2002 Seminar on Ratemaking Concurrent Sessions  

Introductory Topics

INT-1 Introductory Data Management 101
Session panelists will address the basic issues relating to data management issues, particularly related to the role of the actuary as regards privacy and confidentiality, the actuarial standards concerning data quality, issues concerning how to control the data, and the need to be concerned about data quality.

Arthur R. Cadorine, Insurance Services Office, Inc.
Alan J. Hapke, ASPECT, Inc.
Donald M. Wulf, Illinois Department of Insurance

INT-2 Basic Techniques for an Overall Indication
Covering the basic foundations of the ratemaking process, this session's topics include data organization for premium and losses, data adjustments such as current leveling, loss development and trending, and the determination of the expense provision. Specific techniques applicable to the personal lines will be presented with emphasis on automobile and homeowners insurance. (Not intended for those preparing for the new Exam 5.)

Linda Torkelson, Allstate Research & Planning Center
Charles Parsons, Kemper Insurance

INT-3 Introduction to Ratemaking Relativities
This session will present an overview of the concepts and techniques that are important in determining various relativities in insurance pricing. In addition to the general concepts, the session will present several examples of particular techniques that are used by actuaries in determining various relativities.

Peggy Brinkmann, Allstate Research and Planning
Patrick B. Woods, Insurance Services Office, Inc.

INT-4 The Indication—Is That Your Final Answer?
Inexperienced actuaries believe that their work is complete once the indication has been developed. But in reality, this is just the first step. The indication is just that, an indication, not a final answer. The actuary must interpret the indication for its validity as a projection. Were there any anomalies in the data that distort the indication? Are there any changes, or planned changes, in practice that would affect the indication? Then the actuary must evaluate the marketplace and competitive position, including impact on customer retention, agent's reaction, and potential adverse selection. This gives an alternative view of how much rate one could take. Finally, the actuary must evaluate alternative means to affect revenue that can address the indication, other than base rate changes, such as expense modifications, underwriting guidelines, and the like. Once an approach is determined, an actuary can also stress test the planned action through scenario modeling or other approaches. This panel will develop these concepts through the use of various examples and alternative approaches.

Mark J. Homan, The Hartford
Roger A. Schultz, Allstate Insurance Company

Data Management Topics

DAT-5 The Impact of Data Standards on the End Users of Data
In last year's panel entitled "Standards in an E-Commerce World" we explored how technology is affecting the "data" world, with an emphasis on the accelerating need for industry standards. Much has happened in this arena since then. This year we will provide an update on the various industry data standards activities and provide examples of how risk managers are leveraging these standards to provide services to their customers. Our objective is to generate interest in these industry standards activities among the actuarial community and encourage their active participation.

Gary Knoble, The Hartford
Peter Marotta, Insurance Services Office, Inc.
Elizabeth M. Morrell, Southern Company
Mark Allaben, The Hartford

DAT-6 The Influence of Data on Portfolio Risk Transfer Transactions
The Panelists will discuss the influence of data on reinsurance and related risk transfer transactions. Issues discussed will include the types of data available, their corresponding credibility, and how they influence the form of certain financial transactions (e.g., choice of indemnity) in reinsurance and industry loss warranties.

Randall E. Brubaker, Aon Re, Inc.
Mike Torre, Aon Re Services
Gary Kerney, ISO Property Claim Services
Dennis Kuzak, EQECAT

DAT-7 Privacy Issues
This session will discuss the implications of data privacy laws on the insurance industry. Panelists will provide an overview of the data privacy laws and the changes in public policy attitudes as a result of these laws. The impact of sharing data for actuarial analysis, fraud detection, and claims processing will be explored.

Gregory C. Krohm, International Association of Industrial Accident Boards and Commissions
Keith T. Bateman, Alliance of American Insurers

DAT-8 Data Warehousing and Visualizing Actuarial Information
Over the last decade, traditional data warehousing has been construed to be a poor investment, by and large due to the time and cost of implementation. This assessment has prompted the move toward prepackaged data warehousing techniques and finely tuned analytic applications, not only in insurance, but across all spectrums of business. Also, the first two stages of the actuarial process, namely data transformation and actuarial algorithms, have been automated to a fair degree, while the third stage (reporting stage) still remains the least computerized of all with available reporting and visualizations severely underused by actuaries.

