University of California, Los AngelesBruin Actuarial Society Information SessionMay 9, 2019

Andrew Duhancioglu, ACAS, MAAABrandon Yu

Oliver Wyman Actuarial Consulting, Inc.Los Angeles, California

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About Us

Brandon Yu• UCLA alumnus (2012-2016)

• B.S. Mathematics / Applied Science

• Actuarial intern with Pacific Life in Summer 2015

• Joined full-time with Oliver Wyman in June 2016

Andrew Duhancioglu• CSUN alumnus (2009-2016)

• B.S. Mathematics / M.S. Applied Mathematics

• Actuarial Analyst with Farmers 2013 - 2015

• Consultant with Oliver Wyman 2015 - Current

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Agenda

Oliver Wyman Background

Property and Casualty Insurance Overview

Responsibilities to Our Clients

Introduction to Reserving

What Can Oliver Wyman Offer You?

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Oliver Wyman Background

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About Oliver Wyman

• Wholly owned subsidiary of Marsh and McLennan Companies

• International consulting firm with multiple industry focuses, including financial services, banking, and insurance

• Over 50 offices and 4,000 colleagues worldwide

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Marsh and McLennan Companies

Mercer Marsh Oliver Wyman Guy Carpenter

Oliver Wyman Actuarial

Consulting

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About Oliver Wyman Actuarial

• The actuarial practices include life (U.S., Canada, Germany and France), health, and property and casualty.

• The property and casualty practice includes a focus on self-insurance practice.

• Oliver Wyman actuarial office locations include Los Angeles, San Francisco, Atlanta, Chicago, Columbus, Houston, Dallas, Milwaukee, Melville, New York City, Philadelphia, Princeton, Seattle and Toronto.

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About the Los Angeles Office

• We are located in Downtown Los Angeles in the US Bank Tower.

• The Los Angeles office is solely actuarial consulting.

• Our team is comprised of 11 individuals encompassing a wide variety of insurance and consulting experience.

• Our office is entirely dedicated to the self-insurance property and casualty practice.

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Property and Casualty Insurance Overview

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What is Property and Casualty (P&C)?

• The property component encompasses coverages which will protect against property risk, such as damages to structural entities.

• The casualty component encompasses coverages which protect against loss (liability) resulting from various factors including injury, negligence, errors, malpractice, etc.

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What is Property and Casualty (P&C)?

• P&C insurance can be divided into two distinct categories: personal lines and commercial lines.

• Personal lines include coverages you may already be familiar with, such as your personal automobile insurance or homeowners insurance.

• Commercial lines protect businesses against loss, or liability, deriving from injury, negligence, or property damage. Examples of commercial lines include workers’ compensation and commercial automobile liability.

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Responsibilities to Our Clients

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Oliver Wyman’s Role

• Our work is heavily client-focused.

• Here in the Los Angeles office, we focus on the self-insurance practice, focusing on our clients’ commercial linesof insurance.

• Our clients range from small municipalities and privately owned businesses to some of the country’s largest publicly traded corporations.

• Examples of commercial lines we specialize in include workers’ compensation, commercial automobile liability, general liability, medical malpractice, products liability, property, and warranty.

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What Exactly is “Self-Insurance”?

• Some entities or companies truly have no insurance despite having an insurance-type risk.

• The term self-insurance often refers to a high-deductible.

• In other words, “self-insurance” denotes financial arrangements in which the risk-bearer is liable for all, or a significant amount of, its own losses.

• Our clients are concerned with the losses they must retain, or pay, out of their own pockets.

• Because our clients have high-deductible policies, the amount of loss they retain could potentially be very large.

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Services We Offer Our Clients

• Estimate of unpaid liability– The calculation of a reserve, for all losses that have been

incurred on or before a particular date, even if such losses have not been reported.

• Forecast of a future year’s losses– Client is interested in what next year’s losses may look like

so that they can budget accordingly.

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Why Clients Need a Reserving Analysis

• Financial accounting standards dictate a business must meet auditor accrual requirements when unpaid losses are material to its balance sheet or income statement.– This typically applies for companies with per occurrence retentions of

$50,000 or more on their Property & Casualty insurance programs.

• Companies must comply with regulatory funding requirements.– In California, self-insured companies are statutorily (legally) required by

law to file an actuarial report with the state.

• An estimate of future cost may assist the company with planning and budgeting.

• Client may want to evaluate a potential acquisition.

