Casualty Actuarial Society

Professional Education

2007 Annual Meeting Handouts

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Select sessions from the meeting have been audio recorded and are available below.


PROFESSIONALISM SESSION

The CAS 2007 Annual Meeting includes a Professionalism Session on an issue that affects nearly all practicing actuaries in the United States: Qualification Standards.

PS 1: THE REVISED U.S. QUALIFICATION STANDARDS

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Monday, 10:45 A.M. – 11:45 A.M., Grand Ballroom Salon I/II (7th Floor)

This presentation is offered to help actuaries prepare for the implementation of the new version of the U.S. Qualification Standards, which will take effect January 1, 2008, and will affect most practicing actuaries in the United States. Changes that have been made in the Qualification Standards and details on how to meet the revised requirements are among the topics that will be addressed. Ample time will be allotted for questions from the audience.

    Presenter:
    Mary Frances Miller, President, Select Actuarial Services and Member of the American Academy of Actuaries Committee on Qualifications

GENERAL SESSIONS

GS 1: BEHAVIORAL ECONOMICS AND THE INSURANCE MARKET

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Tuesday, 8:00 A.M. – 9:30 A.M., Grand Ballroom Salon I (7th Floor)

Behavioral economics is a combination of psychology and economics that studies the impact of human limitations on market behavior. In order to observe this behavior in the capital markets, scientists employ what is known as market microstructure analysis. Today’s computing power and detailed investment tracking databases have allowed us to “slow down the movie” and actually look at the moving atomic parts that result in trades.

Behavioral economics comes into play because trades occur between two counterparties, be they institutions or individuals. Presumably these trades occur because both parties believe the trade to be beneficial.

“Beneficial” is a purely subjective assessment based on individual interpretation of past, present, and future information, and risk preferences and attitudes. Trading also occurs in an auction framework and involves negotiations, patience, and alternatives. The structure of the auction itself can influence the outcome.

This session will provide an introduction to capital market microstructure analysis, and apply a similar analysis to the insurance markets.

    Moderator/Panelist:
    Gary R. Josephson, Consulting Actuary, Milliman, Inc.
    Panelists:
    Donald F. Mango, Managing Director, Guy Carpenter & Company, LLC
    Richard Goldfarb, Senior Vice President, Benfield

GS 2: FEDERAL INSURANCE REGULATION

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Tuesday, 8:00 A.M. – 9:30 A.M., Grand Ballroom Salon II (7th Floor)

Some believe that the state system of insurance regulation is working quite well. When it comes to consumer protection, most would agree that state regulators are more effective than federal agencies in resolving individual consumer complaints. The insurance industry in general prefers less regulation to more, and, there is certainly reason to question whether a federal bureaucracy can modernize insurance regulation without adding additional bureaucracy and the associated frictional costs.

There are many reasons to consider federal regulation of insurance, primarily associated with efficiency. Some insurers, particularly life insurance companies and reinsurers, suggest that consumers (and insurers) could benefit from a substantial savings in regulatory-related expenses. There is general appeal for a single license and single approval of insurance products that would allow an approved product to be sold everywhere in the U.S., as well as a single regulator responsible for financial solvency and market conduct. There are on-going discussions in Congress about a possible repeal of the 62-year-old McCarran-Ferguson Act. Additionally, the legislators are considering the National Insurance Act of 2007 that would create the Optional Federal Charter for a single national framework for reinsurance regulation.

The NAIC already provides quasi-regulation at the federal level, bringing a large degree of cooperation and uniformity to the state-based insurance regulatory system. But the NAIC has its limits, with no authority to impose its rules on the states. Would the insurance industry and consumers benefit from a federal insurance commissioner who does essentially what the NAIC has been doing, but with the authority to back it up? How about a less invasive federal law that allows insurers, particularly those with significant interstate business, the option of being governed by federal regulations?

Our panel will discuss the potential pros and cons associated with federal insurance regulation, and will ask attendees to voice their own concerns.

    Moderator:
    David G. Hartman, President-Elect, International Actuarial Association
    Panelists:
    Deirdre Manna, Vice President, Industry & Regulatory Affairs, Property Casualty Insurers Association of America (PCI)
    Neil Alldredge, Vice President-State & Regulatory Affairs, National Association of Mutual Insurance Companies
    J. Kevin A. McKechnie, Vice President-State & Regulatory Affairs, American Bankers Insurance Association
    Michael McRaith, Director, Illinois Dept. of Insurance

GS 3: PROFITABILITY AND CAPACITY

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Tuesday, 1:00 P.M. – 2:30 P.M., Grand Ballroom Salon I/II (7th Floor)

This year’s Insurance Information Institute early bird survey results indicate that a drop in catastrophe losses in 2006 combined with a strong performance in most major lines of property/casualty (P/C) insurance will propel the industry to its best underwriting performance since 1955.

However, the current premium growth pattern is reminiscent of the soft market of the late 1990s, when the industry recorded growth of 2.9 percent in 1997 and 1.8 percent in 1998. Those years preceded some of the worst years in insurance industry history with combined ratios rising from 102 in 1997 to nearly 116 in 2001.

Fortunately, with an expected combined ratio of 97.6 in 2007, the comparison—at least so far—appears to be superficial, or at least premature. The forecasted 1.5 percent increase in premium growth for 2007 would be the second slowest rate of growth for P/C insurers since 1998, during the depths of the last soft market.