The Panelists will discuss the most recent trends in analytic applications, including how insurers are receiving business intelligence value through Web-based and ASP solutions.

Alan J. Hapke, ASPECT, Inc.
Aleksey Popelyukhin, Commercial Risk Reinsurance Company
James P. Streff, Streff Insurance Services

Financial and Dynamic Financial Analysis Topics

FIN-9 Profit and Contingencies in Ratemaking
This introductory-level panel provides a forum for active audience participation based on Panelists' discussions of a variety of methodologies for reflecting profit in ratemaking. There is no consensus on the best approach, so Panelists and members of the audience are encouraged to describe the reasoning they use to develop provisions for profit and contingencies. Advocates will address such challenges as, how does one's method reflect the cost of capital as that term is used in the Principles of Ratemaking? How does one enhance shareholder value, stay competitive, and comply with both regulatory constraints and the Statement of Principles of Ratemaking, all at the same time? The panel consists of contributors to the textbook, Actuarial Considerations Regarding Risk and Return in Property-Casualty Insurance Pricing.

Oakley E. Van Slyke, MHL/Paratus
Gregory J. Engl, HNC Software
Sergei Esipov, Centre Re Solutions
Judith Mintel, State Farm Insurance Companies

FIN-10 Risk and Return: What Are We Debating About?
This session is intended to discuss and debate the essential elements of analytical models used to gauge and measure risk and return, in particular the corresponding actuarial considerations in reflecting fair rates of return in ratemaking.

The industry uses many acronyms describing analytical approaches in measuring and gauging risk and return, with references to one perhaps being better than the other. Such acronyms include: RAROC, VAR, DFA, EPD, EVA, NPV, TVAR, and IRR.

The panel will discuss and debate the merits of the myriad of approaches in analyzing the risks and returns of an insurance company and will attempt to put all of the above mentioned approaches and measures in proper perspective...hopefully...maybe.

Robert F. Wolf, William M. Mercer, Inc./MMC Enterprise Risk
Russ Bingham, The Hartford
Donald F. Mango, American Re-Insurance Company
Peter Nakada, E Risk

FIN-11 Risk and Return: Parameter Estimation
OK. We've addressed the considerations. Now how do we estimate the parameters? As the audience is expected to be familiar with the actuarial considerations discussed in FIN-10, this session will discuss how to estimate and reflect the parameters relating to financial models used to measure risk and return and will discuss recent research activities related to the CAS Risk Premium Project. What investment yield should be assumed? Is CAPM alive and well as regards risk and return measures? What are alternative measures? How should federal income tax be reflected? How does one measure the cost of capital and how does one reflect it in ratemaking? These and other issues will be addressed in this session.

Richard Derrig, Automobile Insurers Bureau of Massachusetts
David Appel, Milliman & Robertson, Inc.

FIN-12 Policyholder Retention and Its Impact on Pricing
The policyholder retention and its impact on profitability have long been overlooked in actuarial literature. As insurance draws closer to other financial services industries, the emphasis those markets place on retention, lifetime customer value, and the economic value of the current client base are getting increased attention.

This session will present possible measures of retention, a discussion of how different market segments may respond to rate changes, an approach to modeling prospective retentions by market segment, and how this information can be used to optimize a proposed rate change.

Robert J. Walling, MHL/Paratus
Lee M. Bowron, Matthews Actuarial Services

FIN-13 The Evolving Role of Enterprise Risk Considerations in Ratemaking
From the view of the commercial insured, traditional risk management encompassed a narrow, silo-based risk identification process without any systematic understanding of correlation among the risks of the corporation. Enterprise risk management differs from traditional risk management in that it encompasses all four major categories of risk: hazard, financial, operational, and strategic as a combined impact on the enterprise.

