2004 Ratemaking Seminar Handouts

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General Session

The Medical Malpractice Insurance Crisis
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Medical malpractice insurance rates have doubled and tripled for certain practitioners over the last several years. Several major writers have withdrawn from this line either by choice or by insolvency. Practitioners are threatening strikes and moving to other locales. President Bush has advocated tort reform.

This session will focus on this crisis. Representatives of the medical profession, insurance industry, and the trial bar will participate in a lively discussion of the issues driving this crisis. The opportunity for audience participation will also be provided.

Moderator:
M. Diane Koken, Insurance Commissioner,
Pennsylvania Insurance Department

Panelists:
Gail M. Ross, Manager & Senior Consultant, Milliman USA
Linda A. Dembiec, Chief Financial Officer & Actuary, Medical Mutual Liability
Insurance Society Of Maryland
Samuel R. Marshall, President & Chief Executive Officer, Insurance Federation of Pennsylvania
James M. Redmond, Senior Vice President Legislative Services, Hospital and Health System Association of Pennsylvania
Joseph F. Roda, Roda & Nast, P.C.

Concurrent Sessions

• Introductory Topics
• Data Management & Emerging Technologies Topics
• Workers Compensation Topics
• Commercial Lines Topics
• Personal Lines Topics
• Risk, Return, and Capital Management Topics
• Regulatory Topics
• Reinsurance Topics
• Specialty Topics
• Ratemaking Research Papers

Introductory Topics

INT-1 Introductory Data Management
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Session panelists will address basic issues behind data management, issues of 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.

Moderator:
Arthur R. Cadorine, Assistant Vice President, ISO
Panelists:
Holmes M. Gwynn, Senior Actuary, Texas Department of Insurance
Alan J. Hapke, Vice President, Meadowbrook Insurance Company
Nathan Root, Actuarial Manager, CNA

INT-2 Basic Techniques for an Overall Indication
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Covering the basic foundations of the ratemaking process, this session's topics will include data organization for premium and losses, data adjustments such as current rate level, loss development and trend, and the determination of the expense provision. The specific techniques presented will have an emphasis toward personal lines. (Not intended for those preparing for Exam 5).

Moderator:
M. Charles Parsons, Actuary, Allstate Insurance Company
Panelists:
Brandon L. Emlen, Pricing Manager, State Farm Mutual Automobile Insurance Company

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

Moderator:
Christopher S. Carlson, Senior Actuarial Officer, Nationwide Insurance Company
Panelists:
Frank X. Gribbon, Manager and Assistant Actuary, ISO
Julie A. Jordan, Senior Actuarial Assistant, Allstate Insurance Company

INT-4 The Indication—Is That Your Final Answer?
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Inexperienced actuaries believe that their work is complete once the indication has been developed. In reality, however, this is just the first step. The indication is just that—an indication—not a final answer. Actuaries 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? Actuaries must then evaluate the marketplace and competitive position, including impact on customer retention, agent reaction, and potential adverse selection. These evaluations give alternative views of how much rate the actuary could take. Finally, the 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, the actuary can also stress test the planned action though scenario modeling or other methods. Session panelists will develop these concepts through the use of various examples and alternative approaches.

Moderator:
TBD
Panelists:
Guo Harrison, Associate Actuary & Actuarial Manager, Medical Mutual Insurance Society
Elizabeth Bassett DePaolo, Actuary, Travelers Insurance

INT-5 Introduction to Increased Limits Ratemaking
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In addition to general concepts of increased limits ratemaking, session panelists will discuss methods for using loss experience to develop increased limits factors. The session will also provide an overview of excess and deductible pricing.

Moderator/Panelist:
Joseph M. Palmer, Assistant Vice President, ISO

INT-6 Introduction to Reinsurance Pricing
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Session attendees will learn the fundamentals of pricing reinsurance contracts. The session includes an overview of the basic types of reinsurance a pricing actuary will encounter, including quota share, excess of loss, and catastrophe covers. Using practical examples, panelists will discuss the different approaches used in pricing each type of contract, and the data and assumptions required to price these contracts. Also emphasized will be qualitative factors and negotiating strategies that often enter into reinsurance pricing.

