Travelers 2008 Annual Report Download - page 49

The basic premise of the method is that the historical ratio of
additional claim activity to earned premium for a given product line
component/age-to-age period is stable and predictable. It implicitly
assumes that the actual activity to date for past periods for that
cohort is not a credible predictor of future activity for that cohort,
or at least is not credible enough to override the ‘‘a priori’’
assumption as to future activity. It may be applied to either paid or
case incurred claim data. It is used most often where the claim data
is sparse and/or volatile and for relatively young cohorts with low
volumes and/or data credibility.
To illustrate, the method may assume that the ratio of additional
paid losses from the 12 to 24 month period for an accident year is
10% of the original ‘‘a priori’’ expected losses for that accident
year. The original ‘‘a priori’’ expected losses are typically based on
the original loss ratio assumption for that accident year, with
subsequent adjustment as facts develop.
The ultimate losses equal actual activity to date plus the expected
values for future periods.
Broker ................... One who negotiates contracts of insurance or reinsurance on behalf
of an insured party, receiving a commission from the insurer or
reinsurer for placement and other services rendered.
Capacity .................. The percentage of surplus, or the dollar amount of exposure, that
an insurer or reinsurer is willing or able to place at risk. Capacity
may apply to a single risk, a program, a line of business or an entire
book of business. Capacity may be constrained by legal restrictions,
corporate restrictions or indirect restrictions.
Captive .................. A closely-held insurance company whose primary purpose is to
provide insurance coverage to the company’s owners or their
affiliates.
Case-incurred development
method ................. An actuarial method to estimate ultimate losses for a given cohort
of claims such as an accident year/product line component. If the
paid-to-date losses are then subtracted from the estimated ultimate
losses, the result is an indication of the unpaid losses.
The approach is the same as that described in this glossary under
the ‘‘paid loss development method,’’ but based on the growth in
cumulative case-incurred losses (i.e., the sum of claim-adjustor
incurred estimates for claims in the cohort) rather than paid losses.
The basic premise of the method is that cumulative case incurred
losses for a given cohort of claims will grow in a stable, predictable
pattern from year-to-year, based on the age of the cohort.
Case reserves .............. Claim department estimates of anticipated future payments to be
made on each specific individual reported claim.
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