Our Credibility at Risk? Loss Reserves-Facts and Perceptions
The National Association of Insurance Commissioners (NAIC) established the role of "appointed actuary" in the early 1980s. The NAIC annual statement instructions require that the board of directors of each insurer appoint a qualified actuary and that a statement of actuarial opinion (SAO) on the loss and loss adjustment expense reserves filed in the Annual Statement be included or attached to Page 1 of the Annual Statement. It is widely acknowledged that the loss and loss adjustment expense reserves are the most significant estimate of property/casualty insurers. The SAO on these reserves represents a significant component of the overall controls governing property/casualty insurance company statutory financial reporting.

Over the past several years, many property/casualty insurers have taken significant reserve strengthening action in response to observed adverse development. Despite these actions there is still widespread belief that the carried reserves of property/casualty insurers are still inadequate. The property/casualty actuarial profession has been criticized recently for failure to fulfill its perceived role in assuring that adequate loss and loss adjustment expense reserves are being carried by property/casualty insurers on their published financial statements.

As a result of these criticisms, the CAS Board of Directors undertook a critical examination of current practice. The board examined potential underlying causes for the perceived credibility gap and considered what steps might be taken to address these. A Task Force on Actuarial Credibility was charged with refining and developing the initial analysis into a detailed work plan.

Similar issues and concerns have also affected actuaries working in general (property/casualty) insurance in the United Kingdom. The General Insurance Board created the General Insurance Reserving Issues Task Force (GRIT) to look at how reserving practices and techniques could be improved to reduce the chances of material runoff deficiencies in the future. In addition, GRIT is focusing on the effects of a soft market on reserve estimation and determining how to measure and communicate the uncertainties of reserve estimates.

This session will focus on the similarities and differences of the issues, as well as the conclusions reached and action steps taken by each organization.

Moderator:
Allan M. Kaufman, Actuary and Consultant, AMK Consulting
Panelists:
Steve Dreyer, Practice Leader, North America Insurance Ratings, Standard & Poor's
Mary D. Miller, Actuary, Ohio Department of Insurance
Patrica A. Teufel, Principal, KPMG LLP

Risk Transfer
With all the recent press and scrutiny of finite reinsurance, many insurers are taking a second look at their accounting treatment of borderline contracts. According to publicly filed statements, some companies have actually restated financials to reflect that some contracts were accounted for incorrectly. As a result, for the first time, many of our members are being asked by their employers to determine whether particular contracts have adequate risk transfer for reinsurance accounting. This can be a risky project and there is no clear actuarial literature regarding the procedures to employ. In this session, actuaries and accountants familiar with risk transfer requirements will discuss the current state of practice and the challenges facing the industry and the actuarial profession.

Moderator:
Peter M. Licht, Managing Director, PricewaterhouseCoopers LLP
Panelists:
Donald Doran, Partner, PricewaterhouseCoopers LLP
John M. Purple, Chief Actuary, State of Connecticut Insurance Department
Michael G. Wacek, President, Odyssey America Reinsurance Company, Chairman of the CAS working party on risk transfer testing

Rating Agencies
Because the rating itself has become a major factor in the ability of a company to execute a business strategy, rating agency opinions on capital levels and financial strength have become even more important to property/casualty insurers over the past several years. The impact on these models, due to issues such as adverse loss reserve development, adequacy of asbestos reserves, target business plans, and changing market conditions, have put pressure many insurers' capitalization level/financial strength ratings. Major rating agencies such as AM Best, S&P, Fitch, and Moody's have risk-based capital models, which they use to assess the capitalization needs of insurers. There is an increasing interest in providing independent quantitative indications to insurers on necessary capitalization levels relative to the risks they assume.

This session will present members of the various rating agencies discussing the issues and factors that influence their models, as well as the issues that they feel have defied precise quantification to date and how they attempt to deal with them.

Moderator:
Thomas Conway, Partner, Ernst & Young LLP
Panelists:
Keith M. Buckley, Group Managing Director - Insurance/Financial Guarantors Fitch Ratings
Matthew Mosher, Group Vice President - P/C A.M. Best Company

Developments in Regulatory Capital Models Around the World
LLed by the banks supervisors and their proposed new capital standard based on internal models (Basel II), the international insurance regulators are pressing forward with new capital requirement models that focus on the use of company-specific data and a company's own internal models. These concepts have already been implemented to some extent in the U.K.

This presentation will focus on the genesis for these developments, namely the Basel II capital framework developed for banks, and the application of these and other concepts in the European Union (with their Solvency II project), in the U.K. specifically, and their potential application in the U.S. This session will discuss how different regulators determine whether an insurer's (or reinsurer's) capital is sufficient for regulatory purposes and how they should determine this.

Moderator:
Elise C. Liebers, Insurance Specialist, Federal Reserve Bank of New York
Panelist:
Lou Felice, Assistant Chief Examiner, New York Insurance Department
Mary Frances Monroe, Manager, Supervisory & Risk Policy - Division of Banking Supervision and Regulation, Federal Reserve Board
Gary Wells, Principal, Milliman, Inc.