Moderator/Panelist:
Nolan E. Asch, Principal, ISO

INT-7 Introduction to Profit Provision Calculations
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Learn alternative approaches to calculating the profit provision component of indicated premium and understand the different approaches in this survey session. After establishing basic definitions and concepts, panelists will examine the different contexts in which actuaries perform profit provision calculations. Further discussions will touch on why different methods are used in rate filings for different states and why still other methods might be used for deriving internal company indications. Panelists will show some simple examples and offer their observations on the sensitivity of results to relevant input parameters. In keeping with the introductory nature of the session, no advanced topics will be discussed.

Moderator:
John J. Winkleman, Jr., Vice President & Actuary, AIPSO
Panelists:
Ira Robbin, Senior Pricing Actuary, PartnerRe US

INT-8 Basic Techniques for Workers Compensation
Coverages, exposure bases, and databases are the focus of this session on the basics of workers compensation ratemaking. The panel will review the essential components of a typical rate filing from the perspectives of NCCI, other bureaus, and from the view of companies in loss cost jurisdictions.

Moderator:
Andrew J. Doll, Chief Actuary, Winterthur North America
Panelists:
Jay A. Rosen, Regional Actuary, National Council on Compensation Insurance, Inc.

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Data Management & Emerging Technologies Topics

DATA/TECH-1 Data Mining in the Property/Casualty Insurance Industry
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In recent years, data mining techniques have been increasingly applied within the property/casualty insurance industry to such areas as pricing, underwriting, marketing, and claim management. This session will provide an overview of data mining in property/casualty insurance, with specific attention given to actuarial considerations relevant to data mining in insurance. Topics to be discussed include the business and statistical backgrounds of data mining, data sources, the steps involved in a typical data mining project, model validation, and potential property/casualty applications. Several popular data mining techniques, including Neural Networks, CART, MARS, and Association Rules, will be covered in some detail.

Moderator:
Cheng-Sheng P. Wu, Director, Deloitte & Touche LLP
Panelists:
Louise A. Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining Inc.
Jim Guszcza, Manager, Deloitte & Touche LLP

DATA/TECH-2 Enterprise Data Strategies
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To compete in business, companies are depending more and more on a critical corporate asset—data. The process of acquiring and managing data is further complicated by the growing dependency on third-party data and regulations (both public and private) that govern data availability and accessibility (i.e., Sarbanes-Oxley, Gramm-Leach-Bliley, NAIC Market Conduct Annual Statement and OFAC compliance, and U.S. Patriot Act). Companies routinely develop short- and long-term strategies and plans for strategic business units, finance, and information technology, but is adequate consideration given to data strategies and plans needed to support these short- and long-term activities and are the data underlying corporate financials accurate? This session will focus on the need for companies to coordinate and integrate data activities and to formulate enterprise data strategies that are in sync with overall corporate strategies and resource plans. Discussions will include the need to identify emerging threats and opportunities to corporate data, such as data quality, data privacy, and data standards.

Moderator:
Peter Marotta, Principal, ISO
Panelists:
Gary Knoble, Vice President, The Hartford
Kim McMillon, Program Manager, ACORD
Nathan Root, Actuarial Manager, CNA

DATA/TECH-3 Data Warehousing
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Best Practices in Data Mining & Data Warehousing for Actuaries: Shifting from Data Management to Data Analysis Most actuaries today spend 80% of their time getting data aggregated vs. analyzing it. This session will review best practices in data warehousing and data mining and how actuaries can leverage these practices to remove themselves from the role of data management and focus on the real analysis. A review of emerging data mining practices and applications will also be covered.

Moderator/Panelist:
Patricia Saporito, Senior Property and Casualty Insurance Industry Consultant, NCR Corporation

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Workers Compensation Topics

WC-1 Experience Rating-
Current Challenges
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Session panelists will discuss some of the differences that exist in the workers compensation experience rating plans being used in several states. A brief overview of each plan including any recent changes will be provided. Actual plan performance will be discussed where available and a comparison of experience modifications under the various plans for several hypothetical examples will also be reviewed.

