Introductory Topics
INT-1 Introductory Data Management 101
Session panelists will address basic issues behind data management, such as privacy and confidentiality, actuarial standards concerning data quality, how to control the data, and the need to be concerned about data quality.Moderator:
Arthur R. Cadorine, Assistant Vice President, ISO
Panelists:
Alan J. Hapke, Consulting Actuary
Holmes M. Gwynn, Senior Actuary, Texas Department of InsuranceINT-2 Basic Techniques for an Overall Indication
The basic foundations of the ratemaking process will be covered in this session. Topics to be discussed will 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 CAS Exam 5.)Moderator:
Charles M. Parsons, Pricing Manager, Kemper Insurance Companies
Panelist:
Seth Wayne Myers, Actuarial Leader, GE Financial AssuranceINT-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 relativities.
Panelists:
Margaret A. Brinkmann, Associate Actuary, Allstate Research & Planning Center
Patrick B. Woods, Assistant Vice President, ISOINT-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 considering whether there are any anomalies in the data that distort the indication or if there there are 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 reaction, and potential adverse selection. This gives an alternative view of how much rate an actuary could take. Finally, an actuary must evaluate means, other than base rate changes, to affect revenue that can address the indication, such as expense modifications and underwriting guidelines.
Once an approach is determined, an actuary can also stress test the planned action though scenario modeling or other methods. This panel will develop these concepts through the use of various examples and alternative approaches.
Panelists:
Mark J. Homan, Assistant Vice President & Actuary- Personal Lines Pricing, The Hartford
Roger A. Schultz, Vice President, Aon Re ServicesEmerging Technology Topics
TEC-1 Implementation Options for Rating Algorithms
How can rating algorithms be implemented? What is the value of using inheritance-based architectures to reflect different level modifications? What architectures should be used to minimize rate maintenance activities? This session will explore these issues and discuss an approach that minimizes the time and effort necessary to implement rate changes and to introduce new insurance coverage programs.Moderator/Panelist:
Wayne Lattuca, Vice President, ISO
Panelist:
Chuck Boodro, Chief Technology Officer, Ascendant OneTEC-2 Think Big, Start Small—Building a Data Warehouse With Limited Resources
This session reviews a structured data warehousing method and a visual planning tool to prioritize subject and business areas for cost-effective, manageable, and successful data warehouse implementation.Panelist:
Pat Saporito, Senior Property & Casualty Insurance Industry Consultant, NCR CorporationTEC-3 ASP: Is the Industry Ready?
Application service providers (ASPs) have emerged as a viable business tools for organizations looking for operational efficiencies and strategic advantages. Explore the pros and cons of using an ASP, from rapid technical deployment to system maintenance. Topics such as ROI, e-strategy, and process engineering will be discussed.
Panelists:
John Johansen, Partner, Agile Technologies
Vince Morabito, Vice President, Ace USAWorkers Compensation Topics
WCP-1 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 perspectives of NCCI, other bureaus, and companies in loss cost jurisdictions.Moderator:
James R. Davis, Senior Regional Actuary, National Council on Compensation Insurance, Inc.
Panelists:
Andrew J. Doll, Chief Actuary, General Casualty Companies
Jay A. Rosen, Regional Actuary, National Council on Compensation Insurance, Inc.WCP-2 Experience Rating Current Challenges
This session will review the recent performance of the Workers Compensation Experience Rating Plan used in NCCI states and the separate plan used by the California Rating Bureau. A brief overview of each plan, including any recent changes, will be provided. Performance results will be discussed in terms of changes over time, plan predictive accuracy, and equity across various distributions.Moderator:
Anthony M. DiDonato, Vice President and Actuary, National Council on Compensation Insurance, Inc.
Panelist:
David M. Bellusci, Senior Vice President and Chief Actuary, Workers Compensation Insurance Rating Bureau of CaliforniaWCP-3 Select State Workers Compensation Issues—Texas and Massachusetts
Recent studies have shown that Massachusetts' workers compensation medical costs are among the lowest in the country and Texas' costs are among the highest. The panel will discuss aspects of the workers compensation systems in these states that contribute to these differences.Moderator:
Cecily A. Gallagher, Vice President, Texas Mutual Insurance Company
Panelists:
Mark W. Phillips, Associate Actuary, Liberty Mutual Group
Donald T. Bashline, Actuary, Workers Compensation Rating & Inspection Bureau of MassachusettsWCP-4 Workers Compensation Current Issues
The panel will present an overview of the current state of the workers compensation line. This will include a review of financial results and recent trends, and a discussion of where the line might be headed.Moderator:
Nancy R. Treitel, Vice President and Manager, Liberty Mutual Group
Panelists:
Barry Lipton, Regional Executive and Actuary, National Council on Compensation Insurance, Inc.Commercial Lines Topics
COM-1 Emerging Risk- What Now?