The emergence of newer and larger risks (e.g., e-commerce, market-book ratios, and the like), the continued convergence of the insurance and financial markets, and the increased management accountability of risk have all contributed to the trend towards a comprehensive enterprise risk management approach and subsequent risk management solutions other than traditional insurance. The Panelists will discuss these alternative approaches and solutions.

More and more property/casualty insurers are utilizing value-based management approaches in managing risk. The Panelists will also compare and contrast some of these approaches and their resultant effects on the ratemaking process.

Robert F. Wolf, William M. Mercer, Inc./MMC Enterprise Risk
Benedetto Conti, Winterthur Group
Scott M. Sanderson, J & H Marsh & McLennan, Inc.

FIN-14 The Cost of Financing Insurance
The cost of financing an insurance company is defined as the combined cost of capital, reinsurance, and options on a catastrophe index. This analysis will develop an approach for allocating the cost of financing back to the individual underwriting divisions. During this session, Panelists will analyze how to use dynamic financial analysis to determine profitability targets for the various underwriting divisions of an insurance company. The latest research on this topic, "The Cost of Financing Insurance—Version 2.0," is on the CAS Web Site at www.casact.org/pubs/forum/01spforum/meyers/index.htm.

Glenn G. Meyers, Insurance Services Office, Inc.

Workers Compensation Topics

WCP-15 Basic Techniques for Workers Compensation Ratemaking
This session will address basic techniques in workers compensation ratemaking, including a description of coverages, exposure bases, and databases. The panel will also review the essential components of a typical rate filing from the perspective of the National Council on Compensation Insurance, Inc., other bureaus, and from the view of companies in loss cost jurisdictions.

Richard B. Moncher, Bristol West Insurance Group
Jeremy N. Scharnick, General-Casualty Companies

WCP-16 Current Workers Compensation Issues
This overview of the current state of the workers compensation line will include a review of financial results and recent trends, and a discussion of where the line might be headed.

Barry Lipton, National Council on Compensation Insurance, Inc.
Nancy R. Treitel, Liberty Mutual Group

WCP-17 Workers Compensation—Excess Pricing
Methods and considerations that are important in pricing excess layers for workers compensation exposures are the topics of this session. Excess layers are difficult to price for several reasons, such as lack of credible claims experience and uncertainty with regard to future claim development. How future medical trends and life expectancy will affect claim costs can also contribute to pricing difficulties. This session will discuss how to reflect various factors when pricing excess layers.

Brian Z. Brown, Milliman & Robertson, Inc.
Anthony Iafrate, General Cologne Re
Natalie J. Rekittke, Midwest Employers Casualty Company

WCP-18 Select State Workers Compensation Issues
Exploring several issues specific to workers compensation ratemaking, particularly in California and Massachusetts, this session will also address competition, market dynamics, and residual markets. Panelists will also discuss the role of state bureaus.

William J. Miller, Tillinghast-Towers Perrin
Donald T. Bashline, Workers Compensation Rating & Inspection Bureau of Massachusetts

Commercial Lines Topics

COM-19 Emerging Risks—What Now?
This session will discuss a variety of emerging liabilities and their ramifications for the property/casualty insurance industry. The largest category to date is asbestos, with current estimates of ultimate losses relating to U.S. exposure of at least $200 billion, with $55-$70 billion expected to be provided by the U.S. insurance industry. While asbestos losses have been recognized as a significant issue for insurers since the 1980's, the litigation arena has changed dramatically in the last two years. We have seen a marked increase in the number of plaintiff claim filings, settlement awards to individuals who are unimpaired, numerous bankruptcies of corporate defendants, and a growing list of peripheral defendants drawn into the fray.

While asbestos losses have surged, pollution estimates have stabilized. However, other types of liabilities have also emerged—each with the question of "Is this the next asbestos?" Claims relating to breast implants, sexual misconduct, repetitive stress, HIV/AIDS, and Fen-Phen have been dealt with. Other exposures are developing, such as claims relating to lead, latex, tobacco, MTBE, managed care, guns, intellectual property, and mold. While water damage claims have been around for years, the new mold claims (involving a personal injury component) are receiving substantial attention, especially following some notable multimillion dollar awards.

