Articles & Analysis
Assessing Reserve Adequacy (Part 2)
February 15, 2008
This is part 2 of the 4th article in our Data Matters series, designed to help investors, consultants, and vendors understand published data on the insurance industry. It discusses a test that provides insight into an insurer’s current reserve adequacy.
Note: If you have not read part 1 of this article, you may want to start here.
To Assess Current Reserves Adequacy, Look At Past Claims Payments, Not Past Estimates
In the first part of this article, we discussed how to use Schedule P, Part 2 to evaluate the accuracy of an insurer’s previous incurred loss estimates. Unfortunately, looking back in time does not really offer much insight into current reserve strategies and assumptions.
Evaluating current reserve adequacy presents special challenges. Companies rarely make the details of their reserve strategies available to the general public. And though insurers do submit actuarial reviews to regulators, those reviews are complex and tend to be packed with more caveats than information.
Fortunately, Schedule P provides a relatively simple way to assess current reserve adequacy—without knowing all the details of a company’s actual reserving assumptions. We can use the Schedule P data to quantify historical claim payment patterns for the company and then use those patterns to estimate the remaining payouts on current outstanding claims. We can then compare this estimate to current reserve levels to see if they differ. Here is how it’s done.
Assessing Reserve Adequacy (Part 1)
February 15, 2008
This is the fourth article in our Data Matters series, designed to help investors, consultants, and vendors understand published data on the insurance industry. In the first three articles in the series, we focused mostly on the limitations of the data. In this two-part article, we actually discuss how to do something with it.
To Understand An Insurer’s Financial Health You Must Understand Its Reserve Position
Anyone doing research on an insurance company—or on the insurance industry as a whole—must come to grips with the concept of loss reserve adequacy. This isn’t an undertaking for the fainthearted. Most people are happy to leave reserve analysis to the actuarial experts. But it is actually something even the statistically challenged can manage. In this article, we show you how to begin.
The Limitations Of Statutory Data
February 12, 2008
This is the third article in our Data Matters series. It is designed to help investors, consultants, and vendors unfamiliar with insurer financial data understand the tremendous amounts of published information available on the industry. Look for other articles in the weeks ahead.
Insurance Can Get Complicated
The insurance industry is one of the most carefully regulated industries in the United States. The Insurance Commissioners in each of the 50 states require that insurers file regular financial statements containing a wealth of detailed information on insurer operations and investments. These statutory filings are available to the public and offer the most detailed and consistent data on the industry. But statutory data is not particularly easy to use or interpret.
As we discussed in a previous article, statutory data is not compiled using the Generally Accepted Accounting Principles (GAAP) that most investors and analysts are accustomed to using. This can muddy the analytical waters—even for experienced analysts. Other quirks in the data create additional difficulties. This article discusses some of those complications.
A Few Things To Know About Statutory Data
February 8, 2008
This is the second article in our Data Matters series, designed to help readers understand the tremendous amounts of published data available on the insurance industry. Look for other articles in the weeks ahead. (The first article in the series may be found here.)
Statutory Data Is Not Compiled Using Generally Accepted Accounting Principles
Everyone researching the insurance industry at some point finds themselves looking at data drawn from both SEC reports and the statutory reports filed with state regulatory agencies. And one of the first things they notice is that data from the two sources never match up. This can be fairly alarming. Which numbers are right? Which should we be using?
For many analytical purposes, statutory reports are the best available resource. However, these reports use a different set of accounting standards than the Generally Accepted Accounting Principles (GAAP) used in the preparation of SEC filings and most annual reports.
In this article, we provide a general, non-technical overview of the Statutory Accounting Principles (SAP) that govern statutory filings. We hope this overview will help readers understand why and how GAAP and SAP differ. Read more
Roadmap to Public Data on the Insurance Industry
January 31, 2008
This is the first article in a series designed to help readers understand the tremendous amounts of published data available on the insurance industry. Look for other articles in the series in the weeks ahead.
Data is the foundation of the insurance industry. So it’s not surprising that there are mountains of data available about the insurance business.
Investors, consultants, and businesses trying to understand the industry — or sell to it — have access to all this data. But there is almost too much of it. With over 3000 companies publishing hundreds of pages of arcane, jargon-encased financial reports every quarter, any detailed analysis of the insurance industry presents significant data management challenges.
Here is a brief, and admittedly incomplete overview of publicly available data about the insurance industry. It is designed for analysts who may not be intimately involved with the insurance industry but need to sort through the available data to develop operational or marketing insight for their own businesses. It won’t answer all your questions, but we hope it will help you begin the process of finding what you need. Read more
2006 Nonstandard Auto Insurance Study now available as free download
December 5, 2007
2006 Nonstandard Auto Insurance Study
Clear Insights From a Fuzzy Market
Study Details
Date of Publication: December 2006
Region Covered: United States
Industry & Segment: P & C Insurance: Nonstandard Personal Auto:
Time Period: 2004-2005
Number of Pages: 55
Nonstandard auto insurance (NSA) is a critical segment of the personal lines insurance marketplace. But in recent years, assessing trends in the segment has become an exercise in futility.
How large is the NSA segment? Is it growing or shrinking? Is it more or less profitable than the rest of the auto insurance industry? These are important questions with serious implications for hundreds of insurers.
But no one really knows the answers. Accurate segment-wide data on the nonstandard
auto market is simply unavailable, and anyone who claims otherwise is selling doubtful
merchandise.
This study helps bring a level of clarity to this increasingly fuzzy market segment. It uses published statutory data and other resources to provide a detailed analysis of growth and profitability among ten of the top specialists in the nonstandard auto market.
It will not give you hard and fast numbers on the entire NSA segment. No one can do that. But because the ten companies considered in the analysis write only nonstandard risks, it provides clear, clean insight into general trends in the market.
The study also provides an important benchmark for evaluating individual insurer results, and outlines what it takes to win in the NSA segment. It is important reading for anyone interested in understanding the nonstandard auto market.