To date, asbestos leads the growing list of emerging liabilities, with current estimates of ultimate losses relating to U.S. exposure of at least $200 billion, with $55 billion-$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. There has been 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 “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, managed care, guns, and intellectual property.
Internet liability has a high degree of uncertainty that creates a natural demand from customers for coverage. However, difficulties in pricing and reserving for these unique exposures has caused insurers to shy away from accepting such exposure under traditional insurance policies and has made many insurers hesitant to write such risks. The high customer demand and absence of a readily available market for such liabilities has created opportunities for the few willing to take such risks.
Moderator/Panelist:
Jennifer L. Biggs, Consulting Actuary, Tillinghast-Towers Perrin
Panelist:
Barbara A. Ewing, Vice President, Zurich North AmericaCOM-2 Captive Formation—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's role in meeting corporate 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.Moderator/Panelist:
Marc-Andre Lefebvre, Credit & Market Risk Executive, Royal & SunAlliance
Panelist:
Charles R. Woodman, Marsh USACOM-3 Product Development
Product development is a 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.Moderator:
Scott D. Vandermyde, Actuarial Director, Reserving, Zurich North America
Panelists:
Beth E. Fitzgerald, Assistant Vice President, ISO
David W. McLaughry, Senior Actuary & Product Manager, Farmers Insurance GroupCOM-4 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, as well as the various approaches to risk classification and rating.In addition, an update will be provided regarding current events in this volatile line of insurance. The factors causing recent industry trends resulting in the withdrawal and failure of various malpractice specialty carriers and the implications for the future will be discussed.
Moderator:
Harold N. Schneider, Vice President and Actuary, Farmers Insurance Group
Panelists:
Linda A. Dembiec, Chief Actuary and Information Officer, Medical Mutual Liability Insurance Society of Maryland
Joseph G. Cerreta, Assistant Vice President, The Doctors' CompanyCOM-5 Considerations for Small Business Owners Policies
Policies for small business risks have unique eligibility and underwriting considerations. As the types of business written under business owners policies increase, these issues become more important. This panel will review recent changes in the ISO and independent business owners programs and discuss issues related to this coverage from the perspective of a product manager and an actuary.Moderator:
Beth E. Fitzgerald, Assistant Vice President, ISO
Panelists:
Joanne E. Reitz, Select Customer Pricing Director, The Hartford
Robert J. Walling III., Principal & Consulting Actuary, Pinnacle Actuarial Resources, Inc.COM-6 Directors and Officers Liability
What do the numbers 204, 213, and 488 all have in common? According to the Stanford Securities Class Action Web Site, they are the number of Security Class Actions filed in 1999, 2000, and 2001, respectively.This presentation will discuss the challenges in pricing the D&O risk. Terms and conditions offered are as important as charging the right price. Topics covered will include proper reflection of class relativities, trends, exposure bases, and multi-year options. New and renewal business will be discussed, along with some terms and conditions changes that are starting to be seen in the marketplace.
Moderator:
Richard Joseph Castillo, Vice President and Senior Actuary, Zurich North America Specialties
Panelist:
Claude D. Yoder, First Vice President, Hartford Specialty InsuranceCOM-7 Whose Line Is It Anyway? Multi-Peril Crop and Boiler and Machinery
Few actuaries get the opportunity for exposure to two unique insurance products: multi-peril crop and boiler and machinery. The ratemaking method for each of these two lines addresses elements not common to other property/casualty coverages, yet all actuaries can learn from the approaches used to overcome these distinctive challenges and can apply what they learn to dilemmas they face in other lines. This panel will begin with an introductory discussion of coverages, distribution systems, reinsurance considerations, and pricing issues. It will also explore how ratemaking methods address the challenges facing the actuary who prices multi-peril crop and boiler and machinery.Moderator:
Klayton N. Southwood, Principal and Consulting Actuary, EPIC Actuaries, LLC
Panelists:
Richard A. Bill, Vice President and Corporate Actuary, Property & Casualty, Country Insurance & Financial Services
Christine L. Steben, Assistant Vice President-Boiler and Machinery Reinsurance, TravelersCOM-8 Ratemaking Considerations Associated With Surety
Surety bonds have been in the news more and more since the collapse of Enron and the bankruptcy of KMart. This panel will focus on various unique ratemaking considerations associated with surety. Discussion will include both contract surety and commercial surety exposures, as well as classification loss costs, individual risk considerations, and features of the three-party surety bond. The panel will talk about the performance bond claim adjustment process and associated cash flows, the aspects of surety reinsurance, and some of the more important current events, including the Enron situation.Moderator/Panelist:
Gary E. Shook, Senior Vice President and Head Actuary, Zurich North America SuretyPersonal Lines Topics
PL-1 American Academy of Actuaries Update on Credit Scoring
This session will discuss the American Academy of Actuaries' role in providing advice to the NAIC's working group on credit scoring. Speakers will include members of the Academy's subcommittee on risk classification and a representative of the NAIC working group. The workshop will explain:
- The Academy's role in this process;
- The subcommittee's recommendations regarding the NAIC's plans to conduct a study of the effect of credit scoring on protected classes;
- The subcommittee's recommendations regarding best practices for regulatory review of credit scoring models; and
- The public policy issues and concerns regarding credit scoring to which the NAIC must respond.