Finally, as insurers and actuaries consider the unique challenges associated with these emerging liabilities (some that insurers arguably never intended to cover), yet another category has surfaced. Following the September 11 tragedy, the industry must grapple with how to deal with potential future terrorist acts.

Jennifer L. Biggs, Tillinghast-Towers Perrin
Domenick J. Yezzi Jr., Insurance Services Office, Inc.
Steven G. Lehmann, MHL/Paratus

COM-20 Product Development
Product development is one role outside of the traditional pricing and loss reserving functions in which the actuary can make a substantial contribution. This session is designed to illustrate applications in personal and commercial lines.

Scott D. Vandermyde, Ernst & Young LLP
Beth Fitzgerald, Insurance Services Office, Inc.
Kevin Kelso, Farmers Insurance Group

COM-21 Medical Malpractice Pricing
This panel will focus on the various unique ratemaking considerations associated with medical malpractice. The calculations of claims-made step factors, extended reporting period coverage and provisions for death, disability, and retirement will be discussed. The various approaches to risk classification and rating in use by the industry for physicians and surgeons coverage will be addressed. Other unique pricing considerations for hospitals, nursing homes, and managed care policies will also be presented, including loss rating methodology, exposure bases, and classifications.

Harold N. Schneider, Farmers Insurance Group
Richard S. Biondi, Milliman USA
Jeffrey D. Donaldson, The Doctors' Company

COM-22 Captive Pricing: How and When
The captive insurance company concept is one that has certainly stood the test of time. Its application has grown to over 4,000 captive insurance companies worldwide, writing premium volume greater than a third of the total commercial insurance placement in the United States. This session will discuss a captive insurance company role in meeting corporate financial and risk management goals, with special emphasis on the financial and actuarial aspects of these specialized companies. The audience will be taken through a discussion of the current uses and merits of employing a captive insurance company including quantitative methods and issues, operational strategies, as well as tax and accounting issues.

Marc-Andre Lefebvre, Royal & SunAlliance
Charles R. Woodman, Marsh USA

COM-23 Nonmedical Professional Liability
This session will focus on the unique ratemaking considerations for nonmedical professional liability coverages. Panelists will give special attention to challenges created by new products and enhancements to existing products generated by customer demand.

Robert J. Larson, Royal & SunAlliance
Stephen H. Kantor, Interstate National
Jason Israel, CNA

COM-24 Whose Line is it Anyway? (Crop, Surety, Boiler and Machinery)
This panel will discuss pricing for some of the lines where few actuaries get the opportunity to become involved. The lines to be discussed are surety, multiple-peril crop, and boiler and machinery.

Klayton N. Southwood, MHL/Paratus
Richard A. Bill, Country Mutual Insurance Company
James Elicker, Zurich North America Surety
Christine Steben, Hartford Steam Boiler Group

Personal Lines Topics

PL-25 PIP Fraud in Florida and New York—"Who Wants to be a Millionaire?"
Recent developments in fraud, abuse, and overutilization of personal injury protection (PIP) coverage in Florida and New York have led to major viability implications for the voluntary personal automobile insurance market. How do these frauds get perpetrated? What has led to the associated skyrocketing loss costs, and what are the implications for the marketplace? What can insurers do to protect themselves in this environment? What role does politics play in the process? What are the long-term solutions to the problem? The panel will provide insight into these questions, as well as discuss the likelihood of these scams being "exported" to other states. Examples of real-life frauds will be used to highlight what is happening in the market.

James B. Rowland, Allstate Insurance Company
Robert P. Hartwig, Insurance Information Institute
Debra Pacha, Medical File Consultants, Inc.

