2004 Annual Meeting Handouts
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John Krubski is an entertaining and insightful commentator on the art and science of Persuasion. Krubski is currently the chairman of the International Thought Leadership Council and the author of Who Dances First Naked Gets to Lead; and other guideposts for navigating this NeXt Millennium. Throughout his career in advertising, marketing, and consumer research, Krubski has successfully promoted hundreds of millions of dollars worth of consumer and business-to-business goods and services. In so doing, he has built an international reputation for recognizing the unforeseen impacts of marketplace trends and helping organizations create a long-term vision that guides innovation. This is a talk that promises to amuse, enlighten, challenge, and stimulate.
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When many of us started in the actuarial profession, the traditional view of reinsurers was presented in exam texts as "following the fortunes" of the primary customers. Through liability crises, natural catastrophes, terrorist attacks, asbestos and environmental claims, and the like, that early characterization of reinsurance no longer seems adequate. In many respects, it now appears that reinsurance coverage availability and pricing considerations often are significant elements in marketplace developments for primary insurers, for self-insureds, and for the insuring public. Reinsurance is a worldwide business.
This panel will address the current drivers of the reinsurance market, ever more sophisticated catastrophe modeling techniques, financial and underwriting risk analytics, and emerging liability theories. Panelists will represent the perspectives from various reinsurance "clusters" in North America, Bermuda, and Europe.
Gary G. Venter, Managing Director, Guy Carpenter Instrat
Donald R. Alexander, Executive Director, Guy Carpenter & Company, Ltd.
James N. Stanard, Chairman & CEO, Renaissance Re Holdings Ltd.
Michael G. Wacek, President, Odyssey America Reinsurance Corporation
Workers Compensation Update
Loss cost trends for Workers Compensation insurance are ever increasing across the country. The situation is exacerbated in the eyes of policyholders when premium increases are extraordinarily steep, due to historically inadequate rates. The panelists will provide a brief summary of the premium, loss cost, and legislative trends in some of the more notable jurisdictions and proceed to offer their prognosis for the future.
Due to the barrage of legislative changes that has hit California over the past couple years, a summary of the bills enacted will be presented along with an up to date estimate of the expected financial impact of each. California's change to open rating, the ensuing price cuts, and the fallout due to insurance company failures will be discussed, with an eye on other jurisdictions that may be facing similar competitive and legislative situations.
Following brief presentations, the panelists will engage in a roundtable discussion about common areas of concern across jurisdictions, allowing ample time for questions and comments from the audience.
Robert F. Conger, Principal & Consultant, Towers Perrin
Dennis C. Mealy, Chief Actuary, National Council on Compensation Insurance
David M. Bellusci, Senior Vice President and Chief Actuary, California Workers Compensation Insurance Rating Bureau
Stanton F. Long, Managing Director, Marsh New York
A question that is commonly asked is whether there is a correlation between financial reserve adequacy and the underwriting cycle. The panelists will provide a brief summary of their interpretations of this issue, and comment on trends and recent and pending legislation that may affect this issue in the future.
Some of the potential topics of discussion are the impact of Sarbanes-Oxley, revised actuarial reserve opinion rules, and insurance regulatory issues. Transparencies between reserving and pricing/underwriting functions within companies will also be examined. Panelists will also discuss how this issue affects outside rating agencies view of both individual companies and the insurance market in general.
Stephen T. Morgan, Vice President, Clarendon Insurance Group
Michael E. Angelina, Consulting Actuary, Tillinghast-Towers Perrin
Meyer Shields, Analyst, Legg Mason Wood Walker, Inc.
The actuarial profession is facing numerous challenges around the world. As the tools of risk assessment and risk analysis have become widely available to more people and the process of risk management has moved beyond the traditional field of insurance, our various publics' perceptions of what services the actuary provides and the value of those services are changing.
- What changes must we make to adapt to the new public perception of a risk management professional?
- What must we do to continue to demonstrate our integrity and competence to our current publics and gain the confidence of potential new publics?