The workshop is intended for actuaries who prepare rate filings, including credit scoring, and for anyone who is interested in how the Academy provides advice to the NAIC (and others) to assist in the public policy decision-making process.
Moderator:
Walter C. Wright III, Principal, Mercer Risk, Finance & Insurance Consulting
Panelists:
Lisa Smego, Senior Policy Analyst-Policy & Legislation, Washington Insurance Department
Alan E. Wickman, Administrator, Actuarial Division, Nebraska Department of InsurancePL-2 Regulating the Use of Credit Scoring in Underwriting and Rating
Many companies now use credit scoring to improve underwriting results for both personal automobile and homeowners insurance. As credit scoring use increases among insurers, regulatory interests and oversight have also increased. State insurance departments now want to know more about the use of credit scoring to ensure compliance with both existing and new state regulations related to credit scoring. Regulators are researching and testing companies' compliance with state regulations on filing requirements, underwriting/rating decisions, and systems controls. In addition, regulators are seeking to learn more about proprietary and generic industry credit scoring models. This session will discuss some of the key regulatory interests with the use of credit scoring in underwriting and rating of personal lines insurance.Panelists:
Roosevelt Mosley, Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Lisa Smego, Senior Policy Analyst-Policy and Legislation, Washington Department of Insurance
John B. Wilson, Assistant Vice President, Analytics, ChoicePointPL-3 Applying GLM Techniques in Nontraditional Areas
Actuaries have traditionally used a variety of techniques and methods to project future results by analyzing historical data. In recent history, many insurers have begun to apply multivariate techniques, including generalized linear modeling (GLM), to these traditional actuarial pursuits. However, there are many areas in the insurance industry outside the actuarial world that would find this type of analysis valuable. This session will discuss application of GLM techniques to other functions in the insurance industry, including claims, underwriting, agency activities, reserving, and marketing.Moderator/Panelist:
Roosevelt C. Mosley, Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Panelist:
Claudine H. Modlin, Senior Consultant, Watson Wyatt Insurance & Financial ServicesPL-4 Mold Follow-Up to General Session
In an opportunity for further discussion on mold issues, panelists from the General Session will answer audience questions in a more informal setting.Moderator:
Jeffrey L. Kucera, Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Panelists:
Robert P. Hartwig, Senior Vice President and Chief Economist, Insurance Information Institute
Holmes M. Gwynn, Senior Actuary, Texas Department of InsurancePL-5 Sport Utility Vehicles, Automobile Symbol Assignments, and Auto Insurance Costs
The popularity of SUVs over the past several years has resulted in a marked shift in the average size and weight of vehicles on the road. Recent studies may point to increasing liability costs associated with SUVs. This panel will present a discussion of the current pricing issues related to SUVs—for both liability and physical damage—including related factors such as type of driver associated with SUVs.The panel will also discuss the various "symbol rating" programs in use by insurers and discuss their impact on automobile insurance rates.
Moderator:
LeRoy A. Boison Jr., Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Panelist:
Kim Hazelbaker, Senior Vice President, Highway Loss Data InstitutePL-6 Quantifying Impact of Nonmodeled Catastrophes
Over the last decade, much attention has been given to the development of models that estimate hurricane and earthquake expected losses. This session will focus on nonmodeled catastrophe losses, those arising from catastrophes other than hurricane and earthquake. Panelists will review current methods, describe their benefits and drawbacks, and discuss various alternate methods that incorporate such elements as capping, regional groupings, and credibility. An open discussion of the various procedures and possible variations will conclude this session.Moderator:
Linda K. Brobeck, Senior Actuary, Allstate Research & Planning Center
Panelists:
Sara P. Drexler, Assistant Actuary, Allstate Insurance Company
Israel Krakowski, Senior Actuary, Allstate Insurance CompanyPL-7 Geographical Spatial Analysis in Personal Lines Territorial Ratemaking
Geographical area is one of the main drivers of personal lines claims experience, yet territorial definitions and relativities can vary significantly between insurers. The problem with territory as a rating factor is that an insurer may have few policies in any one region, making it difficult to assess reliably the risk associated with that region.This session will discuss using spatial smoothing techniques to form new territory definitions. Spatial smoothing techniques are based on the assumption that, in the absence of credible experience in any given area, that area will exhibit riskiness similar to that of neighboring areas. The discussion will cover the mechanics of spatial smoothing (including standardization for other rating variables using GLMs, credibility, possible smoothing algorithms), the inclusion of geodemographic data, and implementation issues.
