Publications and Technical Papers

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Reserve Allocation Math for Aggregate-Only Stop Loss Programs
By Bernon R. Erickson Jr., ASA, MAAA
President, Actuarial Strategies & Tactics, Inc.
Aggregate-only stop loss programs, especially those programs with designed low aggregate factors, require special handling. Normal stop loss reserving methods, those involving development triangles, are appropriate for stop loss programs where the vast majority of the risk is specific stop loss risk. Alongside this triangle development method, aggregate reserving is normally performed on an open claim and inspection basis. These methods will not work effectively on aggregate-only programs where the probability of an aggregate claim is high; there are simply too many aggregate claims to adequately and unbiasedly perform reserves by inspection. A systematic and algorithmic approach is required[...Read More]
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The Calculus Underlying Aggregate-Only Stop Loss Programs
By Bernon R. Erickson Jr., ASA, MAAA
President, Actuarial Strategies & Tactics, Inc.
The pricing for low attachment point aggregate-only stop loss programs necessarily involves integrating probability density functions. This probability density function is determined through an actuarial and underwriting process, taking into account the size of the group, the duration year in question, the demographics of the group, and the collective health status of the members of the group.[...Read More]
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Probabilistic Reserve Estimation for Aggregate-Only Stop Loss Programs
By Bernon R. Erickson Jr., ASA, MAAA
President, Actuarial Strategies & Tactics, Inc.
Aggregate-only stop loss programs, especially those programs with designed low aggregate factors, require special handling. Normal stop loss reserving methods, those involving development triangles, are appropriate for stop loss programs where the vast majority of the risk is specific stop loss risk. Alongside this triangle development method, aggregate reserving is normally performed on an open claim and inspection basis. These methods will not work effectively on aggregate-only programs where the probability of an aggregate claim is high; there are simply too many aggregate claims to adequately and unbiasedly perform reserves by inspection. A systematic and algorithmic approach is required.[...Read More]
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Basic Reserve Allocation Math for Fully Insured Programs
By Bernon R. Erickson Jr., ASA, MAAA
President, Actuarial Strategies & Tactics, Inc.
A granular database of incurred and paid claims and earned premium is quite valuable. Incurred and paid loss ratios can be easily drawn from the database in myriad levels of aggregation, limited only by the structural granularity of the identifying characteristics for each cell of data. The most recent months of this claims data are frequently considered functionally incomplete; there has simply not been enough elapsed time for all, or even most, of the incurred claims to have become processed and paid. As a consequence, actuaries typically produce analysis on rating and distribution variables by ignoring the last few months of the data, by estimating and adding a reserve component to each of their separate analyses, or by developing analysis on a fully paid claims basis rather than an incurred and paid claims basis.[...Read More]
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Small Insurers and Large Insurers Make Their Way in the New ACA Landscape
By Bernon R. Erickson Jr., ASA, MAAA
President, Actuarial Strategies & Tactics, Inc.
2014 promises to be a year of profound change for health insurance entities. Large insurers are going to expand their presence, taking full control of the fully insured marketplace, pressing the inherent advantages they enjoy under the new ACA regulations. Small insurers have taken stock of the situation, clearly see the downside of staying in the sanctioned marketplace, and are moving quickly in a variety of alternative directions, in many cases taking their business partners into new territory.[...Read More]
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An Alternative Funding Plan Approach in a Post-Obamacare Market
By Bernon R. Erickson Jr., ASA, MAAA
President, Actuarial Strategies & Tactics, Inc.
Small group fully insured programs have been successfully sold and administered at TPAs around the country for decades. These programs have generally been insured by niche carriers and substantially reinsured by larger quota share reinsurers. They are targeted toward employers of sizes under fifty or one hundred, and typically use a full medical underwriting approach. The TPAs usually perform all functions connected with the administration of the program, including marketing, sales, underwriting, contracts, billing, and claims administration.[...Read More]

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