Moderator:
Anthony M. DiDonato, Regional Actuary, National Council on Compensation Insurance, Inc.
Panelists:
William J. Miller, Vice President and Actuary, ACE-USA

WC-2 Selected State Issues
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Overviews of recent pricing filings and supporting analyses in the states of New York, Pennsylvania, and Delaware will be discussed. Topics to be addressed are loss development, trend, effects of benefit levels on pricing, derivation of classification relativities, and experience rating plan performance.

Moderator:
Timothy L. Wisecarver, President, Pennsylvania & Delaware Compensation Rating Bureaus
Panelists:
Martin G. Heagen, New York Compensation Insurance Rating Board

WC-3 Current Issues
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An overview of the current state of the workers compensation line will be presented, including a review of financial results, recent trends, and a discussion of where the line might be headed.

Moderator:
Nancy R. Treitel, Vice President and Chief Actuary, Liberty Mutual Group
Panelists:
Barry Lipton, Senior Actuary, National Council on Compensation Insurance, Inc.
Juan Restrepo, External Presentation Focus Lead, National Council on Compensation Insurance, Inc.

WC-4 Terrorism Ratemaking Methods for Workers Compensation
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After the passage of the Terrorism Risk Insurance Act of 2002 (TRIA), NCCI filed terrorism provisions for workers compensation on behalf of its membership in 36 states. NCCI's filing relied heavily on modeling. Panelists will discuss the NCCI methodology as well as other alternatives to pricing for terrorism. Panelists will consider the pros and cons of alternative exposure bases such as the number of employees or standard premium, as well as how a company might vary prices to reflect an account's terrorism risk factors. The American Academy of Actuaries paper, "Ratemaking Issues Related to TRIA," will also be discussed.

Moderator:
Jeffrey Eddinger, Senior Actuary, National Council on Compensation Insurance, Inc.
Panelists:
Mary B. Gaillard, Vice President and Associate Actuary, AIG
William J. Miller, Vice President and Actuary, ACE-USA

WC-5 Latest Developments in Retrospective Rating
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In addition to covering practical aspects of retrospective rating, the session will discuss topics such as current work related to the NCCI Retrospective Rating Plan, filing a computerized model as an alternative to the paper Table M, and having a more refined treatment of multi-year programs. Knowledge of advanced theory will not be required although a general background in retrospective rating will be assumed.

Moderator:
Gregory J. Engl, Actuary, National Council on Compensation Insurance, Inc.
Panelists:
Jill Petker, Senior Actuary, Liberty Mutual Group
Ira Robbin, Senior Pricing Actuary, PartnerRe US

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Commercial Lines Topics

COM-1 Asbestos Liabilities-
The Continuing Saga
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Increased claim filings, awards to unimpaired plaintiffs, bankruptcies, and notable insurer reserve additions are just some of the key issues that have added to the litigious environment of asbestos liabilities in the past few years. This session will discuss the latest developments in asbestos litigation and federal and state legislative reform efforts, as well as rating agency views of the situation.

Moderator/Panelist:
Jennifer L. Biggs, Principal, Tillinghast-Towers Perrin

COM-2 Emerging Risks—Internet Liability
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Internet liability has a high degree of uncertainty that creates a natural demand for coverage from customers. However, difficulties in pricing and reserving for these unique exposures have caused insurers to shy away from accepting such exposure under traditional insurance policies; many insurers are 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:
Barbara A. Ewing, Vice President e-Business Solutions, Zurich North America Financial Enterprises

COM-3 Captive Formation—When is it Feasible?
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 learn 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:
Marc-Andre Lefebvre, FCAS, Royal and Sun Alliance
Panelists:
Charles R. Woodman, Senior Vice President-Risk Finance, Marsh USA Inc.

COM-4 Product Development
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In a role outside of the traditional pricing and loss reserving functions, an actuary can make a substantial contribution to product development. This session is designed to illustrate applications in personal and commercial lines.

