Post on 17-Jan-2018
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Reserving for Self-Insureds
Leon Palmer – United Technologies CorporationDirector, Risk Managementleon.palmer@utc.com
Casualty Actuarial SocietySeptember 12, 20051:30 PM – 3:00 PMBoston, Massachusetts
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Agenda• United Technologies Corporation• Retention Philosophy• Risk Management• Customers• Deliverables• Complexities – 2 Examples• How to improve
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UNITED TECHNOLOGIES• Holding company structure
° > $40 B Sales° > 60% Sales outside US° > 15% Sales are US & Foreign military
• 6 major companies • Each > $2 B Sales
° Pratt & Whitney, Carrier, Otis, Sikorsky, Hamilton Sundstrand, UTC Fire & Security
• Multi-industry° Aerospace, construction, security (not low risk industries)
• Acquisitive
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Hazard Risk – Retention Philosophy
• Retain risk commensurate with EPS, cash flow and balance sheet strength…
° Maximize internal loss funding tools
° Transfer cat risk exposures
Self –insured reserving is key to philosophy!
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Team
L in da C on royC o o rd in a to r, G en e ra l A d m in is tra t ion
M a rk Ja b lo n o w s kiR isk F in a n ce , M an a g e r
G e o rge A lip ra n d iR is k M a n a g e r
P e te r Jo yceR is k F in a n ce , M an a g e r
J im K ou tsa resG ro u p C la im s , M an a g er
A la n F o u lg e rE u rop e a n R is k M a na g er
T e re sa B og a czR isk M a n a g e r
S te ve Fo rinoB u ild ing S ys te m s , R is k M an a g er
K e lly D ia zA e ro sp a c e , R isk M a na g er
D a v id L a ng lo isA e ro sp a c e , R isk M a na g er
C o s t F ore c a s t P ro ce ss
C a n d a ce C a s w e llA e ro sp a ce , R isk M a na g er
L e o n P a lm erD ire c to r, R isk M a n a ge m e nt
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Very dependent on high quality self insured reserves…• Accuracy• Timeliness• Continuous improvement process (ACE)• Communication
° Reports & data° Verbal° Internal & external customers
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Deliverables - all lines, all businesses• Plan – Current year• Plan – 3 Years• Re-estimate of all open prior years (30 years)• Captive reserve reviews – 3 captives• Bankrupt insurer and ‘scheme’ analyses• ‘Monitoring’ vs Plan – quarterly • Ad hoc
° Drill down on spikes/trends° Manufacturing re-alignments & plant closings° M&A purchase support – pre acquisition° M&A – Purchase Accounting adjustments – post acquisition
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Customers #’s of groups • Controller X 7• Planning X 7• Health and Safety X 7• Legal X 7• Internal Audit X 1• Business Development X 7• Risk Management X 1
° Make vs. buy support° Benchmarking
• Finance Committee – BoD X 1• External Auditors X 1• DCAAX 4• SEC – SARBOX X 1 (at least 44 groups)
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Business Development - ExampleTarget
> $2 B annual revenuesGlobalUK headquarteredProfessional Risk Management staffMajor broker firm, insurers, audit firmLarge losses in claim historyFinancially ‘challenged’
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Business Development - ExampleIndividual case reserving by Legal and RM
No “IBNR”Diluted “Incurred” reservingGAAP/UTC estimated shortfall > $20M
2 years laterOriginal estimates still look goodLocal acquired entities still not ‘accepting’Self-insured culture - slow to implement
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Government Contracting - Example
Hamilton Sundstrand & DCAA - WC2 inch thick book15 page ‘summary’Every actuarial method ‘known to man’8 Sections to bookEvery year discussion
Industrial vs. AerospaceWeighting of methodologies
2003 review; same thing but….
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Government Contracting - Example
‘show me…’. . . . . . .
. . . . . .1998 1,074 1,526 1,891 2,215. . . .. . .. .
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How do we improve Use quality processes and tools!Annual review of processes and customer feedback
Deloitte –actuarial firmRisk ManagementData providersCustomers
Process ‘mapsIdentify ‘turn backs’Conduct ‘root cause analyses’Implement ‘permanent fixes’Repeat each year!