Panelists:
Duncan Anderson, Partner, Watson Wyatt LLP
Geoffrey Todd Werner, Executive Director of Actuarial Development, United Services Automobile AssociationPL-8 Catastrophe Load? Risk Load? Who's Carrying the Load?
Who IS carrying the load? We have actuarial and modeling practices to help determine the catastrophe load and to spread that load "appropriately." But what about risk loads and reinsurer margins? These costs have not been as widely recognized or accepted. So, who's paying these costs? Our expert panelists will share some thoughts on what should be reflected and how, including some cutting edge modeling that ties together the more traditional expected loss model output with financial modeling.Moderator:
Kathy A. Olcese, Senior Actuary, Allstate Insurance Company
Panelists:
David Appel, Principal and Director, Milliman USA
John W. Rollins, Chief Actuary, Florida Farm Bureau Insurance CompaniesRisk, Return, and Capital Management Topics
RCM-1 Introduction to Profit and Contingencies in Ratemaking
This introductory-level session will address the two major cash flow methods for reflecting a profit and contingency loading in ratemaking: net present value and internal rate of return. The session will cover the important issues raised by the methods as well as the mechanics. The use of these and other methods in state filings will also be discussed, such as the CAPM approach in Massachusetts, the California Method, the NCCI Method, and others. Strengths and weaknesses of these and other common approaches will be discussed. This session is intended to be introductory in scope. No previous experience in profit loading provisions is assumed.Panelists:
Richard Derrig, Senior Vice President, Automobile Insurers Bureau of Massachusetts
David Appel, Principal and Director, Milliman USARCM-2 Risk and Return: Considerations
(Background Session)
Covering the essentials of risk and return models, this session will consider the views of both the shareholder and the policyholder, as well as regulatory restrictions. The discussion will include a proof that the internal rate of return (IRR) and net present value (NPV) models are essentially equivalent when parameters/assumptions are consistent and model structures allow for it.The panel consists of contributors to the textbook, Actuarial Considerations Regarding Risk and Return in Property-Casualty Insurance Pricing (available online through the "Publications" section of the CAS Web Site).
Moderator:
Oakley E. Van Slyke, Consultant, EPIC Actuaries, LLC
Panelist:
Russell E. Bingham, Director of Research and Development, The Hartford
Judy Mintel, State Farm Fire and Casualty CompanyRCM-3 Risk and Return: What Are We Debating About?
(Panel Discussion)
This session follows up last year's debate on 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.Issues discussed will include risk metrics, capital allocation/nonallocation, parameter risk, correlation, and a host of other considerations. This session, like last year's, will be a fun one as it will be geared toward Socratic dialogue (debated and maybe heated arguments) among the panelists and with the audience. Don't miss this one!
Moderator:
Robert F. Wolf, Principal, Mercer Risk, Finance & Insurance Consulting
Panelists:
Russell E. Bingham, Director of Research and Development, The Hartford
Donald F. Mango, Chief Risk Officer, American Re-Insurance Company
Glenn G. Meyers, Chief of Actuarial Research & Assistant Vice President, ISO
Oakley E. Van Slyke, Consultant, EPIC Actuaries, LLCRCM-4 Ratemaking, Capital Allocation, and Risk Metrics
As the audience is expected to be familiar with the actuarial considerations discussed in sessions RCM-1, RCM-2, and RCM-3, this session will discuss an update on recent research initiatives on how to estimate and reflect the parameters relating to financial models used to measure risk and return.One panelist will describe a formal value creation framework underlying the application of a risk/return discipline to insurance (pricing and analysis), with and without allocation of surplus and in consideration of consistent treatment of underwriting and investment returns.
Another panelist will review the recent Risk Premium Project sponsored by the CAS Committee on the Theory of Risk. Both theoretical and empirical issues dealing with cost of capital and allocation of capital by line will be covered.
The third panelist will describe the concept of "Probability Transforms".
