2007 SEMINAR ON RATEMAKING
What’s Your Final Answer?
March 8, 2007
Atlanta, Georgia
Presented By:
Jerome A. Degerness, FCAS, MAAA
2007 SEMINAR ON RATEMAKING
What’s Your Final Answer?

You have obtained your
data

You have done your
analysis

You have had dialogue
with management

You may have made
your rate filings

Are you done?
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2007 SEMINAR ON RATEMAKING
Learn to Understand Your Organization
Actuarial
Marketing
Underwriting
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2007 SEMINAR ON RATEMAKING
Distribution System

Direct

Independent Agency

Brokers
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2007 SEMINAR ON RATEMAKING
Business Models

Line of Business

Middle Market

National Accounts

Commodity

Program

Specialty

Surplus Lines
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2007 SEMINAR ON RATEMAKING
Market Conditions

Hard

Soft

Post Event

Local

National
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The Underwriting Cycle
Hard Market
Sort Market
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2007 SEMINAR ON RATEMAKING
Marketing

Product Design

Branding

Segmentation

Distribution

Sales

Creativity
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The Marketing Approach
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2007 SEMINAR ON RATEMAKING
Actuarial

Data

Ultimate Loss Costs

Trend

Loss Cost History

Rate History

Pricing History

Underwriting History

Pricing Policy
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2007 SEMINAR ON RATEMAKING
Underwriting

Understand the Exposure

Risk Selection





Coverage Design




Policy Retention
New Business
Property Line Guides
Reinsurance
Limits
Retentions
Terms and Conditions
Pricing


Guaranteed Cost
Loss Sensitive
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2007 SEMINAR ON RATEMAKING
Is It Working?

Balance Sheet

Income Statement

Market Share

Growth

Profitability

Ratings
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2007 SEMINAR ON RATEMAKING
The Power of Underwriting
Agent
Premium
Losses
A
B
1,000,000
1,000,000
500,000
900,000
Total
Ratios
2,000,000 1,400,000
1.00
0.70
Expenses
P/(L)
300,000 200,000
200,000 (100,000)
500,000
100,000
0.25
0.05
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2007 SEMINAR ON RATEMAKING
How Can You Tell?

Periodically Re-Estimate Ultimate Losses

Price Monitoring







Exposures (Audits, ITV)
Loss Costs, Loss Cost Modification Factors
Loss Cost Multipliers, Deviations
Package Credits
Experience Rating
Schedule Rating
Other

Financial Operating Plan

Benchmarking

Variance Analysis
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2007 SEMINAR ON RATEMAKING
Let’s Be Line Specific

General Liability




OL&T
M&C
Products
Workers Compensation


Guaranteed Cost
Loss Sensitive

Commercial Automobile

Commercial Property
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2007 SEMINAR ON RATEMAKING
External Factors – The Involuntary Market
State
A
B
Total
Premium
Involuntary
Invol P/L
Invol Cost
10,000,000
10,000,000
5%
30%
0%
-25% (750,000)
20,000,000
18%
-21% (750,000)
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2007 SEMINAR ON RATEMAKING
So What Is Your Final Answer?

At This Point It is Fair to Ask, “Who is You?”

Every Underwriting Entity Finds Its Own Way to Match
Price With Coverage

The Underwriting Elements of Your Organization are
Multi-Faceted

In Order to Provide an Answer, You Need to Be Fully
Engaged

The Answer is Temporary at Best
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