reserving for self-insureds leon palmer – united technologies corporation director, risk...

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!