PL-26 The Use of Credit History in Underwriting/Pricing
Public and private databases have made more demographic data available to insurance companies. Research has shown that while some of this data may appear to have no causal relationship to insured losses, it may have significant predictive value. Credit history, in particular, has drawn significant attention from insurance companies, regulators, and consumer groups. Recent actuarial literature demonstrates the value of using credit information in homeowner and private passenger automobile risk selection. Credit bureaus have also developed scoring models to assist insurers in their risk selection. Consumer groups, however, are concerned that use of credit will have a disparaging impact on low-income consumers who can least afford insurance. The NAIC continues their work on this issue as state insurance departments begin to develop regulations on when and how credit information may be used for insurance underwriting and pricing. The Panelists will discuss the issues surrounding the use of credit information in a question and answer debate format.

Alan M. Hines, PricewaterhouseCoopers LLP
Eddy Lo, Fair Isaac & Company
Mona Carter, National Council on Compensation Insurance

PL-27 Issues in Implementing Credit as a Rating Variable
The predictive value of credit information on insured losses has been demonstrated over and over. Yet even as the debate continues around the appropriateness of using this credit information in either risk selection or ratemaking, many companies have begun implementing underwriting or pricing programs, or both, that include the use of financial stability variables in some fashion. This session will explore the implementation issues surrounding the use of financial stability variables in pricing. Panelists will discuss the decisions and choices that need to be made on how and what to implement. In addition the speakers will address compliance with the Fair Credit Reporting Act, confidentiality and customer communication issues, regulatory barriers, and company infrastructure implementation issues.

Linda Kay Torkelson, Allstate Research & Planning Center
Roosevelt C. Mosley, MHL/Paratus
John Wilson, Choicepoint

PL-28 Alternative Techniques and Uses of Classification
New data methods have enabled many companies to conduct more thorough class plan analyses, with implication beyond pricing. This session will discuss these techniques and their uses as well as how companies can implement and benefit from these applications. The discussion will include generalized liner models and other regression techniques such as decision trees. Applications that will be discussed include renewal modeling, credit score development, and determining lifetime customer value.

Roosevelt C. Mosley, MHL/Paratus
Charles A. Bryan, CAB Consulting Serivces

PL-29 The Pricing Actuary in a Product Management World
More and more companies are shifting their organizational structure from one that includes a "Pricing Department" to a more integrated, cross-functional "Product Management Team." With this change, pricing actuaries can find new opportunities to showcase their talents. However, actuaries may feel frustrated since those unfamiliar with the actuarial profession may question the value an actuary brings to the team. The Panelists include an actuary working as a product manager and a nonactuary in the same role. Each will share insights and opinions on how actuarial students as well as actuarial leaders within an organization can maximize their contributions and avoid some common pitfalls. The audience will have ample opportunity to ask specific questions of the panel.

Julie Burdick, Allstate Insurance Company
Edward A. Biemer, Allstate Insurance Company
Robin A. Harbage, Progressive Insurance Company

PL-30 Personal Auto Ratemaking—Experiences from Abroad
As profit margins tighten, insurance executives turn to actuaries for increased financial innovation and efficiency. We invite you to a discussion of ratemaking techniques, product design, and regulation in Western Europe, the U.K., and Japan.

The discussion will include:

    ~experiences of different markets following deregulation and other forces of change,
    ~statistical techniques used across Europe, including the use of GLMs and spatial analyses,
    ~variation of the effect that rating factors have in different countries, and
    ~differences in distribution and product design.

Claudine H. Modlin, Watson Wyatt Pretium, Ltd.
Nigel Gillott, Watson Wyatt Partners
James Tanser, Watson Wyatt Partners

Property Topics

PROP-31 Current Issues in Florida Property Insurance Ratemaking
This session will take a look at some "hot topics" in the realm of Florida property insurance ratemaking. Learn about the FWUA's revolutionary wind-only class plan that has been the subject of much public debate. Hear the latest legislative issues straight from the floor of the ongoing legislative session. Issues will include Treasurer Gallagher's proposals for major restructuring of the property residual markets, modernization, upcoming changes in the FHCF, and constitutionally mandated reorganization of the governance of the insurance department.

Plan to attend this engaging session to learn the latest on what's going on in Florida.