Moderator/Panelist:
Beth E. Fitzgerald, Assistant Vice President, ISO
Panelist:
David W. McLaughry, Senior Actuary and Product Manager, Farmers Insurance Group

COM-5 Considerations for Small Business Owners Policies
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Polices 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. Insurers are examining the fundamentals of underwriting small business risks and moving towards a more efficient approach to underwriting these risks. The concept of scoring finds application in more and more industries and certainly in the property/casualty insurance business. This panel will focus on those fundamentals as well as various approaches modeling the use of credit scores and other available risk characteristics.

Moderator/Panelist:
Beth E. Fitzgerald, Assistant Vice President, ISO
Panelists:
Robert J. Walling III, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.

COM-6 Commercial Property Terrorism Exposure
In recent years, loss estimation models have become an essential pricing tool 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 types of 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 and resulting pricing considerations for perhaps the most vulnerable line of business, namely commercial property. The discussion will cover the two main attack categories: conventional and nuclear/biological/chemical. The session will conclude with a summary of the Federal Backstop Program and its impact on pricing.

Moderator:
George Burger, Assistant Vice President, ISO
Panelists:
David A. Lalonde, Senior Vice President, Applied Insurance Research

COM-7 Whose Line Is It Anyway?
Multi-Peril Crop and Travel Insurance
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Few actuaries get the opportunity for exposure to two unique insurance products: multi-peril crop and travel insurance. While the ratemaking method for each of these two lines addresses elements not common to other property/casualty coverages, all actuaries can learn from the approaches used to overcome these distinctive challenges. Actuaries can also 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 travel insurance.

Moderator:
Klayton N. Southwood, Principal and Consulting Actuary, EPIC Consulting, LLC
Panelists:
Joseph D. Tritz, Actuary, Travelguard International
Thomas Worth, Research and Development, Risk Management Agency-U.S. Department of Agriculture

COM-8 Surety- Insurance or Assurance?
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Surety bonds have been in the news more and more since the collapse of Enron and the bankruptcy of Kmart. Various unique ratemaking considerations associated with surety will be the focus of this panel. Discussion will include contract surety and commercial surety exposures, individual risk considerations, and key features of the three-party surety bond. The panel will talk about unique cash flows associated with performance bond claims, reinsurance issues unique to surety, and how surety bonds became famous as part of the Enron situation.

Moderator/Panelist:
Gary E. Shook, Senior Vice President and Chief Actuary, Zurich North America Commercial Business Group

COM-9 Construction Defect Claims and Contractors General Liability
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Construction Defect Claims and Contractors General Liability. It's a hard market for contractors general liability. Few insurance companies are offering coverage and coverage is restricted. Much of the concern stems from fears of construction defect losses. Many contractors and managing general agents are considering self-insurance. This session will discuss construction defect claims, including important legal decisions, statutes of limitations, exclusionary endorsements, reform legislation, and trends. We will discuss the treatment of construction defect claims in pricing contractors general liability insurance. In addition, we will discuss the transition of mold claims from property policies to contractors general liability policies.

Moderator:
Ronald T. Kozlowski, Consulting Actuary, Tillinghast-Towers Perrin
Panelists:
Gary Grasman, Assistant Vice President, ISO
Kurt D. Hines, Vice President Business Development, Zurich North America

COM-10 Medical Professional Liability Ratemaking
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The General Session will have addressed the roots of the current crisis. This line has been subject to cycles in claims inflation, reserving and pricing. This panel will address how ratemaking techniques have tried to adapt to these cycles. Potential issues for discussion include: Will we be able to determine more rapidly than in the past if the rate of claims inflation starts to moderate? How can we measure the impact of the various tort reform measures? Have changes in the practice of medicine changed how actuaries approach ratemaking.

Moderator:
Leon R. Gottlieb, Principal, Mercer Oliver Wyman Actuarial Consulting
Panelists:
Kenneth Quintilian, Assistant Vice President and Chief Actuary, Medical Liability Mutual Insurance Company
Christopher Tait, Principal and Consulting Actuary, Milliman USA
Heather E. Yow, Vice President & Actuary, Darwin Professional Underwriters, Inc.