- What are the hard choices that we must make? Do we need to change our education, standards of practice development, and discipline in order to ensure continuing public confidence?
- How do these questions also address the survival of the actuarial profession?
A distinguished panel of leaders of international actuarial organizations will present their views on these questions. They will speak from the experiences in their own countries and from a perspective of the profession globally.
Mary Frances Miller, President, Casualty Actuarial Society
Brian A.P. FitzGerald, President, Canadian Institute of Actuaries
Graham E. Rogers, President, Institute of Actuaries of Australia
Robert E. Wilcox, President, American Academy of Actuaries
Harvie Brown, President, Faculty of Actuaries
AAA- and CAS-Sponsored Limited Attendance Workshop on
Actuarial professionals understand complicated data and theories. By adding the ability to translate the information into understandable business themes, we have a powerful opportunity to promote the importance of our work, influence key constituencies, and affect decision-making. So in this year's CAS Annual Meeting, the CAS General Business Skills Committee and the American Academy of Actuaries will co-sponsor a fast-paced, highly interactive two-hour program called "The Business of Actuarial Communication" in which seminar leaders Bill Connor and Susan Tomai of Washington, D.C.'s Evergreen Media Counselors will teach the group how to model their communication.
Using a combination of lecture, PowerPoint, and video examples of well-known public figures performing well and not-so-well in news interviews (which they call "The Good, the Bad, and the Ugly"), Bill and Susan will address issues such as:
- What do actuaries want the general public, and more specialized audiences, to know about their work?
- Adapting to the medium: specialized or general-interest story? Print or broadcast?
- Dealing with hot-button topics such as the Standard & Poor's reserve issue.
- Understanding audience demographics.
- Developing strong messages and talking points. Example: "Actuaries are the architects of financial security."
- Improving speaking skills and adapting them to specific media situations.
After the session, participants receive take-aways such as a training booklet, interview preparation templates and more information for further practice. Each participant will also receive Continuing Education credit in "General Business Skills."
About Evergreen Media Counselors
Bill Connor is a former White House television correspondent and local news anchorman. Susan Tomai is a former CBS News and ABC News producer. Together they have conducted media training and presentation training/speech coaching sessions for hundreds of officials and executives, including more than 25 members of the American Academy of Actuaries.
The NAIC Risk-Based Capital (RBC) formula implemented in the early 1990s has been deemed an improvement over prior minimum capital standards. The RBC formula provides a ranking process for property casualty insurers with regards to regulatory intervention. But, in recent years, the formula has been criticized because the process does not detect troubled companies "early" enough, despite the fact that the formula was not intended to be used as an "end-all" solution to capital adequacy standards. The American Academy of Actuaries P&C Risk based Capital Committee have been working to test the feasibility of enhancements to the formula, including a "trend test" solution, similar to that used for life insurers. In essence, this effort is an attempt to evaluate and possibly improve upon the early warning responsiveness of the current RBC formula with regard to company impairment. The panel will constitute representatives from the AAA risk based capital committee subgroup charged with developing corresponding recommendations to the NAIC. The panel discussion will summarize the research to date, including feedback from the NAIC in its deliberations with regards to the committee's recommendations.
Robert F. Wolf, Principal, Mercer Oliver Wyman
Chris G. Nyce, Senior Manager, KPMG
Anthony G. Phillips, VP, Actuarial, Accident Fund Insurance Company of America
Actuaries are continuing to take on positions in nontraditional areas of practice, including those related to risk management, financial management, underwriting, claims, and public policy.
The panelists will discuss their nontraditional positions, including their day-to-day activities and the obstacles they face being actuaries in nonactuarial roles.
Gail M. Ross, Manager and Senior Consultant, Milliman
Stephan L. Christiansen, Senior Vice President, Director of Research, Conning Research & Consulting, Inc.