Will this combination of slowed premium growth combined with excess capital set off another bout of consolidation activity in the industry as companies attempt to deploy this excess capacity and grow in market share via acquisition?

This panel will discuss the implications of today’s market cycle and contrast it to the 1997-1998 time-period.

    Moderator:
    Ellisa Sirovotka, Principal, Towers Perrin
    Panelists:
    Richard Spiro, Managing Director, Citigroup
    Steven Weisbart, Vice President and Chief Economist, Insurance Information Institute
    Stephan L. Christiansen, Senior Vice President and Director of Research, Conning Research & Consulting, Inc.

GS 4: ENTERPRISE RISK MANAGEMENT— A PANORAMIC VIEW

Wednesday, 10:00 A.M. – 11:30 A.M., Grand Ballroom Salon I/II (7th Floor)

As U.S. and Canadian industries elevate the handling of risk (and opportunity) to the “C” level of responsibility, more and more insurers and reinsurers are focusing on enterprise-wide activities as well. Regulators and rating agencies are also paying greater heed to how insurers and reinsurers are dealing with the various kinds of risk they face. Those entities no longer accept dealing with separate “silos” as satisfactory. The “overseers” want to know what steps risk-bearers have taken, are taking, and are planning to take to provide cohesive ERM measures.

This panel will discuss the steps being taken to interrelate those silos, to measure risks, and to provide longer range solutions.

    Moderator:
    Kevin G. Dickson, 2008 CAS Vice President-ERM, Consultant/Towers Perrin
    Panelists:
    Wayne Fisher, Executive Director, Enterprise Risk Management Institute International
    Mary D. Miller, Actuary, Ohio Department of Insurance
    Jeff Mohrenweiser, Senior Director, Fitch Ratings

Concurrent Sessions

C 1: ADEQUACY OF P/C INSURANCE LOSS RESERVES—HAS THE PENDULUM SWUNG TOO FAR?

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Tuesday, 10:00 A.M. – 11:30 A.M., Indiana/Iowa (6th Floor)

The soft market of the late 1990s not only brought inadequate pricing but a wave of reserve increases. Recognition of substantial adverse development of booked loss and loss and loss adjustment expense reserves was unfortunately commonplace between 2000 and 2004. Plus, property/casualty insurers generally continued to strengthen loss reserves associated with asbestos, pollution, and other health hazards.

The hard market years swung pricing and reserving in the other direction. Clearly, loss reserves are much stronger than a few years ago. But, have industry-wide loss reserve levels in the U.S. actually achieved a conservative point that would be described as “over-reserved?” The Panelists will discuss perceived loss reserve levels while addressing some of the following issues:

  • Can the punitive effect of announcing adverse reserves in prior years have led to over reactions?
  • Does the inherent uncertainty of the loss reserving process—especially for long-tailed lines of business—practically lead senior actuaries and management to book conservative reserves?
  • How much does the statement of a reserve adequacy level depend on perceived price adequacy of casualty insurance for 2004 through 2007? And, how quickly could the emergence of adverse cost trends—sharply increasing medical inflation for instance—change current reserve perceptions?
  • What are the implications for shareholders and other stakeholders? Are conservatively stated reserves universally “good?”

The session will include a question and answer period from the audience.

    Moderator:
    Gail M. Ross, Principal and Consulting Actuary, Milliman, Inc.
    Panelists:
    William M. Wilt, Executive Director, Morgan Stanley
    Stephan L. Christiansen, Senior Vice President and Director of Research, Conning Research & Consulting, Inc.
    John J. Kollar, Vice President-Consulting and Research, ISO

C 2: APPLICATION OF ACTUARIAL SKILL SET IN FINANCIAL MARKETS

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Tuesday, 10:00 A.M. – 11:30 A.M., Great America I/II (6th Floor)

Actuaries are continually looking beyond traditional roles of pricing and reserving, the “meat and potatoes” of actuarial work. Perhaps they’re looking for something off the beaten track—fish anyone? This panel will explore how some actuaries have used their traditional training and have applied them within securitization and other financial areas.

    Moderator/Panelist:
    Thomas V. Le, Senior Manager, Ernst & Young LLP
    Panelist:
    Philip A. Kane, Vice President, Salomon Smith Barney
    Lawrence Marcus, Chief Product Actuary, Zurich Global Corporate Structured Solutions
    Scott Swanay, Principal, Swanay Sports Consulting

C 3: CLAIMS PROCESS IMPROVEMENT and AUTOMATION

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Tuesday, 3:00 P.M. – 4:30 P.M., Michigan/Michigan State (6th Floor)

Claims organizations are facing growing challenges from the increasing demands of complex claims handling and the need to control rising loss costs. Some recent trends in the claims handling arena and some of the new challenges to these organizations will be discussed by the panelists.

This session will address some of the operational trends and demands currently being faced by claims organizations, and potential issues to be faced in the future. Some of the key measurement indicators used to evaluate the performance of these organizations, relative to their peers, will also be reviewed.

The panelists will discuss trends and changes from the perspective of the company’s claims operations, as well as the impact on actuaries (as key end-users) of the information produced. Additionally, an update on the evolution and current state of the claims automation market will be provided.