Moderator:
Glenn G. Meyers, Chief of Actuarial Research and Assistant Vice President, ISO
Panelists:
Russell E. Bingham, Director of Research and Development, The Hartford
Oakley E. Van Slyke, Consultant, EPIC Actuaries, LLC
Richard Derrig, Senior Vice President, Automobile Insurers Bureau of MassachusettsRCM-5 How Much Insurance Should I Buy?
Insurance Decisions Using Enterprise Risk Management
Unlike the prior RCM sessions, this session will focus on the insured, and not on the insurer. This session will describe considerations in assisting commercial insurance buyers on their risk financing decisions as a function of the cost of risk financing (e.g., rates) and the buyers' corresponding appetites for retaining risk. In particular, the panel will consider the goal of creating and enhancing shareholder value in the insurance decision process, given the hard commercial insurance market.An insurance broker and an actuary will describe several case studies in methods that attempt to optimize a corporation's risk management strategies, given considerations, among others, of the firm's cost of capital and market premium levels.
Moderator:
Robert F. Wolf, Principal, Mercer Risk, Finance & Insurance Consulting
Panelists:
Barry A. Franklin, Senior Vice President, Aon Risk Consultants, Inc.
Scott M. Sanderson, Senior Vice President, Marsh McLennan Advanced Risk SolutionsRCM-6 Cost of Financing Insurance—Further Developments
The cost of financing an insurance company is defined as the combined cost of capital, reinsurance, and options on a catastrophe index. This analysis updates previous approaches 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/.Panelist:
Glenn G. Meyers, Chief of Actuarial Research & Assistant Vice President, ISORegulatory Topics
REG-1 The Actuary as an Expert Witness
Insurance regulation has historically required actuaries to serve as expert witnesses in administrative hearings concerning rate filings. 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 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.Moderator/Panelist:
Charles L. McClenahan, Principal, Mercer Risk, Finance & Insurance ConsultingREG-2 Regulatory Issues
Each member of this panel of regulators will present a short overview of the topics of the day in their state and throughout the nation. A roundtable group discussion will follow, with audience participation strongly encouraged. Credit scoring, insurance availability and deregulation are examples of the types of issues to be covered, as well as the experience of working as an actuary in a regulatory environment.Moderator:
Mary T. Hosford, Actuarial Director, Fireman's Fund Insurance Companies
Panelists:
J'ne Elizabeth Bychovski, Senior Actuary, Texas Department of Insurance
Dan J. Davis, Senior Actuary, Louisiana Department of Insurance
John R. Pedrick, Chief Actuary, Property and Casualty Division, Ohio Department of Insurance
Alan E. Wickman, Administrator, Actuarial Division, Nebraska Department of InsuranceREG-3 What Makes a Good Rate Filing?
What makes a good rate filing? It depends on who you ask. Now is your opportunity to ask three individuals with very distinct opinions: a regulator, a company actuary responsible for state filings, and a consultant with a similar responsibility.Moderator:
James B. Rowland, State Manager, Allstate Insurance Company
Panelist:
Shawna S. Ackerman, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Dan J. Davis, Senior Actuary, Louisiana Department of Insurance
Bonnie S. Wittman, Associate State Filings Director, Allstate Insurance CompanyReinsurance Topics
REI-1 Introduction to Reinsurance
Emphasizing a pragmatic view "beyond the formulas," this panel will introduce attendees to the basic principles and functions of reinsurance ratemaking. The session will include case studies depicting the ways in which qualitative data and business issues affect actuarial indications and pricing.Moderator:
Nolan E. Asch, Principal, ISO
Panelist:
Michele Feldman, Vice President, Folksamerica Reinsurance Co.REI-2 Introduction to Exposure and Experience Rating
Using a game-like setting, panelists will illustrate what reinsurers do in the "real" world. They will demonstrate the link between experience and exposure rating using the same set of data to provide continuity and a reconciliation of the methods. This session will also examine the data required and the methods that are commonly used in pricing excess of loss reinsurance treaties.Moderator:
Michael E. Angelina, Consulting Actuary, Tillinghast-Towers Perrin
Panelist:
James C. Sandor, Vice President & Actuary, American Re-Insurance CompanyREI-3 Catastrophe Modeling
Prior to September 11, 2001, catastrophe reinsurance was written and priced without a true appreciation for its exposure. Insurance companies, reinsurers, and even rating agencies are now aggressively pursuing more appropriate modeling techniques to assess and manage their exposure to loss.In this session, panelists will present an update of available modeling techniques and discuss how both reinsurer and primary company professionals are using them for pricing and exposure management.