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Personal Lines Topics

PL-1 Predictive Power of External Data in Pricing: Credit and Beyond
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Using external data can often improve the ratemaking process. It allows a more accurate segmentation of risks and speeds up the quotation process by reducing the amount of information that has to be requested at the point of sale. Although now relatively common, using consumer credit information is one such example of the predictive power of external data.

Session panelists will present an overview of an industry-sponsored study of credit-based insurance scores. Panelists will also discuss the types of external data used for pricing personal lines products in various international markets, including geodemographic, geophysical, vehicle, and banking data. The relative predictive power of different types of external data, including example output from real GLM studies, will be examined.

Moderator:
Klayton N. Southwood, Principal and Consulting Actuary, EPIC Consulting, LLC
Panelists:
Duncan Anderson, Partner, Watson Wyatt, LLP
Richard A. Smith, Principal and Consulting Actuary, EPIC Consulting, LLC

PL-2 Alternatives to Credit Scoring in Insurance
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Credit scoring has been one of the insurance industry's most successful innovations in the past decade. Many agree that credit is a powerful and meaningful predictor of insurance losses. However, the use of credit scoring in insurance has been strongly criticized by regulators and consumer advocates. Furthermore, the now widespread use of credit scoring has blunted the competitive advantage it has traditionally offered insurers. And so insurers are in search of ways to enhance or even replace the credit scores woven into their underwriting and rating strategies. This talk will use the data mining paradigm to describe a more general concept of an insurance "score," and will discuss how traditional credit scores are a special case of this more general concept. Panelists will discuss possible data sources available to build non-credit or mixed credit/non-credit scoring models, the uses of such models, and the advantages these models have over traditional insurance scores. The discussion will conclude with ways in which insurance scoring is different from, yet complementary to, GLM-based insurance rating projects.

Moderator:
James B. Rowland, Senior Line Manager, Allstate Insurance Company
Panelists:
James C. Guszcza, Manager, Deloitte & Touche LLP
Cheng-Sheng P. Wu, Director, Deloitte & Touche LLP

PL-3 The Matrix Inverted—A Primer in GLM Theory and Practical Issues
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The use of generalized linear models (GLMs) is gaining momentum within the North American property/casualty insurance industry and is starting to replace traditional one-way actuarial analyses. Previous CAS presentations have given an overview of GLMs and discussed applications in areas such as ratemaking, underwriting, and retention analysis. This session is designed to provide the actuary with a primer in the theory of GLMs—a practitioner's "need to know." The session will begin with an explanation on the formularization of GLMs—understanding the linear predictor, link function, offset term, error term, etc. Building upon this foundation, the session will discuss typical model forms, the effect of different assumptions and also model diagnostics. The session will then move beyond theory to discuss practical modeling issues such as data preparation and factor categorization, as well as implementation issues such as comparison to existing rates and minimizing market disruptions.

Moderator/Panelist:
Claudine H. Modlin, Senior Consultant, Watson Wyatt Insurance & Financial Services
Panelist:
Roosevelt C. Mosley, Consulting Actuary, Pinnacle Actuarial Resources, Inc.

PL-4 Incorporating Catastrophe Models in Property Ratemaking
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Discover how the output from simulation models is used in property insurance lines. The treatment of hurricanes and earthquakes will be reviewed from the perspectives of advisory organizations and companies with independent rate filings. The panelists will present applications at both the statewide and the territorial levels.

Moderator/Panelist:
Robert J. Curry, Assistant Vice President, ISO
Panelist:
David R. Border, Senior Actuary, Allstate Insurance Company

PL-5 Update on SUV Auto Insurance Costs/Other Make/Model Symbol Issues
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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:
Steven G. Lehmann, Principal and Consulting Actuary, Pinnacle Actuarial Resources
Panelist:
Kim Hazelbaker, Senior Vice President, Highway Loss Data Institute
Henning Norup, Vice President, Information Research and Analysis Insurance Bureau of Canada

PL-6 Identity Theft
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This session will define identity theft and show how a new insurance product is produced. Further, the sources and the information reviewed in order to define the product and price will be discussed. In addition, the current state of the product will be reviewed along with a review in retrospect of the pricing assumptions initially made.