    Moderator:
    Marcus Tarrant, Manager, PricewaterhouseCoopers LLP
    Panelists:
    Claire Louis, Claims Operations Specialist, PricewaterhouseCoopers LLP
    Jeff Bamundo, Insurance Operations Specialist, PricewaterhouseCoopers LLP
    Andrew Sawyer, Claims Automation Specialist, PricewaterhouseCoopers LLP

C 4: CREDIT SCORING UPDATE

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Wednesday, 8:00 A.M. – 9:30 A.M., Grand Ballroom Salon I (7th Floor)

The use of credit in insurance continues to be a topic that is hotly debated by insurers, consumers, regulators, and other federal and state government officials. This session will update attendees on insurer’s use of credit as well as the political and regulatory issues surrounding credit. Topics to be discussed will include different ways insurers are using credit; state, regulatory, and legislative actions; correlation/disproportionate, impact/disparate impact; and the Federal Trade Commission study.

    Moderator:
    Ann M. Conway, Consulting Actuary, Towers Perrin
    Panelists:
    Richard A. Smith, Consultant, Towers Perrin
    John B. Wilson, Assistant Vice President, Analytics, ChoicePoint

C 5: CUTTING-EDGE CAREERS

Wednesday, 8:00 A.M. – 9:30 A.M., Great America I/II (6th Floor)

It’s 2007. Do you know where your actuarial career is going?

In this panel, you’ll meet three CAS members whose careers have taken them in some of the directions envisioned in the Centennial Goal.

“The CAS will be recognized globally as a leading resource….” David Bassi, who currently works in Zurich and has also worked in the U.S. and Singapore, will provide insight into careers outside your home country and what it’s like working with professionals from other actuarial associations.

“CAS members will advance their expertise in pricing, reserving and capital modeling...” Roosevelt Mosley will discuss his work in the actuarial frontiers of generalized linear modeling.

Dave Murray of CNA will talk about his work in enterprise risk management, and the career path leading to his current position. Come to this session and see where your actuarial career can take you!

    Moderator:
    Regina M. Berens, Vice President and Actuary, Swiss Re
    Panelists:
    David Bassi, Head of Americas Casualty Center, Swiss Re
    David A. Murray, Senior Vice President, CNA Insurance Companies

C 6: DATA and INFORMATION QUALITY IN A RAPIDLY CHANGING WORLD

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Monday, 1:30 P.M. – 3:00 P.M., Northwestern/Ohio State (6th Floor)

The focus of insurance information—the type of data, how it’s collected, how it’s used—has been changing dramatically over the past few years, but has data quality and data quality methods and tools kept pace? This session will explore the changing focus of insurance information and the expanding reach of data quality (to predictive modeling, the reuse of data, data standards, data transparency, and a tool to monitor solvency, etc.). and the impact of these changes on companies and the industry.

    Moderator/Panelist:
    Peter Marotta, Enterprise Data Administrator and Principal, Data Management Enterprise Data Management, ISO.
    Panelists:
    Tracy Spadola, Senior Industry Consultant, Teradata Corporation
    Gary W. Knoble, Senior Advisor, U.S. Asia BFS
    Thomas A. Nowak, Vice President, AIG Risk Management, Inc.

C 7: ECONOMIC CAPITAL MODELS and PERFORMANCE MEASUREMENT—CAN ONE MODEL ANSWER ALL QUESTIONS?

Tuesday, 3:00 P.M. – 4:30 P.M., Indiana/Iowa (6th Floor)

Many companies have developed internal economic capital (EC) models to help address questions raised by management, rating agencies, and regulators regarding capital adequacy and allocation. In developing these models, the time horizon is a key input that must be considered in the modeling process. The Panelists will discuss some of the issues related to time horizon that typically surface when various sources of risk such as reserve risk and pricing risk are being aggregated into EC models. They will also present some of the techniques they have developed to estimate reserve ranges under different time horizons.

    Moderator/Panelist:
    Francois Morin, Consulting Actuary, Towers Perrin
    Panelist:
    Daniel M. Murphy, Consulting Actuary, Towers Perrin

C 8: EMERGING ISSUES and TRENDS IN MEDICAL MALPRACTICE

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Monday, 1:30 P.M. – 3:00 P.M., Lincolnshire I/II (6th Floor)

Join a panel of experts to get a fresh take on medical malpractice issues.

California enacted comprehensive medical malpractice tort reform in 1975. The Medical Injury Compensation Reform Act (MICRA) continues to be the gold standard for tort reform and many of its provisions have been adopted by other states, particularly in recent years. We will compare MICRA provisions with similar (and some not so similar) state laws and will also discuss the history of MICRA, review its key elements and their impact on claim costs, and discuss potential challenges and what’s in store for the future.

Medical malpractice insurers, faced with a softening market and fresh publicity about record profit levels, should begin strategizing now for dealing with a toughening regulatory environment in multiple states. In order to prepare for the public rate-hearing process and next wave of insurance department exams, insurers need to take their rate filings and underwriting documentation to the next level. Quite honestly, the financial exam isn’t just about rates and loss reserves anymore, my friends.

    Moderator:
    Robert J. Walling, III, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.
    Panelists:
    Kevin M. Bingham, Principal, Deloitte Consulting LLP
    Richard B. Lord, Principal and Consulting Actuary, Milliman, Inc.

C 9: ENTERPRISE RISK MANAGEMENT and RATING AGENCY CAPITAL MODELS

Tuesday, 10:00 A.M. – 11:30 A.M., Northwestern/Ohio State (6th Floor)

Internal company economic capital modeling continues to evolve as an integral component of the overall enterprise risk management process. This session will discuss the role internal company capital management plays in the rating process relative to the role that rating agencies, in the use of their own proprietary capital models, play in the process in tandem. How do they co-exist? How will this process continue to evolve in the future?