Heather L. McIntosh, United Services Automobile Association
David R. Chernick, Allstate Insurance Company
Rade T. Musulin, Florida Farm Bureau Insurance Companies

PROP-32 Modeling Catastrophe Risks Outside of the Hurricane and Earthquake Models
Three perspectives will be presented on modeling catastrophe risks outside of the hurricane and earthquake models. The first speaker will provide some background on commercially available models (technology and credibility) as well as techniques used in the industry to use either company or publicly available historical data. Next we will review techniques for incorporating modeling results and history into ratemaking formulas. Finally, a regulatory perspective will be provided. A regulator in a state with hail and windstorm exposure will present opinions regarding existing available models and the type of modeling acceptable for filing rates.

Elizabeth E.L. Hansen, Guy Carpenter Instrat
John L. Tedeschi, Guy Carpenter & Company, Inc.
Randall E. Brubaker, Aon Re Services

PROP-33 Homeowners Rates—Getting it Right
Several areas require attention in order to ensure that homeowners rates are adequate. First, the panel will cover the key issue of reflecting catastrophe risk, and will present two approaches. Use of catastrophe model output is a direct approach, but one not always acceptable to regulators. An alternative approach is to reflect reinsurance costs. Next, the panel presents the allocation of the catastrophe load to territory and class. Finally, the need for risk loads to account for the volatility in catastrophe risk will be discussed. Risk loads are not commonly reflected directly in homeowner rates. Typically the only risk load is that which is passed through within the reinsurance costs. It will be shown that this is not the most economically efficient approach.

Mark J. Homan, The Hartford
John Rollins, Florida Farm Bureau Insurance Companies

PROP-34 Quantifying the Impact of Nonmodeled Catastrophes
Over the last decade, much attention has been given to the development of models which estimate hurricane and earthquake expected losses. This session will focus on nonmodeled catastrophe losses: the estimation, via the use of available data, of losses arising from nonhurricane and nonearthquake catastrophes. Panelists will review current methodologies, describing their benefits and drawbacks, and will discuss various alternate methodologies, which incorporate such elements as capping, regional groupings, and credibility. The various advantages and drawbacks of these methods will be discussed. An open discussion on the relative merits of the various procedures and possible variations will conclude the session.

Sara P. Drexler, Allstate Insurance Company
Israel Krakowski, Allstate Insurance Company

Regulatory Topics

REG-35 Actuary As an Expert Witness: In Civil and Criminal Litigation?
Insurance regulation has historically required actuaries to serve as expert witnesses in administrative hearings concerning rate filings, among other things. Recent trends have required the actuary to be called upon to provide expertise in both civil and criminal litigation on a wide variety of actuarial-related subjects. This session will explore the challenges for actuaries as expert witnesses from two perspectives: the actuary who serves as the witness and the attorney who prepares or cross-examines them.

Charles L. McClenahan, William M. Mercer, Inc./MMC Enterprise Risk Consulting

REG-36 Regulatory Issues
In a small group format, the panel will discuss and debate the emerging issues arising at the federal and state levels that could have a major impact on the actuarial profession. Audience participation is expected and encouraged. The Moderator will act as a roving host in the audience to facilitate the discussion. Potential issues to be discussed may include the following:

    ~Terrorism—A New Frontier?
    ~Recent Failures of Major Carriers—Did the Actuarial Profession Miss the Boat or was Everyone Just Not Listening?
    ~Deteriorating Workers Compensation Results
    ~The Hardening Property/Casualty Markets
    ~Enterprise Risk Management—Will This Make a Difference?
    ~DFA—A Regulatory Requirement?
    ~Privacy Rules per Gramm-Leach Bliley

Mary T. Hosford, Fireman's Fund Insurance Companies
John R. Pedrick, Ohio Department of Insurance
David A. Rosenzweig, North Carolina Insurance Department
Greg Vass, American Academy of Actuaries
Eric Nordman, National Association of Insurance Commissioners

REG-37 Regulatory Update—Rate Filing Requirements
This session will feature presentations on the regulatory/ratemaking environment in each of three states that should be well known to pricing actuaries. Current events/initiatives, recent rate and other department decisions, market overviews, and general filing guidance are among the topics to be discussed. Audience participation in the form of questions is welcome and encouraged.