John R. Ferrara, President, Arrowhead General Insurance
Duncan McCallum, Managing Director, RBC Capital Markets
Adjusting For Prior Experience Using Credibility Theory
This session will explore how actuaries in different operations adjust for prior experience when setting valuation assumptions, new rate assumptions or renewal rates for specific policies. Both theory and actual application will be explored. The speakers will introduce some elementary theory, including Buhlman credibility, ridge regression, cross validation along with examples from classification and ratemaking for personal home/auto insurance. They will discuss methods in use with Workers Compensation Boards across North America. They will also discuss applications related to Group Life and Long Term Disability Insurance.
John Have, President, Have Associates
Robert Hinrichs, VP & Chief Actuary, Workplace Safety and Insurance Board of Ontario
Christopher J. Monsour, Consulting Actuary, Towers Perrin
Gary Walters, Vice President Group Insurance, RGA Life Reinsurance Company of Canada
Asbestos Liabilities-The Continuing Saga
Increased claim filings, awards to unimpaired plaintiffs, bankruptcies, and notable insurer reserve additions are just some of the key issues that have added to the litigious environment of asbestos liabilities in the past few years. This session will discuss the latest developments in asbestos litigation and federal and state legislative reform efforts, as well as rating agency views of the situation.
Jennifer L. Biggs, Principal, Tillinghast-Towers Perrin
Automobile Insurance Reforms In Canada
From east to west, regulators and insurers have been active in product reform initiatives for automobile insurance. The panel of speakers, representing an insurers' and legal counsels' perspective, will discuss the background of product reform initiatives in Canada and internationally over the last two years. What caused so much change at the same time? How did the provinces differ in their reforms and processes of implementation? Have the reforms delivered on consumer expectations and political promises?
While the discussion will concentrate on reforms in Canada, the approaches taken and the lessons learned north of the border should prove beneficial to practicing actuaries from both the United States and Canada.
Paula Elliott, Principal, Mercer Oliver Wyman Actuarial Consulting Ltd.
Shelley L. Miller, QC, Partner, Fraser Milner Casgrain LLP
Alain Thibault, President and CEO, Meloche Monnex Incorporated
California Workers Compensation
Do the math: AB 749 + (AB 227 / SB 228) + SB 899 = X. Panelists will discuss the latest estimates of the financial impact to be expected from each of these newly enacted bills. While a summary of the "bottom line" will be provided in a general session, this session will break down the components into the expected reduction to medical, indemnity, vocational rehab, and other expenses.
Need help explaining this mess to your company executives? The panelists will provide suggestions on how to translate the double-digit reductions boasted by Governor Schwarzenegger into the single-digit rate reductions recommended by the WCIRB, then to the approved rate change, and eventually getting to the renewal rate change your company will need to sell.
After having recognized the legislative changes in your pricing, you will likely be making parallel adjustments in your reserve analyses. The panel will discuss what methodologies are being used to incorporate these benefit level changes into ultimate loss projections, and the extent to which auditors are "buying into" these anticipated savings. The panelists will also discuss considerations for tailoring the estimates to your own company's book. In a state marred by deteriorating workers compensation reserve positions, we will get a regulator's perspective on an explicit provision in the reserve analysis for "anticipated expense reductions."
David M. Bellusci, Senior Vice President and Chief Actuary, California Workers Compensation Insurance Rating Bureau
Joanne M. Ottone, Consulting Actuary, Towers Perrin
Ronald A. Dahlquist, Senior Actuary, California Department of Insurance
Captives are an alternate type of self-insurance vehicle that affords businesses some flexibility with their risk management strategies. One of the principle reasons why captives are formed is to address concerns over the affordability and availability of insurance.
Over the course of the past several years, the use of captives has increased. For many mid- to large-sized companies insurance prices have continued to increase. As a result, the benefits of forming a captive have far out-weighed the benefits of choosing an alternative insurance program, such as a large deductible program. Insurance availability also continues to play a role in the increased use of captives.
Further, places of domicile for a captive are no longer primarily offshore in Bermuda or in Vermont. Other states are now offering opportunities for forming captives.
This session will address the reasons why a company would form a captive, the recent growth in the formation of captives and key issues surrounding forming and maintaining a captive.