    Moderator:
    Robert F. Wolf, Consultant
    Panelists:
    Jeff Mohrenweiser, Senior Director, Fitch Ratings

C 10: ESTIMATING PERSONAL AUTO LOSS COSTS THAT VARY BY ADDRESS/HOUSEHOLD AVERAGING

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Monday, 1:30 P.M. – 3:00 P.M., Grand Ballroom Salon II (7th Floor)

Postal zip codes form the basic unit for many territorial ratemaking methodologies that are in use today. Driving conditions such as chronic traffic congestion, population density, weather, and the physical environment are not constrained by zip code boundaries. The first part of this session describes how to estimate personal auto loss costs as a function of over 1,200 variables that describe local driving conditions.

The method proceeds by first applying a number of variable reduction techniques, such as Principal components analysis and structural equation models, to significantly reduce the number of variables. Then it fits separate frequency and severity models based on this reduced number of variables to produce loss cost estimates. The session will then describe how to analyze a holdout sample and measure the effectiveness of this methodology.

Historically, operators in personal lines auto have been assigned to vehicles using outdated underwriting standards. The challenge has always been in reflecting other drivers in the household and their potential for using the insured vehicle. Over the past several years, insurers have been using predictive modeling techniques to better incorporate the information about the extra operators on to the vehicle. This second part of the session will discuss several strategies associated with this challenge within a predictive modeling framework.

    Moderator/Panelist:
    Alice Gannon, Senior Consultant, EMB America LLC
    Panelist:
    Glenn G. Meyers, Chief Actuary, ISO Innovative Analytics

C 11: FIRE and WINTERSTORM PERILS

Wednesday, 8:00 A.M. – 9:30 A.M., Indiana/Iowa (6th Floor)

In this session, the speakers will diverge from the traditional hurricane and earthquake perils to talk about two other perils which have a significant impact on property results.

A representative of RMS will present the company’s probabilistic account fire model, which provides frequency, severity, and loss distribution for the fire peril at the policy and portfolio levels.

An AIR representative will discuss the peril of winterstorm and how it lends itself to modeling through numeric weather prediction models.

    Moderator:
    Lisa Michelle Pawloski, Actuarial Director-Vice President and Actuary, Zurich North America
    Panelists:
    Alok Jha, Senior Director, RMS
    David Lalonde, Senior Vice President, AIR

C 12: THE FLORIDA PROPERTY MARKET: WHAT’S AT STAKE?

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Monday, 1:30 P.M. – 3:00 P.M., Purdue/Wisconsin (6th Floor)

The Florida legislature and governor have taken controversial steps this year to address affordability and availability of property insurance in light of Florida’s natural catastrophe exposure. These steps significantly alter the mechanics of the private insurance and reinsurance markets in Florida and have potentially long-term financial implications for the citizens of Florida. The essential question being raised by various participants in the discussion is what is the appropriate level of government intervention in insurance markets. Panelists will provide a snapshot of the Florida insurance market after HB 1A, covering a quantitative analysis of what a major event could mean for Florida residents as well as the broader implications of the Florida legislation on the discussion of the potential role of state governments and the federal government in the insurance market.

    Moderator:
    J. David Dean, Senior Consultant, Towers Perrin
    Panelists:
    Tapio Boles, Consultant, Towers Perrin
    William Vainisi, Vice President and Assistant General Counsel, Allstate Insurance Company

C 13: FROM THE Actuary’S “REASONABLE RESERVE RANGE” TO MANAGEMENT’S “CARRIED RESERVE”—WHAT DO YOU BOOK?

Monday, 3:30 P.M. – 5:00 P.M., Grand Ballroom Salon II (7th Floor)

Here is the situation. You’ve completed a reserve analysis. You’ve provided several traditional reserve methods. You’ve even performed a stochastic reserve study determining reserve variability. Management has indicated their desire to book the number x, which is consistent with its business plan, but falls below your point estimate. Management is asking for your “best estimate” range around your point estimate in the interest of assessing the reasonableness of x.

This session is intended to offer practical approaches and considerations in determining “best estimate” ranges using actual examples of best practices in determining reasonableness. Discussions will center on defining “reasonableness” in light of our written standards of practice and attempt to answer:

Given your estimation of the range, what standards do you now apply to x?

Does every number within your range constitute a reasonable estimate to carry as x? How can you differentiate between reasonable range and total range? Are they the same?

As requirements and disclosures of a company’s appointed Actuary call for greater disclosure of both reserve point estimates and reserve ranges in an actuarial opinion summary report, these discussions continue to be relevant. We welcome audience participation, and views/opinions.

    Moderator:
    Robert F. Wolf, Consultant
    Panelist:
    Thomas P. Conway, Partner, Ernst & Young LLP

C 14: GENERAL BUSINESS SKILLS—TOASTMASTERS

Tuesday, 3:00 P.M. – 4:30 P.M., Purdue/Wisconsin (6th Floor)

Last year, a survey of actuarial employers by the Institute of Actuaries in the U.K. revealed that actuaries are perceived as more introverted than accountants. Typical comments included: “We’d like to have more actuaries in the boardroom, but….”

Whether you love an audience and want to get better at presentations, or are terrified of an audience and want to learn how to speak in public without clinging to the lectern to keep from shaking, this session is for you. Toastmasters International has been in existence for over 70 years and has over 200,000 members around the world. See for yourself what a Toastmasters meeting looks like. In this interactive workshop, you will observe how members present speeches, give constructive feedback, and practice impromptu speaking.

