 - The Development Triangle as a Diagnostic Tool