Moderator:
Nolan E. Asch, Principal, ISO
Panelist:
David A. Lalonde, Senior Vice President, Applied Insurance Research
John L. Tedeschi, Principal, Guy Carpenter & Company, Inc.
Jodi J. Healy, Executive Director, Property Pricing, United Services Automobile AssociationREI-4 Finite Reinsurance: Emerging Issues
The events of the last year and a half have changed the reinsurance market dramatically. This session will examine the changes taking place in the world of finite reinsurance given the events of September 11, Enron, and HIH (an Australian insurer in liquidation). The session will also look at new methods for analyzing the risks contained in typical finite transactions.Moderator:
Brian Z. Brown, Consulting Actuary, Milliman USA
Panelists:
Lisa Walsh, Senior Vice President, Benfield Blanch
Chris A. DeAngelis, Senior Vice President, Aon Re Inc.REI-5 Workers Compensation—Excess Pricing
Methods and considerations that are vital 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. Lack of good data can also bias the appropriate rate. This session will discuss how to reflect various factors when pricing excess layers.Moderator:
Brian Z. Brown, Consulting Actuary, Milliman USA
Panelists:
Karen Alice Pachyn, Senior Vice President and Chief Actuary, GE Reinsurance Corporation
Natalie J. Rekittke, Assistant Vice President, Midwest Employers Casualty CompanySpecialty Topics
SPE-1 Professionalism in Ratemaking: More Important Than Ever
Presented by members of the Committee on Professionalism Education, this session will explore the CAS Code of Conduct in light of the current environment in the insurance and financial services industries. Fictional case studies will be presented, followed by discussion and debate regarding what may or may not be acceptable behavior in a ratemaking environment. Audience participation is encouraged.Moderator:
David J. Otto, Actuary, The Kilbourne Company
Panelists:
Thomas J. DeFalco, Vice President, NJM Insurance Group
Kevin M. Dyke, Chief Actuary, Professional Liability, American Physicians AssuranceSPE-2 Basic Concepts in Credibility
Considering credibility in the context of ratemaking concepts, this session will review variables affecting credibility and credibility formulas, as well as practical techniques for applying and increasing credibility. Both classical and Bühlmann models will be described.Panelist:
Paul J. Brehm, Vice President and Chief Actuarial Officer, St. Paul Companies, Inc.SPE-3 Policyholder Retention and Its Impact on Pricing
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 is 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 ways this information can be used to optimize a proposed rate change.
Moderator:
Robert J. Walling III, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Panelists:
Charles H. Boucek, Senior Consulting Actuary, Ernst & Young LLP
Claudine H. Modlin, Senior Consultant, Watson Wyatt Pretium, Ltd.SPE-4 New Catastrophe Exposure for Workers Compensation and Commercial Property Insurance
Loss estimation models have become an essential pricing tool in recent years for natural catastrophes such as hurricanes and earthquakes. With the tragic events of September 11, 2001, and the likelihood of other terrorist events in the future, the insurance industry is struggling to prepare for these extreme events. While no computer model can predict when or where terrorists will strike next, sophisticated models have recently been developed to help estimate loss potential deriving from terrorist acts. This session will discuss terrorism modeling for the two lines considered to be most affected by attacks, namely commercial property and workers compensation. In addition, there will be a discussion of the Federal Backstop Program.Moderator/Panelist:
George Burger, Assistant Vice President, ISO
Panelist:
Barry Lipton, Regional Executive and Actuary, National Council on Compensation Insurance, Inc.Call Papers
A number of papers have been developed in response to calls by the Casualty Actuarial Society's Committee on Ratemaking and the Committee on Management Data and Information. Selected papers will be presented and discussed by their authors during sessions at the 2003 Ratemaking Seminar.The completed papers are in the CAS 2003 Winter Forum, which is available online.
Ratemaking Research Call Papers
RCP-1 Ratemaking Call Papers Presentation 1
Moderator:
Neal M. Leibowitz, Commercial Lines Actuarial-Director, The HartfordCapital Consumption: An Alternative Methodology for Pricing Reinsurance
By Donald F. Mango, American Re-Insurance CompanyThis paper introduces a capital consumption methodology for the price evaluation of reinsurance in a stochastic environment. It differs from the common practice of risk-based capital allocation and release by: (i) evaluating the actual contract cash flows at the scenario level; (ii) eliminating the need for contract-level supporting capital allocation and release; (iii) evaluating each scenario's operating deficits as contingent capital calls on the company capital pool; and (iv) reflecting the expected cost of contingent capital calls as an expense load. This method eliminates the need for capital allocation and release; creates scenarios that more closely model actual contract capital usage; allows more flexibility in stochastic modeling; and makes risk-return preferences an explicit part of the pricing decision.