    Moderator:
    Regina M. Berens, Vice President and Actuary, Swiss Re
    Instructors:
    Toastmasters

C 15: THE INSTABILITY OF THE REINSURANCE MARKET AS A RESULT OF NATURAL CATASTROPHE ACTIVITY

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Monday, 3:30 P.M. – 5:00 P.M., Northwestern/Ohio State (6th Floor)

It has been observed that unexpected natural catastrophe activity affects reinsurance prices.

This panel will discuss the issues surrounding the impacts of natural catastrophe activity in both good and bad years. The Panelists will discuss reinsurance pricing, terms and condition changes, alternative risk options that have appeared in recent years, and the impact natural catastrophes have had on rating agency requirements.

    Moderator:
    Howard Kunst, Director-Actuarial Pricing, Universal Underwriters Group
    Panelists:
    Mohammed Ashab, Senior Vice President, Benfield Group
    Jonathan B. Hayes, Managing Director, Guy Carpenter & Co., LLC

C 16: INSURANCE and REINSURANCE RUN-OFF

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Wednesday, 8:00 A.M. – 9:30 A.M., Northwestern/Ohio State (6th Floor)

Run-off situations in the United States and around the world have become commonplace. At one point, experts were predicting 100 new run-off situations annually. The reactions to run-offs, particularly in reinsurance have been varied. Many insurers and insureds have seen large negative impacts to profits as their insurers and reinsurers have not been able to respond to losses. Others have sold their run-off books to active reinsurers who hope to squeeze a profit from the transaction. Indeed, several organizations have arisen whose business plan is to buy or otherwise service run-off situations.

Many unique characteristics should be considered for those companies that have either put their entire operations in run-off or have decided to exit particular lines of business.

We will discuss operational changes that may be seen by an entity acquiring a run-off book of business or company. Additionally, having multiple internal and external changes to a book of business with a dwindling numbers of claims can have a noticeable impact on an entity’s loss development patterns. A number of these potential distortions will be discussed.

    Moderator:
    Elisabeth Stadler, Senior Consultant, Watson Wyatt Worldwide
    Panelists:
    James B. Kahn, Senior Consultant, Watson Wyatt Worldwide
    Brian Brown, Consulting Actuary, Milliman, Inc.
    Dave Ostrowski, Vice President and Chief Actuary, Riverstone Resources

C 17: INTERNATIONAL INSURANCE ACCOUNTING STANDARDS AND YOU: WHY SHOULD U.S. P&C ACTUARIES CARE?

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Monday, 1:30 P.M. – 3:00 P.M., Great America I/II (6th Floor)

Comments are due on the IASB’S Preliminary Views on Insurance Contracts (a precursor to an international accounting standard for insurance) by November 16, 2007, almost as this panel convenes. Based on the same document, FASB is asking for comments as to whether it should join a joint project with the IASB to develop a global insurance contracts accounting standard. The SEC is considering allowing foreign registrants (and perhaps U.S. registrants as well) to use IFRS accounting without reconciliation to U.S. GAAP. The International Association of Insurance Supervisors, along with the NAIC, is actively considering the developments in international accounting standards as it develops international guidelines for insurance regulation, both for accounting and solvency. Frankly, there is almost no place to hide from the international accounting (and solvency) standards of the future.

For casualty actuaries, this could be great! Look at all the new actuarial estimation opportunities there may be! This could be not so great—look at the lack of any reliable benchmark to which you can compare your estimates of “market risk margins.” This could be terrible—what happens if your client insurer’s new financial statements so confuse investors that its cost of capital rises considerably? Whether good, bad, or indifferent, now is the time that these potential new international accounting standards are being debated, and now is the time to attempt to influence the process to make it work better.

So, it looks like international accounting may become domestic accounting as well. The Group of North American Insurance Enterprises (GNAIE) favors and works for high-quality international accounting standards for insurance contracts, as well as for high-quality international insurance solvency regulation. GNAIE believes the IASB needs to modify some of its preliminary views if its accounting standards are to produce reliable and understandable financial reporting for insurance enterprises. Michael McCarter of GNAIE, member company AIG, will provide an overview of the IASB Discussion Paper, discuss some of the key issues on which GNAIE is preparing to comment, and show how these concepts can affect accounting standards and solvency regulation globally (yes, including in the United States). Active audience participation and Q&A are encouraged.

    Moderator/Panelist:
    Ralph S. Blanchard, Second Vice President and Senior Actuary, Travelers Insurance

C 18: THE LANGUAGE OF UNCERTAINTY—WHAT COLOR IS YOUR COPULA?

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Monday, 1:30 P.M. – 3:00 P.M., Indiana/Iowa (6th Floor)

Without getting too technical, this session will review a few of the well-known methods that actuaries are using these days to put confidence intervals around their point estimates. As we stroll through various examples, we will expose the annoyingly technical stochastic terminology for the simple concepts they truly are. Such terms include, but are not limited to, the following top ten: Mack, bootstrap, parameter risk, process risk, tail variability, residuals, outliers, positive-definite correlation matrices, copulas, and that ever-elusive “reasonable range.”

Audience participation is encouraged. Judgment is required.