John P. Yonkunas, Principal, Towers Perrin
Andrew Sargeant, President, USA Risk Group of Vermont, Inc.
Charles R. Woodman, Senior Vice President, Marsh USA
CAS Examination Process
The examination process continues to be one of the hottest topics for Casualty Actuarial Society members and candidates. In the past few years, the CAS has made material changes in order to improve the examination process. The changes are intended to better prepare candidates and more appropriately identify the truly qualified candidates. This panel will address some of these changes, including learning objectives, question-writing training, and setting pass scores. Time will be allowed for questions.
Richard P. Yocius, Senior State Manager/Senior Actuary, Allstate Insurance Company
Steven D. Armstrong, Senior Actuary, Allstate Insurance Company
Daniel G. Roth, Vice President and Actuary, CNA Insurance Companies
Manalur S. Sandilya, Corporate Actuary, Max Re Europe, Ltd.
Reinsurance capacity for Catastrophe Life and Personal Accident (PA) treaties was plentiful and available at very good prices prior to the September 11 attacks. Since then the market went through a complete and irreversible transformation in terms of price and availability. The changed market has witnessed an increasing reliance on property/casualty actuarial skills and concepts to underwrite, price and manage accumulation risk of life and PA insurers.
During this presentation, we will discuss the underlying reasons for this emergence and will present applications of P&C models and tools relating to terrorism and earthquakes, two of the main accumulation risks faced by Life and PA insurers.
Francois Dagneau, Senior Vice President, Aon Re Canada, Inc.
David A. Lalonde, Senior Vice President, AIR Worldwide Corporation
Pierre-Yves Le Corre, Technical Director, SCOR Life
This session will focus on the different approaches that two popular models take to describe correlations between two random variables in insurance applications. Panelists will discuss the underpinning of each model type and describe under what circumstances it would be appropriate to employ each model.
Glenn G. Meyers, Chief of Actuarial Research & Assistant Vice President, ISO
Gary G. Venter, Managing Director, Guy Carpenter Instrat
Much has been said of the medical malpractice insurance crisis-causes, insurance failures, tort reform, and the ever-shrinking market that has resulted. This session will put a more futuristic spin on the topic and address a few areas where actuaries and company executives are moving forward with solutions to some of the problems being faced. Nontraditional risk financing alternatives are becoming so common in the medical malpractice arena, we can no longer refer to them as nontraditional. As the number of risk retention groups has increased in recent years, the demand for feasibility studies, pricing, reserving, and captive management has created a growing practice area for actuaries. The actuary's role in this emerging field will be presented.
The panel will also discuss the emerging use of predictive modeling for medical malpractice underwriting and risk segmentation optimization. While predictive modeling is heavily used for personal lines and standard commercial lines products, there are still unpaved roads to be explored among commercial specialty lines. The challenges of using these advanced pricing tools for physician owned companies will be presented.
Robert J. Walling III, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Kevin M. Bingham, Senior Manager, Deloitte Consulting LLP
Richard B. Lord Principal and Consulting Actuary, Milliman USA
The End of Free Sharing in the Insurance Industry
There is an increased awareness and use of patents within the P&C insurance industry. Everyone from major carriers to independent actuaries are attempting to patent their new insurance inventions. Those that succeed may be able to dominate new markets. Those that pay no attention to this developing trend will be relegated to selling old forms of coverage or licensing the innovative new ideas of others.
This panel will discuss who is getting patents, what are they getting them on, and how they are using them to protect the value of their intellectual property and create competitive advantage. Attendees will learn how to recognize when they themselves have made a potentially patentable invention. They will also learn what actions they can take now to avoid losing their or their employer's patent rights in the future.
Amy S. Bouska, Consulting Actuary, Towers Perrin
Tom Bakos FSA, firstname.lastname@example.org, President, Tom Bakos Consulting Inc.
Mark Nowotarski, email@example.com, President, Markets, Patents & Alliances L.L.C.