Dee Dee Mays, Perr & Knight, Inc.
Mike Edwards, California Department of Insurance
Robert J. Lindquist, Lindquist & Associates, Inc.
Wayne C. Perkins, Commonwealth of Massachusetts - Division of Insurance

Reinsurance Topics

REI-38 Introduction to Reinsurance
The basic principles and functions related to reinsurance ratemaking will be the focus of this session. The Panelists will emphasize a pragmatic view "beyond the formulas," including cases depicting the ways in which qualitative data and business issues affect actuarial indications and pricing.

Nolan E. Asch, Insurance Services Office, Inc.
Michele Feldman, St. Paul Re

REI-39 Introduction to Exposure and Experience Rating
This panel will examine the data required and the methods that are commonly employed in pricing excess of loss reinsurance treaties. Using a game-like setting, the Panelists will illustrate what reinsurers do in the "real" world. A link between experience and exposure rating will be shown by utilizing the same set of data to provide continuity and a reconciliation of the methods.

Michael E. Angelina, Tillinghast-Towers Perrin
Joy Y. Takahashi, American Re-Insurance Company

REI-40 Pitfalls in Reinsurance Pricing
This session will address problems that typically arise when evaluating different types of domestic and international reinsurance proposals. Their issues can often more dramatically affect the pricing than the data that is typically presented. Topics to be covered include usage of available data, policy limit impacts, trending techniques, individual claim loss development, fitting loss distributions, and cessions-rated treaties.

Michael E. Angelina, Tillinghast-Towers Perrin
David Skurnick, St. Paul Re

Special Topics

SPE-41 Professionalism in Ratemaking—Do I Really Want to Do That?
Session attendees will learn the objectives and get a brief description of the Committee on Professionalism Education, followed by a debate on some of the issues that an actuary might face while developing rates. Two CAS Fellows will discuss differences on what may or may not be acceptable behavior when setting rates.

Jeffrey L. Kucera, MHL/Paratus
Richard J. Currie, American Re-Insurance Company
Roger A. Schultz, Allstate Insurance

SPE-42 Credibility and Alternatives to Evaluating Data Fit
Panelists will review credibility in the context of ratemaking concepts. Both classical and Bühlmann models will be described, followed by a discussion of newer advances in credibility theory. The session will include a review of variables affecting credibility, credibility formulas, and practical techniques for applying and increasing credibility.

Paul J. Brehm, St. Paul Companies, Inc.
Oakley E. Van Slyke, MHL/Paratus

Ratemaking Research Call Papers

CPP-43 Ratemaking Call Papers- Presentation 1

Grand Ballroom Salon B- Friday, 8:00 a.m.- 9:20 a.m.
Moderator: Charles H. Boucek, Ernst & Young LLP

Mining Insurance Data To Promote Traffic Safety and Better Match Rates to Risk
By Gregory L. Hayward, State Farm Mutual Automobile Insurance Company

Operating or riding in a vehicle is one of the most dangerous things the typical person does on a regular basis. This paper describes how one company is using new technologies and techniques to mine massive amounts of vehicle crash statistics. In 1998, the company invested in new data mart technology that opened the door to more sophisticated analysis of real world insurance claims data by vehicle, by driver, and by geographic area. This paper will discuss the new data mart and illustrate some data mining tools. Four examples will be used to illustrate how the data is being mined to promote safety and better match rates to risk. These include vehicle safety, dangerous intersections, child passenger safety, and teenage driver safety.

CPP-43 Ratemaking Call Papers- Presentation 1, cont.