    Moderator/Panelist:
    Daniel M. Murphy, Senior Consultant, Tillinghast-Towers Perrin
    Panelist:
    Chester John Szczepanski, Vice President and Chief Actuary, Donegal Insurance Group

C 19: LINKAGE OF RISK, CAPITAL and FINANCIAL MANAGEMENT—THE REAL WORLD

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Monday, 1:30 P.M. – 3:00 P.M., Grand Ballroom Salon I (7th Floor)

Companies are facing increased pressures from regulators, rating agencies, and other interested parties to implement cohesive approaches to managing all organizational risks and understanding their impacts on the organization. Under the umbrella of enterprise risk management, a key objective is the proactive linking of risk management, capital management, and financial management. This panel presents the results of recently completed research conducted for the Joint CAS-CIA-SOA Risk Management Section with respect to linkage. In addition to providing a conceptual framework, the panel includes the practical perspectives of companies that have already begun to explicitly link these functions.

    Moderator:
    Aaron M. Halpert, Principal, KPMG LLP
    Panelists:
    Mark J. Homan, Assistant Vice President and Actuary, Hartford Financial Services
    John J. Kollar, Vice President, ISO
    Leslie R. Marlo, Senior Manager, KPMG LLP

C 20: LOSS RESERVE GOVERNANCE

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Monday, 3:30 P.M. – 5:00 P.M., Purdue/Wisconsin (6th Floor)

Pursuant to the Sarbanes-Oxley Act of 2002, publicly held property/casualty insurance companies are required to have processes and controls surrounding their actuarial reserving process. Some companies have taken great strides toward establishing a well-controlled environment. Others, however, have elected to establish the minimum level of controls to accomplish the requirements for management’s Section 302 and Section 404 certifications and receive an unqualified audit opinion. From a corporate governance perspective, should companies already receiving unqualified audit opinions strive to be better? What are the benefits to having a strong control environment and a “best practices” reserving process? What would you consider when comparing evaluating your company’s process and comparing it to a “gold standard” or best practices company?

This session addresses each of these questions, and describes in greater detail the key considerations of a reserving process and the related best practices. The key considerations discussed at this meeting cover a broad range of topics, including the role of the board and audit committee, staffing expertise, methodology, documentation, communication, and public disclosures.

    Moderator:
    Dan Thomas, Principal, PricewaterhouseCoopers LLP
    Panelist:
    Marc F. Oberholtzer, Director, PricewaterhouseCoopers LLP

C 21: MODELING RESERVE VARIABILITY

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Tuesday, 3:00 P.M. – 4:30 P.M., Northwestern/Ohio State (6th Floor)

During this session, we will review some of the popular models used for estimating reserve distributions and how correlations can be measured and incorporated into these models to reflect variability across multiple lines. Discussions will also include the use of the resultant distributions as a tool for determining, among other things, overall capital requirements, capital allocation, and reinsurance pricing.

    Moderator:
    Robert F. Wolf, Consultant
    Panelists:
    Mark R. Shapland, Consulting Actuary, Milliman, Inc.
    Louise A. Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining Inc.

C 22: THE NEXT BIG ONE

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Tuesday, 10:00 A.M. – 11:30 A.M., Purdue/Wisconsin (6th Floor)

In recent years the focus of the market has been on the hurricane and flood catastrophe risks. However, earthquakes pose a similar threat to the economy, homeowners, businesses, and insurer solvency. This session will discuss the latest developments in assessing earthquake risk and an overview of California’s approach to the residential risk.

    Moderator:
    Shawna Ackerman, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.
    Panelists:
    Timothy Richison, Chief Financial Officer, California Earthquake Authority
    Andrew Cowell, Vice President, EQECAT

C 23: OPTIMIZED PRICING

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Tuesday, 10:00 A.M. – 11:30 A.M., Grand Ballroom Salon I (7th Floor)

What is it? How is it done in other countries? Can it be done in the U.S.? Three prominent consultants in the U.S. will give us their viewpoints.

    Moderator:
    Steve Armstrong, Senior Actuary, Allstate Insurance Company
    Panelists:
    Lee Bowron, Kerper and Bowron, LLC
    Alice Gannon, Senior Consultant, EMB America LLC
    Claudine Modlin, Senior Consultant, Watson Wyatt Worldwide

C 24: PREDICTIVE MODELING FOR SMALLER COMPANIES

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Monday, 3:30 P.M. – 5:00 P.M., Grand Ballroom Salon I (7th Floor)

Market leaders have embraced the idea of predictive modeling and have sufficient data to produce credible results. Small-to-medium-sized companies may wonder whether predictive modeling can help them, given their smaller data volume. This session will discuss why predictive modeling has become more important for these insurers, and ways to address some of the unique issues they face when developing models, including data needs, competitive analyses, implementation, distribution, and regulatory aspects.

The session will also cover some of the results obtained when applying these techniques and some of the advantages smaller companies have when approaching the predictive modeling process.

    Moderator/Panelist:
    Richard A. Smith, Consulting Actuary, Towers Perrin
    Panelist:
    Gary C. Wang, Consulting Actuary, Pinnacle Actuarial Resources, Inc.

C 25: REINSURING SMALL/REGIONAL INSURERS

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Monday, 1:30 P.M. – 3:00 P.M., Michigan/Michigan State (6th Floor)

This session will cover the issues associated with reinsuring small or regional insurance companies. What is the ceding company’s motivation for buying reinsurance? What do they look for in a reinsurer or intermediary? From the perspective of the reinsurer, what are the challenges associated with underwriting and pricing such business? How can it be analyzed in an efficient manner? In addition to these questions, the panel will discuss the current state of the market for this niche.