Moderator:
John J. Winkleman Jr., Assistant Vice President, AIPSO
Panelists:
Charles P. Orlowicz, Senior Director, Corporate Product Development, American International Companies
Kimberly A. Ward, Chief Actuary, American Association of Insurance Services

PL-7 Properly Pricing the Catastrophe Exposure
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Focusing on non-hurricane and non-earthquake catastrophes, session panelists will tackle the problem of how to account for 1 in 300-year and 1 in 500-year events. Panelists will analyze problems and come up with potential solutions.

Moderator:
David R. Chernick, Senior Consultant, Actuarial Group, Inc.
Panelists:
Michael Devine, Associate Actuary, State Farm Insurance Companies
Sara P. Drexler, Associate Actuary, Allstate Insurance

PL-8 Catastrophe Load? Risk Load? Who's Carrying the Load?
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Who is carrying the load? Actuarial and modeling practices exist that determine the catastrophe load and that "appropriately" spread that catastrophe load. But what about risk loads and reinsurer margins? Who's paying for these? Explicit recognition of these costs hasn't been as widely recognized or accepted. Expert panelists will demonstrate techniques for developing estimated measures of these costs, including these costs in the rates. Their discussion will explore the issue of "risk load" from several perspectives: actuarial, economic/market, and regulatory views. Panelists will also explore some of the implications for the marketplace when these perspectives differ.

Moderator:
Kathy A. Olcese, Senior Actuary, Allstate Insurance Company
Panelists:
David Appel, Principal and Director, Milliman USA
Rade T. Musulin, Vice President-Operations, Public Affairs & Reinsurance, Florida Farm Bureau Insurance Companies

PL-9 Geographical Spatial Analysis in Personal Lines Territorial Ratemaking
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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 one 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 with GLMs, credibility, possible smoothing algorithms), the inclusion of geodemographic data, and taking into account the competitive situation. It will also show the results of a real analysis undertaken using this method in a European market and will discuss practical implementation issues.

Moderator/Panelist:
Graham Masters, Director of Global Pricing, Winterthur North America
Panelist:
Duncan Anderson, Partner, Watson Wyatt LLC

PL-10 How to Determine Territory Boundaries
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Geographical risk classifications (i.e., fire protection classes, rating territories and zones) have traditionally been defined in the U.S. based on physical surveys, engineering studies and data analyses. The panel will discuss a sophisticated, yet simple to understand and explain, statistical technique for determining accurate geographical risk classification boundaries.

The panel will demonstrate:

1. how to define geographical boundaries using actual analyses previously conducted on auto and homeowners data from Texas and North Carolina;
2. the determination of the optimum number of territories within a state;
3. the year-to-year stability and the predictive power of the indicated geographical boundaries;
4. the application of credibility factors to loss indices "in the neighborhood";
5. the accuracy of the geographical boundaries when insurance data are not available, or too thin, thereby requiring the analysis be applied to publicly available, non-claims data; and
6. how to use the technique to eliminate the need and expense of fire protection classes.

Moderator/Panelist:
Michael J. Miller, Principal and Consulting Actuary, EPIC Consulting, LLC
Erik L. Donahue, Senior Assistant Actuary, State Farm Fire & Casualty Compan

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Risk, Return, and
Capital Management Topics

RCM-1 Risk and Return Considerations in Ratemaking
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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? Advocates of various methodologies will address these and other such challenges in this session devoted to risk and return considerations in ratemaking. The panel consists of contributors to the book, Actuarial Considerations Regarding Risk and Return in Property-Casualty Insurance Pricing.

Moderator:
Charles L. McClenahan, Managing Director, Mercer Oliver Wyman, Inc.
Panelist:
Russell Bingham, The Hartford

RCM-2 What Are We Debating About Now? (Panel Discussion)
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As a follow up on last year's debate on the essential elements of analytical models used to gauge and measure risk and return, this session will pay particular attention to the corresponding actuarial considerations for reflecting fair rates of return in ratemaking.