Statistical Learning Algorithms Applied to Automobile Insurance Ratemaking
By Charles Dugas, Chief Actuary, Insurance Corporation of British Columbia
Yoshua Bengio, Apstat Technologies Inc.
Nicolas Chapados, Apstat Technologies Inc.
Pascal Vincent, Apstat Technologies Inc.
Germain Denoncourt, Actuary, L'Alpha Compagnie d'Assurances Inc.
Christian Fournier, Insurance Corporation of British ColumbiaWe recently conducted a research project for a large North American automobile insurer. This study was the most exhaustive ever undertaken by this particular insurer and lasted over an entire year. We analyzed the discriminating power of each variable used for ratemaking. We analyzed the performance of several models within five broad categories: linear regressions, generalized linear models, decision trees, neural networks and support vector machines. In this paper, we present the main results of this study. We qualitatively compare models and show how neural networks can represent high-order nonlinear dependencies with a small number of parameters, each of which is estimated on a large proportion of the data, thus yielding low variance. We thoroughly explain the purpose of the nonlinear sigmoidal transforms which are at the very heart of neural networks' performances. The main numerical result is a statistically significant reduction in the out-of-sample mean-squared error using the neural network model and our ability to substantially reduce the median premium by charging more to the highest risks. This in turn can translate into substantial savings and financial benefits for an insurer. We hope this paper goes a long way towards convincing actuaries to include neural networks within their set of modeling tools for ratemaking.
RCP-2 Ratemaking Call Papers Presentation 2
Moderator: Charles H. Boucek, Ernst & Young, LLPDynamic Pricing Analysis
By Charles H. Boucek, Ernst & Young, LLP
Thomas P. Conway, Ernst & Young, LLPThis paper presents a methodology that represents a significant enhancement to current pricing practices. The goal of this methodology is to estimate the impact that a rate change will have on a company's policyholder retention and the resulting profitability of this transformed book of business. The paper will present the basics of this methodology as well as where future work will need to be done to bring this methodology into mainstream pricing. The work that the authors have done in this area has focused on Private Passenger Auto Insurance but these techniques could be applied to other lines of business.
Estimating the Cost of Commercial Airlines Catastrophes-
A Stochastic Simulation Approach
By Romel G. Salam, Transatlantic Reinsurance CompanyActuaries are increasingly finding more applications for stochastic simulation in pricing, reserving, DFA, and other insurance and financial engineering problems. For instance, stochastic simulation has gained acceptance as a pricing tool for property catastrophe coverage in the insurance, reinsurance, broker and investment communities. This has required primary companies to compile and provide information at a more detailed level than they did only a few years ago. Various commercial simulation products have emerged to help companies assess and price their property catastrophe exposures. Although there are many parallels between the catastrophe exposures of property and commercial aviation risks, the use of simulation is not widespread in the assessment of commercial aviation catastrophic exposures. In this paper, we present the framework for a simulation model for commercial aviation catastrophes and we discuss various aspects of designing such a model including the level and type of information needed.
RCP-3 Ratemaking Call Papers Presentation 3
Moderator:
Kim Ward, Chief Actuary, American Association of Insurance ServicesA Unifying Approach to Pricing Insurance and Financial Risk
By Andreas Kull, Converium Ltd.The actuarial and the financial approach to the pricing of risk remain different despite the increasingly direct interconnection of financial and insurance markets. The difference can be summarized as pricing based on classical risk theory (insurance) vs. non-arbitrage pricing (finance). However, comparable pricing principles are of importance when it comes to transferring insurance risk to financial markets and vice versa as it is done e.g., by alternative risk-transfer instruments or derivative products. Incompatibilities blur business opportunities or may open up the possibility to arbitrage. For these situations, the paper aims to bridge the gap between insurance and finance by extending the non-arbitrage pricing principle to insurance. The main obstacle that has to be tackled is related to the incompleteness of the insurance market. It implies that equivalent martingale probabilities are not uniquely defined. By the information theoretical maximum entropy principle, a sensible way to choose a particular equivalent martingale measure is found. This approach parallels the successful application of the maximum entropy principle in finance.
Credit & Surety Pricing and the Effects of Financial Market Convergence
By Althula Alwis, American Re-Insurance Company
Christopher M. Steinbach, Swiss Reinsurance America CorporationThis paper describes how the convergence of the insurance and financial markets is affecting Credit & Surety insurance. The paper explains why prior experience has become an unreliable measure of exposure and how this paradigm shift affects the pricing of Credit & Surety products. The authors propose a new exposure-based method for analyzing Credit & Surety that combines the best practices of insurance and financial market pricing theory. Discussions about its implementation as well as sample calculations for both primary and reinsurance pricing are included. This paper also discusses the new breed of Commercial Surety bonds that have been recently developed to compete with traditional financial products. Finally, the paper addresses the need for better and more sophisticated risk management techniques for the industry.