    Moderator:
    Linda C. Johnson, Executive Vice President-Casualty Specialties, Benfield Group
    Panelists:
    Eric Arnst, Vice President and General Manager, Hanover Re
    Tim Madden, Senior Vice President, Business Leader, Swiss Re Underwriters
    Larry J. Seymour, Chief Actuary, Capitol Indemnity Corporation

C 26: RISK-BASED CAPITAL: SO MANY MODELS

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Monday, 3:30 P.M. – 5:00 P.M., Great America I/II (6th Floor)

Some RBC models are formula-based, some are stochastic, but it seems like everyone (NAIC, A.M. Best, S&P, insurers) has their own version. With so many different models, are any of them “right?” This session will start with a review of both formula-based and stochastic models, including approaches to parameterization. Following this review will be a discussion of current research on risks facing insurance companies and the effectiveness of both types of models in reflecting these risks and their potential implications for solvency.

    Moderator/Panelist:
    Stephen Mildenhall, Executive Vice President, AON RE Services, Inc.
    Panelists:
    Matthew R. Carrier, Principal, Deloitte Consulting LLP
    Stephen P. Lowe, Managing Director, Towers Perrin

C 27: ROC SOLID RESERVES—INSIGHTS FROM THE RESERVE OVERSIGHT COMMITTEE

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Wednesday, 8:00 A.M. – 9:30 A.M., Purdue/Wisconsin (6th Floor)

Members of the Reserve Oversight Committee (ROC) together with members of the CAS will discuss the GIRO paper: “Reserving Oversight Committee Working Party Paper: Best Estimates and Estimating Uncertainty.” The session will include a brief overview of the paper. It will then focus on one of the findings that highlights some potential problems with using certain methods that quantify reserving uncertainty via the calculation of distributions of possible outcomes, in particular the over-dispersed Poisson (Bootstrap) and the Mack methods. These theoretical issues will be followed by a discussion of the uses of such methods in practice, including exploring how their potential theoretical limitations can be addressed.

    Moderator:
    Lis Gibson, Managing Partner, Casualty Actuarial Department, Deloitte UK
    Panelists:
    Peter Copeman, Partner, PricewaterhouseCoopers LLP, UK
    Daniel M. Murphy, Senior Consultant, Tillinghast-Towers Perrin
    Mark R. Shapland, Consulting Actuary, Milliman, Inc.

C 28: SEASONED ACTUARIES SECTION

Monday, 3:30 P.M. – 5:00 P.M., Lincolnshire I/II (6th Floor)

The senior Actuaries Section welcomes all CAS members who have been Associates for 25 years or longer, or have retired, or are thinking of retiring within the next five years or so. There are no dues! This session will allow time for those who have retired to share some of their experiences. There will also be reports from our various committees and an election of officers for the Section for the upcoming year.

    Officers:
    David G. Hartman, President
    Allan Kaufman, President-Elect
    Amy Bouska, Secretary-Treasurer

C 29: SIMULTANEOUS DETERMINATION OF THE UNDERWRITING, INVESTMENT, and REINSURANCE STRATEGIES: A QUANTITATIVE ERM FRAMEWORK

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Monday, 3:30 P.M. – 5:00 P.M., Indiana/Iowa (6th Floor)

Although the importance of enterprise risk management (ERM) has been well addressed, much of the discussion is limited in the scope of the qualitative description. Panning (2007) pointed out that ERM as currently practiced typically lacks relevance to a firm’s strategic decisions and quantitative justifications. ERM will just be hype if actuaries cannot provide a value-oriented model.

ERM is an art and science that balances the profit and risk. In this study, the panel will present a quantitative ERM framework under the classic mean-variance theory. Insurers will choose underwriting, reinsurance, and investment strategies simultaneously to maximize the downside, risk-adjusted profit. A case study will illustrate this ERM framework numerically.

    Moderator:
    William Hansen, Principal, Oliver Wyman
    Panelist:
    Luyang Fu, Actuarial Predictive Modeler, State Auto Insurance Company

C 30: TESTING LOSS RESERVING METHODS and ASSUMPTIONS

Tuesday, 10:00 A.M. – 11:30 A.M., Grand Ballroom Salon II (7th Floor)

Part 1—Class on Testing Assumptions Underlying Estimates of Loss Reserves

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The CAS has developed a one-day course that introduces attendees to the notion that making a loss reserve estimate involves making statistical assumptions, and introduces them to techniques for testing those assumptions. A detailed facilitator’s guide is available from the CAS. The Midwest Actuarial Forum successfully held this course this summer, and MAF is hoping others will be willing to teach it in their Regional Affiliates.

    Moderator:
    Christopher J. Monsour, Second Vice President, Travelers Insurance
    Panelists:
    Louise A. Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining Inc.
    Christopher G. Gross, President and CEO, Christopher Gross Consulting Inc.
    Brian A. Montigney, Vice President and Actuary, CNA Insurance Companies
    Oakley E. Van Slyke, Consulting Actuary, Capital Management Technology

Part 2—The Loss Simulation Model Working Party (LSMWP)

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The LSMWP has been charged to create a simulation model of the processes of loss emergence and settlement, commonly known as loss development, that underlie the loss “triangles” and other statistics used to estimate loss reserves. The goal is to create a tool that researchers could use to generate claims that can be summarized into loss development triangles and complete rectangles, which would then be used to test loss reserving methods and models. The Panelists will present and make available to CAS members the prototype model along with components of an eventual full working party report.