John Love, Group Director, United States Patent and Trademark Office
The 2004 ERM Symposium was the first ERM-related seminar sponsored by the CAS that did NOT have a session called "ERM - Fad or Fact?" or something along those lines. While it is fairly clear that ERM has staying power, the implications for the actuarial profession are less certain. This panel will explore the opportunities and challenges ERM presents our profession, and provide some insight into the activities inside and outside the actuarial profession that will profoundly influence the role of the actuary in the ERM process.
Barry A. Franklin, Managing Principal and Actuary, Aon Risk Consultants, Inc.
Donald F. Mango, Director of Research and Development, GE Insurance Solutions
Mark A. Verheyen, Vice President, Carvill
Exploring New Territories
Location is a critical rating characteristic for personal lines insurance. Loss costs-and consequently premiums-can and do vary significantly from one territory to another. Because of the unique features of the geographic characteristic, the standard ratemaking procedures used to review other rating structures must be modified for territorial ratemaking. This panel will discuss several different approaches for determining territorial boundaries and rates and provide pros and cons of each.
Christopher M. Norman, Director, United Services Automobile Association
Timothy McCarthy, Actuarial Associate, Insurance Services Office
Serhat Guven, Consultant, EMB America LLC
Fair Value Accounting - International Accounting Standards
The anticipated Fair Value concept incorporated in the proposed International Accounting Standards will affect P&C insurers currently reporting under US GAAP and Canadian GAAP. This session will discuss model financial statements of a hypothetical insurer for a five-year period under both U.S. GAAP and anticipated Fair Value accounting. We will first show how some of the distinguishing features of proposed IAS such as Market Value Margins (MVMs) and discounting losses could be modeled in the property/casualty insurer's financial statements. We will then explore what happens when companies decide to use different Fair Value parameters (i.e. use different Market Value Margins or different expected payout patterns) that are not reflected under current GAAP.
James K. Christie, Partner, Ernst & Young LLP
Scott H. Drab, Manager, Ernst & Young LLP
Hachemeister Prize Paper
"Capital Consumption: An Alternative Methodology for Pricing Reinsurance"
By Donald F. Mango
This paper introduces a capital consumption methodology for the price evaluation of reinsurance in a stochastic environment. It differs from the common practice of risk-based capital allocation and release by:
This method eliminates the need for capital allocation and release; creates scenarios that more closely model actual contract capital usage; allows more flexibility in stochastic modeling; and makes risk-return preferences an explicit part of the pricing decision.
- evaluating the actual contract cash flows at the scenario level;
- eliminating the need for contract-level supporting capital allocation and release;
- evaluating each scenario's operating deficits as contingent capital calls on the company capital pool; and
- reflecting the expected cost of contingent capital calls as an expense load.
In the spring of 2004 a challenge was issued to members of the VALCON CAS e-mail list. Hypothetical loss observations were simulated from a heavy-tailed distribution that contains more extreme values than some common severity distributions, such as the gamma and lognormal. A sample of 250 such "observations" was supplied to the members of the e-mail list, with the challenge of estimating the frequency, expected claim severity and pure premium of the 5000 x 5000 layer. A number of interesting approaches were tried and a lively discussion about extreme value analysis took place. At this session, a number of the responses to the challenge will be presented. Data used in the challenge will be posted on the Committee on the Theory of Risk web site.
Steven M. Visner, Principal, Deloitte & Touche LLP
Philip E. Heckman, Consulting Actuary
This session will define identity theft and show how a new insurance product is produced. Further, the sources and the information reviewed in order to define the product and price will be discussed. In addition, the current state of the product will be reviewed along with a review in retrospect of the pricing assumptions initially made.
John Winkleman, Assistant Vice President, AIPSO
Charles P. Orlowicz, Senior Director, American International Companies
Kimberley A. Ward, Chief Actuary, American Association of Insurance Services
Insurance Market and Actuarial Profession in Japan
Since 1996, deregulation of insurance industries has been gradually implemented in Japan. This caused considerable changes and reforms in the Japanese non-life insurance industry. In the first half of this session, we will present an outline of deregulation and recent market environment surrounding non-life insurers in Japan. Another half of the session will be spent for discussion on actuarial profession in Japan. Our presentation will cover qualification exam, role and status of the appointed actuary and our views on future expansion of the role and opportunities for non-life actuaries in Japan.