Data Management, Quality, and Technology Call Papers
DCP-1 Emerging Technology Call Papers Presentation 1
Moderator:
Suzanne E. Black , Mercer Risk, Finance, and InsuranceDoes Credit Score Really Explain Insurance Losses? Multivariate Analysis From a Data Mining Point of View
By James C. Guszcza, Deloitte & Touche LLP
Cheng-Sheng "Peter" Wu, Deloitte & Touche LLPOne of the most significant development in insurance ratemaking and underwriting in the past decades has been the use of credit history in personal lines of business. Since its introduction in late 80's and early 90's, the predictive power of credit score and its relevance to insurance pricing and underwriting have been the subject of debate. The fact that personal credit is widely used by insurers strongly suggests its power to explain insurance losses and profitability. However, critics have questioned whether the apparently strong relationship between personal credit and insurance losses and profitability really exists. Surprisingly, even though this is a hot topic in the insurance industry and in regulatory circles, actuaries have not been actively participating in the debate. To date, there have been few actuarial studies published on the relationship of personal credit to insurance losses and profitability. A possible reason for the lack of published data is that many insurers view credit scores as a confidential and cutting-edge approach to help them win in the market place. Therefore, they might be reluctant to share their results with the public. In this paper, we will first review the two published studies and comment on their results. We will then share our own experience on this topic.
DCP-2 Emerging Technology Call Papers Presentation 2
Moderator:
Sara Schlenker, Actuary, Allstate Insurance CompanyWhere is My Market? How to Use Data to Find and Validate New Commercial Lines Market Niches
By Lisa Sayegh, ISOEntering a new insurance market is not a decision to be taken lightly. Market segment analysis is a lengthy process, and finding the right data is just the beginning. Being able to make meaningful comparisons of data from various sources and across insurance lines is the key to identifying profitable markets. Fortunately, there are data sources and tools available that can help with the analysis, as well as provide quantifiable assessments of your niche-market recommendations. This paper discusses critical elements to keep in mind as you go through the process.
Rainy Day: Actuarial Software and Disaster Recovery
By Aleksey S. Popelyukhin, Commercial Risk Reinsurance Co., Ltd.Tragic events with disastrous consequences that are happening all around the globe made disaster recovery and continuity planning a much higher priority for every company. Scenarios, in which data centers, paper documents, and even recovery specialists themselves may perish, became more probable.
Both actuarial workflow and actuarial software design should be affected by disaster recovery strategy. Actuaries may simplify recovery tasks and insure higher rates of success if they properly modify their applications' architecture and their approaches to documenting algorithms and storing structured data.
The paper attempts to direct actuaries to strategies that may increase chances of complete recovery: from separation of data and algorithms to effective storage of actuarial objects to automated version management and self-documenting techniques.
The matter of continuity of actuarial operations is in the hands of actuaries.
DCP-3 Emerging Technology Call Papers Presentation 3
Moderator:
Holmes M. Gwynn, Senior Actuary, Texas Department of InsuranceModeling Hidden Exposures in Claim Severity via the EM Algorithm
By Richard A. Derrig, Automobile Insurers Bureau of Massachusetts
Grzegorz A. Rempala, University of LouisvilleThe authors consider the issue of modeling the so-called hidden severity exposure occurring through either incomplete data or an unobserved underlying risk factor. They use the celebrated EM algorithm as a convenient tool in detecting latent (unobserved) risks in finite mixture models of claim severity and in problems where data imputation is needed. The paper provides examples of applicability of the methodology based on real-life auto injury claim data and compares, when possible, the accuracy of the authors' methods with that of standard techniques.
Martian Chronicles: Is MARS Better Than Neural Networks?
By Louise A. Francis, Francis Analytics & Actuarial Data Mining Inc.A recently developed data mining technique, Multivariate Adaptive Regression Splines (MARS) has been hailed by some as a viable competitor to neural networks that does not suffer from some of the limitations of neural networks. Like neural networks, it is effective when analyzing complex structures which are commonly found in data, such as nonlinearities and interactions. However, unlike neural networks, MARS is not a "black box", but produces models that are explainable to management.
This paper will introduce MARS by showing its similarity to an already well-understood statistical technique: linear regression. It will illustrate MARS by applying it to insurance fraud data and will compare its performance to that of neural networks.