    Moderator:
    Mark R. Shapland, Consulting Actuary, Milliman Inc.
    Panelists:
    Robert A. Bear, Consulting Actuary and Arbitrator, RAB Actuarial Solutions LLC
    Joseph O. Marker, President, Marker Actuarial Services, LLC
    Glenn G. Meyers, Chief Actuary, ISO Innovative Analytics

C 31: TEXT MINING

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Wednesday, 8:00 A.M. – 9:30 A.M., Michigan/Michigan State (6th Floor)

One of the newest areas of data mining is text mining. Text mining is used to extract information from unstructured, free-form text data such as the data in an adjustor’s claim description fields. It has been estimated that 85% of corporate data is of the unstructured type. Thus, methods that can abstract data from such fields have the potential to expand significantly on the amount of data available for predictive modeling projects.

Text mining can be viewed as having two distinct phases: term extraction and feature creation. Term extraction makes heavy use of string manipulation functions but also applies techniques from computational linguistics. Actual content is a result of the feature creation process that utilize multivariate statistical techniques.

The Panelists will describe some of the underlying concepts and procedures of text mining. They will also describe applications in property/casualty insurance.

    Moderator/Panelist:
    Louise A. Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining, Inc.
    Panelist:
    Martin E. Ellingsworth, President, ISO Innovative Analytics

C 32: TWO RECENT NCCI WORKERS COMPENSATION STUDIES—INDUSTRY RESERVES and EXCESS LOSS DEVELOPMENT

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Monday, 3:30 P.M. – 5:00 P.M., Michigan/Michigan State (6th Floor)

This panel will present the results of NCCI’s annual loss reserve analysis of private carrier workers compensation, along with an explanation of the process behind the analysis. Comparison of results from various loss development methods, industry reserve deficiency results, and solutions to challenges to the reserve analysis will also be included.

The results of NCCI’s recent Call 31 Excess Development Study will also be presented. This study demonstrates several interesting, and even counterintuitive, aspects of excess development patterns. In some situations development factors decreases at higher attachment points. There were also very significant industry-wide, calendar-year effects.

    Moderator:
    John Aquino, Executive Vice President, Benfield
    Panelists:
    John Deacon, Director and Actuary, NCCI
    Jon Evans, Actuary, NCCI

C 33: WORKERS COMPENSATION REFORM— HOW ARE WE DOING?

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Tuesday, 10:00 A.M. – 11:30 A.M., Michigan/Michigan State (6th Floor)

Workers compensation reform legislation is alive and well, and the good news keeps coming. Three years ago, California workers compensation loss cost and reserve studies typically included an explicit provision for “anticipated loss reductions.” At that time, who (other than the governator himself) would have expected such dramatic improvement in the workers compensation landscape? In fact, California workers compensation legislative fixes enacted in 2004 appear to have made an enormous impact on reducing loss costs. The panel will present and discuss frequency and severity trends since these laws were enacted, and discuss potential challenges for the future.

Is New York the next California? The panel will review the provisions of the 2007 “landmark legislation” and prognosticate on whether the outcome can match the epiphany that has occurred in California. Reform legislation and trends in other jurisdictions will also be discussed.

    Moderator:
    Barry Lipton, Practice Leader and Senior Actuary, NCCI
    Panelists:
    Ann M. Conway, Consulting Actuary, Towers Perrin
    Alex Swedlow, Exectutive Vice President-Research and Development, California Workers’ Compensation Institute

VARIANCE PAPER PRESENTATIONS

V1: “GENERAL ITERATION ALGORITHMS FOR CLASSIFICATION RATEMAKING”

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Tuesday, 10:00 A.M. – 11:30 A.M., Lincolnshire I/II (6th Floor)

    Moderator:
    Steven L. Berman, Manager, Deloitte Consulting LLP

“General Iteration Algorithms for Classification Ratemaking”

by Luyang Fu and Cheng-Sheng Peter Wu

Abstract: In this study, we propose a flexible and comprehensive iteration algorithm called “general iteration algorithm” (GIA) to model insurance ratemaking data. The iteration algorithm is a generalization of a decades-old iteration approach known as “minimum bias models.” We will demonstrate how to use GIA to solve all the multiplicative minimum bias models published to date and the commonly used multiplicative generalized linear models (GLMs), such as gamma, Poisson, normal, and inverse Gaussian models. In addition, we will demonstrate how to apply GIA to solve the broad range of GLM models, mixed additive and multiplicative models, and constraint-optimization problems that pricing actuaries often deal with in their practical work.

V2: “ESTIMATING PREDICTIVE DISTRIBUTIONS FOR LOSS RESERVE MODELS”

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Wednesday, 8:00 A.M. – 9:30 A.M., Lincolnshire I/II (6th Floor)

“Estimating Predictive Distributions for Loss Reserve Models”

by Glenn G. Meyers

Abstract: This paper demonstrates a Bayesian method for estimating the distribution of future loss payments of individual insurers. The main features of this method are: (1) the stochastic loss reserving model is based on the collective risk model; (2) predicted loss payments are derived from a Bayesian methodology that uses the results of large, and presumably stable, insurers as its prior information; and (3) this paper tests its model on large number of insurers and finds that its predictions are well within the statistical bounds expected for a sample of this size. The paper concludes with an analysis of reported reserves and their subsequent development in terms of the predictive distribution calculated by this Bayesian methodology.

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