Hirohisa Mikogami, Senior Consultant, Milliman
Hiroaki Hara, Deputy Manager, Mitsui Sumitomo Insurance Co., Ltd.
Yoshitaka Hoshino, Deputy Manager, Tokio Marine and Nichido Fire Insurance Co., Ltd.
Hironori Miyatake, Associate, Nissay Dowa General Insurance Co., Ltd.
Mitsuru Nagamori, Vice President, Sompo Japan Financial Guarantee Insurance Co., Ltd.
Hirokazu Ogawa, Deputy Manager, The Fuji Fire & Marine Insurance Co., Ltd.
Atsuko Suto, Deputy Manager, Aioi Insurance Co., Ltd.
Shigetada Yokoi, Manager, Nipponkoa Insurance Co., Ltd.
More and more insurance entities are becoming international players. It is more common to see insurance groups with companies and/or branches in continental Europe, the UK, Canada, the US and various other localities. As home office actuaries start analyzing liabilities from various other countries, they must ask themselves "Is it a small world after all?" Are the liability environments the same between the different countries or are there unique characteristics that need to be considered in an analysis?
Since all coverages and all countries are beyond the scope of this session, the focus will be on liability coverages in the largest Eurozone countries, the UK, Canada and the US. There will be a comparison of the structure and effect of the legal systems, the trends in costs and the insurance products that have resulted from these various liability climates.
Jean Roy, FCAS, Regional Manager, Aviva Trade
Robert Dalton, Divisional Director, Cunningham Lindsey International Ltd.
Sean Whelan, Executive Vice President, Willis Re
Loss Reserving: Is It Broken? What Can Be Done Better?
In light of recent public criticism of the actuarial profession, it is prudent to examine recent loss reserving practice. Several different entities are currently reviewing loss reserve methods and results and their presentation by actuaries. This session will present the results of analyses that are currently underway, performed by subcommittees of the American Academy of Actuaries (AAA) and the CAS Committee on Reserves (CASCOR) and also the Insurance Services Office, Inc. (ISO).
The AAA Committee is reviewing the reserves of recently insolvent or financially impaired companies. The CASCOR Subcommittee is focused on identifying problematic issues in reserving methods and reporting with a goal of addressing them through education and research. One particular aspect of their work includes a review of the information presented in Statement of Actuarial Opinions for both insolvent companies and on-going companies with large additions to their reserves. ISO is updating its biennial industry loss reserve study and doing a separate study of individual company reserve developments in recent years.
The panelists will discuss the results of their studies, including to what extent reserve developments caused or contributed to financial failures and to examine what role actuarial practice may have played. What lessons exist for our profession from these reviews? How can we educate industry observers?
John J. Kollar, Vice President, ISO
Charles C. Emma, Principal, Pinnacle Actuarial Resources
Thomas A. Ryan, Consulting Actuary, Milliman USA
The Morris Commission -
and Why it is so Relevant for Canadian Actuaries
Following the recent financial difficulties of the (UK) Equitable Life, an Inquiry was conducted by Lord Penrose. Amongst other things, his report was critical of the role played by actuaries. In response to this report, the UK Government asked Sir Derek Morris to conduct a "wide-ranging inquiry into the (U.K.) actuarial profession". This session will describe what the Morris Commission is doing and what prompted it, and discuss the implications for the actuarial professions in the UK and Canada.
Charles McLeod, President-Elect, Canadian Institute of Actuaries
Harvie Brown, President, Faculty of Actuaries
Mike Lombardi, Principal, Towers Perrin
With the threat of SARS, West Nile Virus, and Avian Flu, is the world poised for another pandemic on the scale of the 1918 influenza pandemic? Our guest expert in Infectious Diseases will present the latest thinking on the prospects for such an event and how it all might unfold. The actuarial issues on how various lines of business might be impacted and the possible modeling techniques to assess the potential impact on pricing and capital adequacy will also be examined.