Issues discussed will include risk metrics, capital allocation/non-allocation, parameter risk, correlation, and a host of other considerations. Rest assured, there will be no consensus. This session, as last year's, will be a fun one geared toward Socratic dialogue (debated and maybe heated arguments) among the panelists and with the audience. Don't miss this one!

Moderator
Louise A. Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining
Panelists:
Russell Bingham, The Hartford
Richard Derrig, Senior Vice President, Opal Consulting LLC
Glenn G. Meyers, Chief of Actuarial Research & Assistant Vice President, ISO

RCM-3 The Insured's Perspective-
Risk Retention as an Investment Decision
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This session will focus on the commercial insurance buyer and their decisions on risk financing as a function of the cost of risk financing (e.g., rates) and corresponding appetite for retaining risk. In particular, the emphasis will consider the goal of creating and enhancing shareholder value in the insurance decision process, given the hard commercial insurance market.

An insurance broker, consultant, and risk manager will describe several case studies in methodologies attempting 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 W. Wolf, Principal, Mercer Oliver Wyman, Inc.
Panelists:
Mark D. Ames, Principal, Mercer Oliver Wyman, Inc.
Scott M. Sanderson, Marsh & McLennan Companies

RCM-4 Cost of Financing Insurance—The Next Phase
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Combining the cost of capital, reinsurance, and options on a catastrophe index is the cost of financing an insurance company. This analysis updates previous approaches for allocating the cost of financing back to the individual underwriting divisions and discusses further developments on the topic. 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," is available.

Moderator/Panelist:
Glenn G. Meyers, Chief of Actuarial Research and Assistant Vice President, ISO

RCM-5 Ratemaking Research Working Party
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In continuing efforts of the CAS Research and Development Committees to optimize research efforts commensurate with the CAS's Centennial Goal, this session is intended to develop another research working party with a focus on ratemaking issues. Potential considerations include: correlation of risks between lines of business, GLM and classification ratemaking, and allocating the cost of capital to line of business.

Those interested in being a member of a developing research working party or who would like to express corresponding ideas and views should attend this session.

Moderator/Panelist:
Stewart Gleason, Senior Vice President, Guy Carpenter & Company, Inc.

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Regulatory Topics

REG-1 The Actuary as an Expert Witness
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Session panelists will address basic issues behind data management, issues of 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.

Moderator:
Charles L. McClenahan , Managing Director, Mercer Oliver Wyman, Inc.
Panelists:
Michael J. Miller FCAS, Principal & Consulting Actuary, EPIC Consulting, LLC
Martin M. Simons, Public Actuarial Consultant, Martin M. Simons - Public Actuarial Consultant

REG-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. Auto insurance rates and availability in urban areas will be featured prominently. Credit scoring, deregulation, and other issues will also be discussed.

Moderator:
Randolph L. Rohrbaugh, Deputy Commissioner, Pennsylvania Insurance Department
Panelists:
Cara M. Blank , Property Casualty Actuary, Massachusetts Division of Insurance
Anne E. Kelly, Chief Casualty Actuary, New York State Insurance Department
John R. Pedrick, Chief Actuary, Ohio Department of Insurance

REG-3 What Makes a Good Rate Filing?
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What makes a good rate filing? It depends on whom 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:
Theodore J. Zubulake, Director, Mercer Oliver Wyman, Inc.
Panelists:
Timothy L. Wisecarver. President, Pennsylavnia & Delaware Compensation Rating Bureaus
Charles A. Romberger, Actuarial Supervisor, Pennsylvania Insurance Department
Debra R. Stein, Senior Consultant, Mercer Oliver Wyman, Inc.

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Reinsurance Topics

REI-1 Experience and Exposure Rating in Excess of Loss Reinsurance
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This session will build on the reinsurance topics presented in the introductory track. Focus will be on the use of experience and exposure rating in excess of loss reinsurance contracts as well as the reconciliation between the two. Distinction will be made between property and liability exposures. Panelists will also discuss the pricing of more advanced contract features such as annual aggregate deductibles and reinstatement provisions in these contracts.

