Minnesota Lawyers Mutual Insurance Company and Subsidiaries - Page 29

            business and claim trends to satisfy himself that petitioner’s                             
            underlying loss and loss adjustment expense patterns were stable                           
            and consistent.21                                                                          
                  Like Hayne, Streff used two accepted actuarial methods,                              
            involving projections of both incurred and paid losses.  Streff                            
            computed his development factors22 for both incurred losses and                            
            paid losses using petitioner’s last five to seven annual                                   
            statements.  Streff expressed the development as a ratio or                                
            arithmetic percentage showing the change in paid, or incurred,                             
            losses from one year to the next.  Streff computed a weighted                              
            3-year average and a weighted average for all years presented,                             
            and then selected the development factor to be applied to each                             
            interval on the basis of his judgment and experience as an                                 
                  Streff applied the development factor determined for each                            
            year to the paid or incurred losses for that year, as                                      

                  21 James P. Streff (Streff) reviewed the following types of                          
            information: (1) Financial considerations, such as written                                 
            premium, surplus, etc.; (2) marketing and loss exposure                                    
            considerations, such as the size of insured law firms, policy                              
            limits, rate changes, and reinsurance; (3) loss reserve                                    
            considerations, such as reserve tests; (4) underlying loss                                 
            patterns, such as claim closure rate, claims closed without                                
            payment, loss frequency and severity, and claim migration (i.e.,                           
            movement of a claim from one reinsurance layer to another as a                             
            result of deviations in its original estimation).                                          
                  22 In general, development factors express the ratios of                             
            amounts at one age to those at the immediately prior age.                                  
            Actuaries use development factors, along with other methods, to                            
            estimate loss and loss expense reserves.                                                   

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Last modified: May 25, 2011