Industry Save Sufficiency and Other Interesting issues: Budgetary Investigator's Viewpoints.


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1999 CLRS. Industry Reserve Adequacy - Financial Analyst\'s Perspectives. 2. Moderators. Sarah Hibler - Vice President
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Industry Reserve Adequacy and Other Hot Topics: Financial Analyst\'s Perspectives 1999 Casualty Loss Reserve Seminar Scottsdale, Arizona

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Presenters Sarah Hibler - Vice President & Senior Analyst, Moody\'s Investors Service Jay Votta - Principal, Deloitte & Touche LLP Bill Wilt - Vice President & Senior Analyst, Moody\'s Investors Service Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Discussion Topics Overview of Reserve Adequacy Results of Moody\'s Top 50 Analysis Use of Reserves in Credit and Equity Analysis Reserves assume basic part in gaging budgetary wellbeing Reserving Issues in Mergers & Acquisitions Reserves enter thought in organizing bargains Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Goals of Session Discuss large scale level patterns in misfortune holds Provide knowledge into how "untouchables" break down misfortune saves Demonstrate significance of stores in various settings: Credit Analysis Equity Analysis M&A Activity Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis Moody\'s Analyzed Top 50 P/C Groups Approx. 2/3 industry stores and surplus Used yearly explanation information and inside hold demonstrate Excluded A&E, reinsurance, various lines Tested outcomes against autonomous examinations where accessible Despite constraints, A/S information can give solid beginning stage Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis Benefits of Analysis Critical segment of capital sufficiency and credit investigation Provides more noteworthy understanding in dialogs with organizations Independent confirmation of results Insight into creating patterns: nature of income, current rate ampleness Separate supportable certainties from unverified bits of gossip in market Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis Conclusions Industrywide $12.6 B excess at 12/98 Represents adjoin 4% of Reserves and 4.5% of Surplus PPA, WC give redundancies; CMP, OL indicate inadequacies Trends in Reserve Margins are Major Story Margins diminishing rapidly Differences Between Personal and Commercial Insurers Whoever knew about a contrary misfortune drift? Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis - Personal Lines Writer\'s Current Position Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis - Retrospective View of PPA Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis Findings - Personal Insurers All demonstrated hold redundancies The story then? Great misfortune drifts right on time to-mid 1990s Actuaries/administration ease back to perceive in rates The story now? Most bearers decreasing rates, profits Loss cost patterns ticking upward again Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis - Commercial Writer\'s Current Position Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis - Retrospective View of Reviewed Commercial Lines Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis Findings - Commercial Insurers More even blend of lacks and redundancies WC similitudes to PPA enactment and rate change benefits combined with misfortune patterns Competition escalating, misfortune proportion climbing relentlessly Significant rate weights all other business lines Most business lines indicate consistently expanding misfortune proportion Diversified Insurers Redundancies exceed inadequacies Favorable PPA and WC encounter exceeds different lines Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Top 50 Analysis Conclusions Industry satisfactorily saved - for the present How statisticians can: Expand articulation of feeling Include point by point references in Schedule P Expand substance of actuarial reports and dissemination of reports Reserves Used in Variety of Ways by Many Constituencies… Think Beyond Statement of Opinion Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Industry Reserve Adequacy - Beyond the Statement of Opinion Moody\'s Approach to Insurance Analysis Credit versus Value Analysis Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Moody\'s Approach to Insurance Analysis Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Moody\'s Approach to Insurance Analysis Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Moody\'s Approach to Insurance Analysis Analytical Approach - Benchmark The most minimal "Secure" rating has the yearly default likelihood of a "500 Year" occasion Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Moody\'s Approach to Insurance Analysis Traditional Financial Indicators Financial Leverage (Debt/Total Capital) Double Leverage (Inv in Subs+Goodwill)/Equity Fixed Charge Coverage and Cash Flow Coverage In Context of Underlying Business Volatility In Context of Business Cycle Does Legal/Regulatory Structure Inhibit Cash/Capital Flows Across the Group? Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Moody\'s Approach to Insurance Analysis A Practical Reserve Example Your run of the mill property/setback safety net provider Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Moody\'s Approach to Insurance Analysis A Practical Reserve Example Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Credit versus Value Analysis What Creditors/Policyholders Want Absolute Repayment Minimize probability of loss of essential; benchmark is without hazard rate Which converts into: Conservative corporate administration Prudent capital and money related administration Capital pad Strong profit and money streams Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Credit versus Value Analysis What Shareholders Want Relative Return Maximize add up to return, with worthy level of hazard; benchmark is a market record. Which converts into: Assertive corporate administration High capital proficiency, as measured by ROE Active capital and money related administration Growth in top and main concerns Strong income and money streams Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Credit versus Value Analysis Contrasting Analytical Styles Basic Motivations Equity and credit investigators both need to be correct Credit examiners have weight from guarantors to be more liberal and speculators to be more moderate Equity experts can confront generous inferred weight from backers Inherent Bias Credit experts tend to concentrate on the drawback chance Equity examiners tend to concentrate on the upside opportunity Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Credit versus Value Analysis Contrasting Analytical Styles - Example Trustworthy\'s banks/policyholders have NO upside Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Industry Reserve Adequacy - Beyond The Statement of Opinion Reserving Issues in Mergers and Acquisitions Actuarial Due Diligence Process Sampling of Solutions to Reserve Uncertainty Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Reserving Issues in M&A Actuarial Due Diligence Process Reserve Position Restatement of Reported Results GAAP Adjustments Pro Forma Analysis Appraisal Value Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Actuarial Due Diligence Process Reserve Position "Windshield" Analysis Limited Review Business Units Access Time Comprehensive Analysis Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Actuarial Due Diligence Process Restatement of Reported Results Source: Consolidated Industry Loss Ratios Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Actuarial Due Diligence Process GAAP Adjustments Assets DAC Premium Deficiencies Policyholder Dividends Contingent Commissions Salvage & Subrogation Federal Income Taxes Other Present Value of Future Profits (PVFP) Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Actuarial Due Diligence Process Pro Forma Analysis Assumptions: Premium Growth Earnings Pattern Loss Ratio Expense Ratio Payout Patterns Investment Portfolio Mix Investment Yield Risk Adjusted Discount Rate Time Horizon Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Actuarial Due Diligence Process Pro Forma Analysis Output: Income Dividends Surplus Cash Flow From Operations "Esteem" Key Ratios, e.g. RBC Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Reserving Issues in M&A Sampling of Solutions to Reserve Uncertainty

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Sampling of Solutions Purchase Accounting Retrospective Adjustments Reinsurance Carve Outs Other Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Purchase Accounting Reserves are expanded by vender preceding exchange date Purchase bookkeeping does not permit acquirer to book extra holds Advantages swells the pig before it goes to market Disadvantages discourages surplus Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Retrospective Adjustments Future modification of offers cost in view of review save gauges Cash settlements Portion of offers cost held as a note payable Contingent premium profit paid to stockholders Advantages Low exchange cost Disadvantages Uncertainty Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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Reinsurance Stop misfortune cover gives assurance against unfriendly save improvement Purchased by dealer inner outer Purchased by acquirer Advantages reduces vulnerability connected with save advancement Disadvantages cost Industry Reserve Adequacy - Financial Analyst\'s Perspectives

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