Pierre Saddik, Vice President, Group Development, Optimum Reassurance Inc.
Emile M. Elefteriadis, Assistant Vice President, Actuarial, Swiss Re Life and Health Canada
Scott McGaire, Assistant Vice President, Manulife Financial
Dr. Brian Ward, Chief of the McGill University Infectious Disease Division
Professionalism Standards in Practice
How long has it been since you knocked the dust off of your Actuarial Standards of Practice binder or read the CAS Code of Professional Conduct? This session, which will be facilitated by members of the CAS Committee on Professionalism Education, will discuss several case studies involving professional dilemmas. These case studies are intended to lead to lively and educational audience interaction. We guarantee that you will walk away with an increased awareness of professionalism and its impact on the reputation of the actuarial community.
David J. Otto, Managing Director, EMB America LLC
Steven D. Armstrong, Senior Actuary, Allstate Insurance Company
Kevin M. Dyke, Vice President and Chief Actuary, American Physicians Assurance Corp
The Reinsurance Buying Process-Have the Rules Changed?
This session will explore the reinsurance buying process from the cedant's point of view. Among the topics that the panelists will discuss are:
- What drives reinsurance purchases?
- How are markets selected?
- How does the deal get done-or not?
The panel will also look at the claims process and its influence on the buying decision.
Brian Z. Brown, Consulting Actuary, Milliman USA
Robert C. Andrews, Vice President and Manager, Liberty Mutual
Scott C. Belden, Managing Director, Travelers/St.Paul
Sarbanes-Oxley 404-Where Do We Stand?
At the end of fiscal year 2004 SEC registrants are required to make an assessment of the effectiveness of their internal control structure and procedures for financial reporting. The registrant's auditor must attest to, and report on, the assessment made by management. Insurance company actuaries and corporate risk managers have invested significant time and resources to assist their management with this assessment, particularly as it relates to insurance and self-insurance liabilities.
This session will provide a description of these efforts, a status report of 2004 readiness, and a view of the commitments necessary to remain 404 compliant in the future. Our panel of consultants and company personnel have experienced 404 implementation first hand and their insights will stimulate audience discussion of various topics of interest to the actuary.
James C. Votta, Partner, Ernst & Young LLP
Lise A. Hasegawa, Pricing Director, Metlife Auto & Home
Kenneth Sipora, Senior Manager, Deloitte
Dave Perine, Senior Manager, Ernst & Young
Security and the Reinsurer
Reinsurance has come a long way from the arcane practice that "followed the fortunes" of primary insurers. Today, reinsurance is a prime ingredient in the texture of the financial transactions that protect insurer capital, corporate risk management programs, securitization techniques, etc. As such, the evaluation of the reinsurer is key to a soundly functioning insurance mechanism. Panelists will discuss what reinsurance buyers focus on in reviewing reinsurer security, tools cedants use to mitigate credit risk from reinsurers (collateral, contract language, etc.), key issues that influence the choice of reinsurance partners, and the marketplace evaluation of the financial strength of the reinsurers.
Michael G. Kerner, Chief Operations Officer, Zurich North American Specialties
Donovan M. Fraser, Associate Director, Standard & Poor's
Isaac Mashitz, Chief Pricing Actuary, Swiss Reinsurance America Corporation
Tax Issues and The P/C Insurance Industry
In the past few years, there have been several important developments with regard to property and casualty insurance companies and taxes. One member of the panel has spent years defending insurance companies against the IRS on loss reserving issues. He brings this experience, updates regarding recent court decisions and other valuable insights and tips on such matters.
