Reserving in Mergers and Acquisitions

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Reserving inMergers and Acquisitions

• CAS Loss Reserve Seminar
• New Orleans, Louisiana
• Robert S. Bennett, FCAS
• September 11, 2001

OdysseyRe
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INTRODUCTION

• Directing integration of loss reserving functions
  of two reinsurers
• Reinsurer A
• Established in 1984
• Loss reserve mix predominantly claims made
  business
• Minimal mass tort exposure
• Reinsurer B
• Established in early 1900s
• Loss reserves mix of occurrence/claims made
  exposure
• Significant mass tort exposure

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DISCUSSION ISSUES

• Similarities/differences in books of business
• Claims handling and case reserving practices
• Reserving systems and methods
• Reconciliation of reserving assumptions
• Understanding legacy issues ( Mass Tort, Ceded
  Reinsurance )
• Audit firm issues

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SIMILARITIES/DIFFERENCES IN BOOKS OF BUSINESS

• Reinsurance loss experience is aggregation of
  segments of reinsured company loss exposure
• Loss development varies by reinsured company
• All Excess Casualty books of business are not
  the same
• Working layer versus high excess
• Main Street versus Excess and Surplus Lines

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CLAIMS HANDLING AND CASE RESERVING PRACTICES

• Historical loss data reflects two (at least)
  reinsurance claim department philosophies
• Case reserving practices
• Claims audit strategy
• Additional case reserves (ACRs)
• Integrated department reflects mix of past claim
  department practices

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RESERVING SYSTEMS AND METHODS

• Multiple databases
• Varying levels of detail and data quality
• Loss Reserve projection methodologies
• Report year versus accident year analysis
• Reliance on Paid, Incurred, BF, Other methods
• Estimating Tail factors

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RECONCILIATION OF RESERVING ASSUMPTIONS

• Reconciliation of loss picks between companies
• Requires review of associated expense ratios
• Justification for differences
• Tail factors
• Impacted by underwriting at time business was
  written
• Justification for differences

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UNDERSTANDING LEGACY ISSUES

• Mass Tort Issues
• Each reinsurance companys mass tort exposure is
  unique
• Those most familiar may not be with the merged
  organization
• Ceded Reinsurance
• Each reinsurance companys ceded program is
  unique
• Those most familiar may not be with the merged
  organization

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AUDIT FIRMS ISSUES

• After you understand all the new issues you get
  to explain it all to your audit firm
• Audit firm familiar with only one of the merged
  companies