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Introduction to Reserving

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Reserving Fundamentals: Defining Terms

• Claim – a request for payment in accordance with an insurance policy

• Workers’ compensation – a form of insurance in which an employee is provided medical and wage replacement benefits in the event of injury during the course of employment

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Workers’ Compensation Claim Example

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OccurrenceEmployee at clothing retailer falls off

ladder while restocking inventory, injuring his back.

ReportingEmployee reports injury to his/her

employer, who then reports the accident to its insurance company.

InvestigationA claim adjuster determines if the accident is a covered injury under

the terms of the insurance policy. If covered, the adjuster will set an initial estimate for the cost of the claim, known as a case reserve.

TreatmentPeriodic payments go out to the

injured worker for his/her medical expenses and lost wages; case

adjuster revises the case reserve to estimate future expected payments

on the claim.

ClosureWorker is ready to return to work after treatments. Claim is closed,

and payments stop.

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Claim Development

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• Development refers to the tendency of the cost of a claim to increase with the passage of time.

• A claim can be decomposed into paid loss and case reserve.

• Paid loss is the amount which has actually been paid on a claim to cover the cost of treatments, investigation, defense, etc.

• Case reserve is the estimated future payments that will be made on a claim before closure; case reserve is set by a case adjuster based off information known at the time of assessment, which may be limited.

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Claim Composition

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Paid Loss

IncurredLoss

• The sum of paid loss and case reserve is incurred loss, and represents the case adjuster’s expectation of total payments that will be made on a particular claim to closure.

Case Reserve

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Claim Development Graphic

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5

10

15

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Paid Case Reserve Incurred

Year 0Initial

Year 1 Year 2 Year 3Closure

Actuary’s job is to estimate the change of 10 between the initial

incurred and incurred at closure; the term for this

delta is IBNR.

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IBNR

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• IBNR is an acronym for Incurred But Not Reported.

• IBNR represents an actuary’s additional estimate of unpaid liability, on top of the case adjuster’s estimated case reserve.

• IBNR includes provisions for development on known claims, claims incurred but not reported, and reopened claims.

Paid Loss

Case ReserveIncurred

Loss

IBNR

Ultimate Loss

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Estimating Ultimate Losses

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• Actuaries often use past history to predict the development of losses, i.e., the change in value of losses over time.

• A tool for systematically organizing loss data, known as the loss triangle, aids actuaries in analyzing development by sequentially tracking loss amounts at fixed points in time.

• These fixed points in time are referred to as valuation dates; think of a valuation date as a single point in time in which you take a snapshot of a company’s losses.

• A triangle assembles all these snapshots together into one graphic; a triangle can be constructed for paid losses, incurred losses, and claim counts.

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Loss Triangle Example

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Accident Months of Development Year

12 24 36 48 60 72 842006 5,100 7,400 8,200 8,600 8,860 8,950 8,950 2007 6,500 8,800 9,900 10,300 10,510 10,620 2008 7,200 10,100 11,700 12,500 12,750 2009 6,800 9,400 10,500 11,000 2010 6,500 9,000 10,200 2011 7,500 10,600 2012 7,000

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Reading a Loss Triangle

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Accident Months of Development Year

12 24 36 48 60 72 842006 5,100 7,400 8,200 8,600 8,860 8,950 8,950 2007 6,500 8,800 9,900 10,300 10,510 10,620 2008 7,200 10,100 11,700 12,500 12,750 2009 6,800 9,400 10,500 11,000 2010 6,500 9,000 10,200 2011 7,500 10,600 2012 7,000

Notes:

• Each row of loss triangle corresponds to a fixed set of claims. For example, the rowcorresponding to Accident Year 2006 corresponds to all claims occurring from 1/1/2006 to 12/31/2006.

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Reading a Loss Triangle

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Accident Months of Development Year

12 24 36 48 60 72 842006 5,100 7,400 8,200 8,600 8,860 8,950 8,950 2007 6,500 8,800 9,900 10,300 10,510 10,620 2008 7,200 10,100 11,700 12,500 12,750 2009 6,800 9,400 10,500 11,000 2010 6,500 9,000 10,200 2011 7,500 10,600 2012 7,000

Notes:

• Each column of a loss triangle corresponds to the age of each set of claims. For example, Column Age 12 displays the losses for each accident year when the accident year was 12 months old, i.e., at 12 months from the inception of the accident year.

• For example, for Accident Year 2006 beginning on 1/1/2006, 12/31/2006 would represent the point in time at which Accident Year 2006 is 12 months old.