In addition, transfer pricing is a hotter issue than ever. The insurance industry is continuing to get more global, and many multinational companies manage their business using reinsurance between entities in different tax regions. Adding pressure, taxing authorities are putting increased focus and resources into this area, as witnessed by the recent U.S. IRS Proposed Transfer Pricing for Services Regulations, the upcoming OECD Guidelines on Attributions of Profits for Insurance Companies, and Australia's recent initiation of a review of the transfer pricing of every major Australian insurance company. Our panel will discuss the various methods specified by the IRS for supporting transfer pricing, and share best practices from its experiences dealing with transfer pricing, and address the special challenges the insurance industry faces in this area.
Further, codification and SSAP #10 have brought a new issue to insurance companies in deferred tax assets for statutory accounting. Under certain conditions an insurance company, for statutory accounting purposes, can admit a deferred tax asset. Do you know in what cases an insurance company can establish a deferred tax asset? Are such assets limited? Did you know that in most cases, a major component of a deferred tax asset relates to loss reserve discounting? The panel will answer these questions and provide more information regarding SSAP #10.
Richard Ashley, Partner, PricewaterhouseCoopers LLP
Barry Dennis, Partner, PricewaterhouseCoopers LLP
Lawrence M. Friedman, Partner, Lord, Bissell & Brook LLP
The "Modified Bornhuetter-Ferguson" Approach To IBNR Allocation
By Trent Vaughn and Phoebe Tinney
This paper presents a "Modified Bornhuetter-Ferguson" approach to allocating IBNR. Essentially, this approach involves a credibility-weighted average of the earned premium and case-incurred loss (or loss adjustment expense) allocation bases. This combined allocation provides a more reasonable and stable result than methods based solely on either earned premium or case-incurred loss. Moreover, the method is easy to automate, explainable in intuitive terms, and does not require the use of an "off-balance" adjustment factor.
"Value Creation In Insurance-A Finance Perspective"
By Russell Bingham
The ultimate challenge for the management of an insurance company, as for any other business, lies in understanding of the components of the value creation process, and in controlling and influencing them in order to enhance the long run value of the firm. The definition of value and its measurement involve important finance concepts that extend beyond those that are traditionally practiced by actuarial and accounting professionals. The many varied and seemingly disconnected approaches that are applied in the analysis of insurance company financial data may differ in their specific purposes and levels of application, yet all should share a common objective, which is the assessment of profitability, performance, and ultimately value creation. Unfortunately, many of the current models, such as those used in ratemaking, continue to be too narrowly focused. The failure to take a sufficiently broad perspective and to speak the language of management limits the effectiveness of those who do so, and creates the risk that important business drivers may be missed. The broader finance perspective on the essential elements of the value creation process in insurance is presented here to provide a unifying umbrella framework within which all the various methodologies ultimately fall. Understanding the economics of insurance and the important financial concepts and linkages among variables can only help practitioners, such as actuaries and accountants, become more relevant in a converging financial marketplace.
Discussion of “Minimum Distance Estimation of Loss Distributions” by Stuart A. Klugman and A. Rahulji Parsa (Proceedings LXXX)
By Clive L. Keatinge
Klugman and Parsa have introduced the theory underlying minimum distance estimation with parametric distribution. In this review, Keatinge develops their ideas further to provide a more complete view of the characteristics of minimum distance estimation. Keatinge concludes that minimum distance estimation can be more efficient than the authors imply, but that there is little basis for using it in place of maximum likelihood estimation in most situations.
Simpson’s Paradox, Confounding Variables and Insurance Ratemaking
By John A. Stenmark and Cheng-Sheng Peter Wu
The insurance process is complex, with numerous factors combining to produce both premiums and losses. While compiling rates, actuaries often aggregate data from more than one source, while at the same time stratifying the data to achieve homogeneity. However, such exercises may lead to biased and sometimes even surprising results, called Simpson’s Paradox, because the variables involved in the aggregation process or the stratification process are confounded by the presence of other variables. In this paper, we will describe Simpson’s Paradox and confounding and the statistical underpinning associated with those phenomena. We will further discuss how such bias may exist in P&C actuarial rating applications and solutions that can resolve the bias.