Lloyd s Signing Actuaries Forum

Transcription

1 < Picture to go here > Lloyd s Signing Actuaries Forum Henry Johnson, Catherine Scullion & Lydia Rhodes Lloyd s Jerome Kirk PwC, Nick Line - Markel December 4 th 2015 Lloyd s 1

2 Agenda 2014 SAOs and SAO reports SAOs under Solvency II Practising Certificates Casualty reserves update Lloyd s 2

3 Agenda 2014 SAOs and SAO reports SAOs under Solvency II Practising Certificates Casualty reserves update Lloyd s 3

4 2014 SAOS and SAO reports This is the third year MRC has performed a lite review The first year MRC has not reviewed all SAO reports MRC formally reviewed and provided feedback for one-third of the reports Similar level of formal review planned for 2015 YE This is possible because of the overall consistent, good standard of SAO reports Lloyd s 4

5 The quality of SAO REPORTS has improved over time Overall performance for all producers by year-end Excellent Good 60% 61% 65% 69% 71% 72% 74% 71% 72% 72% 73% 73% Meets Requirements Poor Unacceptable Scores based on full review Scores based on 'Lite' review Scores based on 'Lite' review and one-third of all reports Note: - For comparison purposes, the 2011 score is also shown rebased to represent Lite review. - The 2013 score is also shown rebased to show the average of the 2013 scores for the reports which have been reviewed at 2014 year-end. Lloyd s 5

6 The CONSISTENCY of SAO REPORTS has improved over time Range of Results for all producers 100% Excellent 80% Good 60% Meets Requirements 40% Poor 20% Unacceptable 0% * 2013* 2014** Mean Maximum Score Minimum Score * 2012 and 2013 scores based on a Lite review process. ** 2014 score based on 'Lite' review process and one-third of the 2014 year-end reports Note: The two highest and two lowest scores from each year have been excluded from this analysis. Lloyd s 6

7 Executive Summary Nature & Accuracy of Data Methods Assumptions Emerging Experience Result Selection Results Presentation Uncertainty Business Knowledge Overall communication 2014 SAO Review Process All sections graded as meets requirements or above, for all reports. Range of Results for all producers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Unacceptable Poor Meets Requirements Good Excellent Lloyd s 7

8 Large Loss Wordings As expected, the number of large loss wordings 3 reduced in 2014 compared to Number of large loss wordings 3 : 2014 vs Other Hurricane Sandy Subprime/ Credit Crunch WTC Lloyd s 8

9 Large Loss Wordings - Quantification Within the SAO report we expect quantified justification for any large loss wording graded as 3 or 4 More reports are providing relevant information however there is still some room for improvement 100% Percentage of wording 3/4s where further information was required 80% 60% 40% 50% 20% 25% 28% 0% As we did this year, we ll follow up when we need to We expect to see this information in the SAO report Lloyd s 9

10 Reminder: SAO Submission Dates YE 2015 submission dates Submission Deadline US Trust Fund SAOs 12 February 2016 Worldwide SAOs 18 February 2016 SAO Reports 31 March 2016 (or earlier) Please submit two copies of the SAO report One of which must be a hard copy, electronic copies encouraged Reports to Catherine Scullion, Market Reserving and Capital, Lloyd s, One Lime Street, EC3M 7HA Submit electronic copies via to SAOReports@lloyds.com Lloyd s 10

11 Valuation of Liabilities Rules No significant changes this year Non-monetary items now valued at year-end exchange rates NYID is now called the New York Department of Financial Services. Lloyd s 11

12 APS X2 now in force Members must consider whether to apply Peer Review to Actuarial Work for which they are responsible. The extent of the peer review should have regard to a number of points including: Significance of the work Reasonable expectation of the person for whom the work is produced for Difficulty/complexity of the work A clear understanding of roles is required, the timing should allow for the peer reviewer to have influence on the work Peer reviewers must be objective and have the appropriate experience and expertise Lloyd s 12

13 Still not quite there on reserve margins at half year Improvement on last year but there were still a number of queries If you submit more margin than the SAO: Explain at the time of submission Get the signing actuary involved Expect a question (and fast turnaround) if no explanation is provided See the QMC instructions for more detail Lloyd s 13

14 Technical Provisions Guidance Contract boundaries Focus on: Whether the contract is legally obliged Contractual terms We expect this change to increase net technical provisions Quantum of change will depend on annual pattern of RI purchase and contract terms The increase to liabilities will have an impact on SII members balances Lloyd s 14

15 Practising Certificates New regime coming into force Chief Actuary practising certificates (with/without Lloyd s) for those taking up SIMF20 Lloyd s Syndicates version retained and required for SAO Note experience and CPD requirements Life syndicate can use a life certificate as an alternative Lloyd s 15

16 Reserving Minimum Standards Lloyd s will be reviewing self assessment of compliance in Q Covers the following: Board Responsibility Statement of Actuarial Opinion Actuarial Function Board Information Reserving Procedure Documentation Reserving Data More detail in actuarial seminar presentation on Lloyds.com Lloyd s 16

17 Agenda 2014 SAOs and SAO reports SAOs under Solvency II Practising Certificates Casualty reserves update Lloyd s 17

18 Purpose of current system Introduced to fulfil aims of Lloyd s, the market and PRA: Avoid under-reserving Maintain international trading rights Manage costs (within reason) Robustness of system reinforced through practising certificates No change to this purpose under SII Lloyd s 18

19 SII requirements - General Under PRA PS2/15 (page 113) the actuarial function must Coordinate the calculation of technical provisions Ensure appropriateness of methods Assess sufficiency and quality of data Compare best estimate against experience Inform the governing body of reliability and adequacy of the calculation of technical provisions Lloyd s 19