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Reading a Loss Triangle

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Accident Months of Development Year

12 24 36 48 60 72 842006 5,100 7,400 8,200 8,600 8,860 8,950 8,950 2007 6,500 8,800 9,900 10,300 10,510 10,620 2008 7,200 10,100 11,700 12,500 12,750 2009 6,800 9,400 10,500 11,000 2010 6,500 9,000 10,200 2011 7,500 10,600 2012 7,000

Notes:

• Each diagonal of a loss triangle corresponds to a valuation date, or snapshot in time.

• For example, the orange diagonal corresponds to a valuation date of 12/31/2008. This is precisely when accident year 2006 is 36 months old, when accident year 2007 is 24 months old, and when accident year 2008 is 12 months old.

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Putting it All Together

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Accident Months of Development Year

12 24 36 48 60 72 842006 5,100 7,400 8,200 8,600 8,860 8,950 8,950 2007 6,500 8,800 9,900 10,300 10,510 10,620 2008 7,200 10,100 11,700 12,500 12,750 2009 6,800 9,400 10,500 11,000 2010 6,500 9,000 10,200 2011 7,500 10,600 2012 7,000

Notes:

• As of 12/31/06, there are $5,100 of incurred losses associated with accidents occurring between 1/1/06 and 12/31/06.

• As of 12/31/07, there are $7,400 of incurred losses associated with accidents occurring between 1/1/06 and 12/31/06.

• As of 12/31/10, there are $11,700 of incurred losses associated with accidents occurring between 1/1/08 and 12/31/08.

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Accident Months of Development Year

12 24 36 48 60 72 842006 5,100 7,400 8,200 8,600 8,860 8,950 8,950 2007 6,500 8,800 9,900 10,300 10,510 10,620 2008 7,200 10,100 11,700 12,500 12,750 2009 6,800 9,400 10,500 11,000 2010 6,500 9,000 10,200 2011 7,500 10,600 2012 7,000

Accident Age-to-age FactorsYear

12 to 24 24 to 36 36 to 48 48 to 60 60 to 72 72 to 84 84 to Ult.2006 1.451 1.108 1.049 1.030 1.010 1.0002007 1.354 1.125 1.040 1.020 1.010 2008 1.403 1.158 1.068 1.0202009 1.382 1.117 1.048 2010 1.385 1.133 2011 1.413

Triangle Outputs

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Accident Age-to-age FactorsYear

12 to 24 24 to 36 36 to 48 48 to 60 60 to 72 72 to 84 84 to Ult.2006 1.451 1.108 1.049 1.030 1.010 1.0002007 1.354 1.125 1.040 1.020 1.010 2008 1.403 1.158 1.068 1.0202009 1.382 1.117 1.048 2010 1.385 1.133 2011 1.413

Average 1.398 1.128 1.051 1.024 1.010 1.0003 Yr Avg 1.393 1.136 1.052 1.024Wtd Avg 1.396 1.130 1.052 1.023 1.010 1.000Prior 1.395 1.127 1.053 1.025 1.010 1.000 1.001

Selected 1.398 1.130 1.051 1.024 1.010 1.000 1.001 Ultimate 1.580 1.188 1.076 1.034 1.010 1.001 1.001

Triangle Outputs

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What Can Oliver Wyman Offer You?

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What You Can Expect

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• Opportunity to strengthen your knowledge and foundation of the P&C industry through client-focused projects

• Ability to collaborate with credentialed actuaries of the Casualty Actuarial Society with many years of experience on a variety of client work

• Support in obtaining Casualty Actuarial Society credentials; we offer a comprehensive study program, which grants actuarial students on-the-job study hours as well as financial assistance for exam materials and fees

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What You Can Expect

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• In the Los Angeles office, analysts work under multiple project managers on a variety of clients.

• Client-focused work can be characterized by high-volume, short-turnaround projects.

• Each client comes with its own unique characteristics; no single mode of thinking or process is an all-encompassing solution.

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Contact Us

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Andrew Duhanciogluandrew.duhancioglu@oliverwyman.com

Brandon Yubrandon.yu@oliverwyman.com

We are currently recruiting for an entry-level candidate to start Summer 2019. If you are graduating this Spring and are interested, please send your resume to recruitingla@oliverwyman.com and specify your interest in the Los Angeles office.

If you have any additional questions, please do not hesitate to contact us –we appreciate hearing from you. Thank you for your time!

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