Grand Ballroom Salon B- Friday, 8:00 a.m.- 9:20 a.m.
Moderator: Charles H. Boucek, Ernst & Young LLP

Defining Risk Classification Using Set Theory Approach
By Romel G. Salam, Transatlantic Reinsurance Company

In this paper, we will review the common definitions of Risk Classification by quickly glancing through two reference materials on the subject: the American Academy of Actuaries Risk classification Statement of Principles and Robert Finger's Chapter on Risk Classification in the Foundations of Casualty Actuarial Science textbook. Then, by building on the existing definitions, we will look to establish a more rigorous and consistent treatment of the subject. At the core of our treatment will be a non-traditional definition of the notion of class. We will borrow terminology from Set Theory to help us in this endeavor. We will not only define more rigorously such concepts as homogeneity and separation but we will also integrate them into the very definition of Risk Classification. A method of Risk Classification will emerge as a natural byproduct of our definitions. This method, which may be described as what Venter terms a "credibility only" method, will provide an alternative to using arithmetic functions in Risk Classifications schemes. To illustrate our newly defined precepts of Risk Classification, we will construct a specific model using simulated observations. We will introduce a set of statistics that will allow us to make inferences about our model. Also, we will propose measures for assessing the relative efficiency of competing schemes and suggest procedures for validating a classifications scheme. Finally, we hope that this paper will provide ideas to actuaries looking to build a Risk Classification scheme from scratch.

CPP-44 Ratemaking Call Papers- Presentation 2

Meeting Room 5- Thursday, 9:40 a.m.- 11:00 a.m.
Moderator: Nicholas H. Pastor, Ernst & Young LLP

Managing Commercial Lines Price Levels in a Loss cost Environment
By Lisa A. Hays, Ohio Casualty Group

The Percent of Loss Cost statistic (PoLC) is an effective tool, either alone or in conjunction with standard renewal pricing reports, to measure changes in commercial lines price levels in a loss cost environment. This paper demonstrates the calculations and definitions associated with the PoLC statistic. A case study for workers' compensation is presented which demonstrates a practical application of how PoLC can be used to segment a book of business when implementing indicated rate changes. Finally, sample reports are developed to monitor pricing results versus stated goals.

On the Practical Multi-line Excess of Loss Pricing
By Jean-Francois Walhin, Secura Belgian Re

More and more ceding companies are asking for global protection of their portfolios. One example is the protection by the reinsurer of two (or more) lines, e.g. fire and motor third party liability. Clearly this allows the insurance company to optimally balance its portfolio and to pay the lowest reinsurance premium. In this paper we analyze how to price an excess of loss treaty covering multiple lines.

CPP-45 Ratemaking Call Papers- Presentation 3

Grand Ballroom Salon D- Thursday, 11:20 a.m.- 12:40 p.m.
Moderator: Kimberly A. Ward, American Association of Insurance Services

Pricing Aggregate and Credit Risk for Risk Sharing Entities
By John D. Deacon, Fireman's Fund Insurance Companies

Can you say balance? Providing an annual aggregate limit (agg) on losses is nothing new. When aggregate cover is provided, the insurance company can be extending credit, whether it knows it or not. Pricing the aggregate risk in concert with credit risk must be considered to avoid exposing the insurance carrier to risks that were not realized, quantified, or priced for. A financial arrangement can quickly get out of balance when these two risks are not priced and evaluated together. I will introduce concepts that are fundamental to this study, discuss pricing of aggregate risk, and offer a method for pricing credit risk when aggregate cover is provided.

CPP-45 Ratemaking Call Papers- Presentation 3, cont.

Grand Ballroom Salon D- Thursday, 11:20 a.m.- 12:40 p.m.
Moderator: Kimberly A. Ward, American Association of Insurance Services

Dependence Models and the Portfolio Effect
By Donald F. Mango, American Re-Insurance Company &
James C. Candor, American Re-Insurance Company

This paper describes efforts to estimate the "portfolio effect" - the diversification benefit from assembling a portfolio - by simulating the implied portfolio-level capital safety standard for various contract-level capital safety standards. The results showed that apparently aggressive contract-level capital standards still implied conservative portfolio-level capital safety standards. Taken at face value, this would have had a dramatic impact on pricing decisions. However, the method used to generate the simulated contract outcomes - the Normal copula - was found to generate asymptotically independent tail samples, thus understating the tail of the portfolio outcome distribution. Tail-based risk measures were, therefore, understated as well. This provides compelling evidence why actuaries must utilize alternative dependence models beyond the Normal copula.

Return to Main Page of Brochure