20 SII requirements - Opinion In addition under PRA PS2/15 (page 116) the actuarial function of each Lloyd s managing agent must, in respect of each syndicate Review the technical provisions of each syndicate year (other than a closed year) Provide an opinion to the managing agent and the society confirming that the technical provisions (before addition of the risk margin) for each syndicate year are no less prudent than the best estimate of the amounts to be held (before the addition of the risk margin) Lloyd s 20

21 SII requirements - Considerations Requirement of the actuarial function Can be outsourced In addition to standard requirements Review as precursor to opinion Provide an opinion Familiar output But some challenges in a number of areas Lloyd s 21

22 next steps Aim to achieve same purpose under new requirements Number of areas for further discussion: Current basis Reliance on existing work Timing Independence Reporting Further consultation to take place with market and PRA Guidance and FAQs in 2016 Will be circulated in draft before finalisation Lloyd s 22

23 < Picture to go here > QUESTIONS < Picture to go here > Lloyd s 23

24 Agenda 2014 SAOs and SAO reports SAOs under Solvency II Practising Certificates Casualty reserves update Lloyd s 24

25 Chief Actuary Practising Certificates Lloyd s Signing Actuaries Forum 4 December 2015 Jerome Kirk & Nick Line

26 Contact Details Please contact with any queries on Chief Actuary Practising Certificates

27 Agenda 2014 SAOs and SAO reports SAOs under Solvency II Practising Certificates Casualty reserves update Lloyd s 27

28 Agenda Recap of concerns raised Considerations for Signing Actuaries What we don t want to see Questions Lloyd s 28

29 < Picture to go here > Recap of concerns raised < Picture to go here > Lloyd s 29

30 Recap: market booked low ULRs at year-end ULRs relative to 2014 YOA Net Earned ULRs At 12 months At 24 months At 36 months At 48 months At 60 months At 72 months At 84 months % 4% 9% 2% 1% -3% 0% 14% 11% 8% 7% 5% 3% 26% 8% 7% 6% 7% 34% 12% 7% 7% 35% 5% 5% 35% 4% 33% Lloyd s 30

31 Recap: Combined with other trends this raised concerns TREND 1: BINDERS PYOA Binders % Binders (ILR) Non Binders (ILR) % 42% 33% % 45% 26% % 36% 26% % 29% 14% % 20% 11% % 7% 2% Lloyd s 31

32 Recap: Combined with other trends this raised concerns Lloyd s 32

33 Recap: TRENDS ALSO SEEN No speed up in settlement patterns Source: Xchanging data Lloyd s 33

34 Number of claims per m of premium TRENDS ALSO SEEN Claim numbers stable Source: Xchanging data Lloyd s 34

35 Recap: Lloyd s Response Letter sent to the market on 24 th June 2015 reminding boards to consider: Sensitivities in own technical provisions How the reserving cycle is being addressed Reserve Benchmarking comparisons Appropriate level of challenge Lloyd s actions (in conjunction with Claims and Class of Business): Analysis of casualty bridging information requested from the market Thematic reviews Strength of case reserves Changes in settlement patterns Lloyd s 35

36 Bridging analysis for market shows lower 2014 ULR Lloyd s 36

37 explained by rate improvements and underwriter actions Lloyd s 37

38 Thematic review 5 Casualty classes reviewed: NM General Liability (non-us) Professional Indemnity (non-us and US) Financial Institutions (non-us and US) Selection based on Lloyd s market level projections Metrics included: OS:Inc IBNR:OS Reserve:Ult ULR development Speed of development Any potential concerns highlighted will be fed back to market/ syndicate Lloyd s 38

39 2014 ULR Mid-year results - TPL 2013 vs 2014 held ULR 2014 YOA ULR higher than 2013 YOA ULR 2014 YOA ULR lower than 2013 YOA ULR Syndicate strengthened > 1m Syndicate released < 1m Other 2013 ULR Lloyd s 39

40 < Picture to go here > Considerations for signing actuaries < Picture to go here > Lloyd s 40

41 Considerations for signing actuaries 1. Are signing actuaries showing the same trends in their analysis? 2. Check metrics 3. How are binders being allowed for? 4. How are we adjusting for the soft cycle? 5. Expect a question Lloyd s 41

42 1: Are signing actuaries showing the same trends in their Analysis Lloyd s 42

43 2: check metrics OS:INC Is there concerns that case estimates are weakening without evidence of offsetting trends? If concerns with case estimates then project off the paid? Can the difference between the paid and incurred projection be explained? Lloyd s 43

44 2: check metrics SBF ULRs If using the business planning ULR as an IELR They are done prospectively Have the underwriting actions and rate changes that were expected been achieved? Do you consider it to be adequate? Lloyd s 44

45 Incurred as a % of projected ultimate 3: Allow for BINDERS 80% 70% 60% 50% 40% 30% % 10% 0% Development year Illustrative difference only Lloyd s 45

46 4: Consider the cycle Lloyd s 46

47 5: Expect a question SAO reports will be considered for agents who have significant reserve deteriorations Continual deteriorations in reserves / continual poor AvE will be investigated by Lloyd s Meetings with signing actuaries may be requested to obtain reason for poor experience Lloyd s 47

48 < Picture to go here > What we don t want to see < Picture to go here > Lloyd s 48

49 What we don t want to see Incorrect analysis Unsubstantiated comments/ analysis E.g. AvE is very bad but ULR has remained the same E.g. We ve considered the underwriting cycle and have adjusted for it subjectively E.g. This class is subject to material uncertainty Lloyd s 49

50 < Picture to go here > QUESTIONS < Picture to go here > Lloyd s 50

51 Lloyd s 51