Moderator:
Michael E. Angelina, Consulting Actuary, Tillinghast_Towers Perrin
Panelists:
Elliot R. Burn, Senior Vice President, Guy Carpenter & Company

REI-2 Catastrophe Modeling and Reinsurance Pricing- Old and New Challenges
As catastrophe models have become more advanced and accepted throughout the property/casualty industry, they have become invaluable in the pricing and structuring of catastrophe reinsurance agreements. At the same time, the introduction of new and more difficult man-made exposures into the equation has presented additional hurdles to pricing these contracts. This session will provide an overview of catastrophe models, their evolution, and state of the art. Panelists will also look at how these models are applied in pricing both natural and man-made exposures in reinsurance contracts.

Moderator/Panelist:
David A. Lalonde, Senior Vice President, Applied Insurance Research
Panelists:
Jonathan B. Hayes, Senior Vice President, Guy Carpenter & Company

REI-3 Finite Reinsurance—Where's the Risk?
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While the accounting treatment of finite reinsurance has long been subject to scrutiny, the recent increase in attention towards all financial reporting has elevated this even further. This session will provide an overview of what the accounting issues are and just why finite reinsurance transactions are receiving such attention. Panelists will provide both the auditor and finite reinsurer's perspectives in assessing these transactions for appropriate accounting treatment.

Moderator:
Brian D. Brown, Consulting Actuary, Milliman USA
Panelists:
Robert S. Miccolis, Director, Deloitte & Touche LLP
David Molyneux, Vice President, PartnerRe New Solutions

REI-4 Workers Compensation—Excess of Loss Pricing
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Workers compensation is a unique line of insurance that requires the actuary to consider factors ranging from medical inflation to life expectancy to changes in statutory coverage provisions. Because of the leveraged nature of excess of loss reinsurance, the challenges facing the reinsurance pricing actuary can be even more pointed. In this session panelists will discuss some of these challenges in detail, as well as methods and considerations in the pricing of excess of loss reinsurance for workers compensation.

Moderator/Panelists:
Gary Blumsohn, Arch Reinsurance Company
Anthony Iafrate, Vice President, General Re

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Specialty Topics

SPE-1 Professionalism in Ratemaking—Do I Really Want to do That?
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. NEW 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:
Thomas J. DeFalco, Vice President, NJM Insurance Group
Panelist:
Steven D. Armstrong, Senior Actuary, Allstate Insurance Company
Therese A. Klodnicki, Principal and Consulting Actuary, Advanced Analystics

SPE-2 Basic Concepts in Credibility
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Credibility is one of the cornerstones of the ratemaking process. In this session, credibility will be reviewed in the context of ratemaking concepts. Both classical and Bühlmann models will be described. The session will include a review of variables affecting credibility, credibility formulas, and practical techniques for applying and increasing credibility.

Moderator/Panelist:
Paul J. Brehm, Vice President and Chief Actuarial Officer, St. Paul Companies, Inc.

SPE-3 Policyholder Retention and Its Impact on Pricing
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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..

Moderator:
Margaret A. Brinkman, Actuary, Allstate Research & Planning Center
Panelists:
Claudine H. Modlin, Senior Consultant, Watson Wyatt Insurance & Financial Services
Robert J. Walling, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.

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Ratemaking Research Papers
A number of papers have been developed in answer to a call by the Casualty Actuarial Society's Research Committee on Ratemaking. Selected papers will be presented and discussed by their authors during sessions at the 2004 Ratemaking Seminar. The completed papers are distributed in the 2004 Winter Edition of the CAS Forum.

CALL-1
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Richard Derrig and Elisha Orr, Equity Risk Premium: Expectations Great and Small (.pdf)

Frank Schnapp, The Cost of Conditional Risk Financing (.pdf)

CALL-2
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John Major, Gradients of Risk Measures: Theory and Application to Catastrophe Risk Management and Reinsurance Pricing (.pdf)

Benjamin Turner, Credible Risk Classification (Word document)

CALL-3
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Cheng-Sheng Peter Wu and John Lucker, A View Inside the "Black Box": A Review and Analysis of Personal Lines Insurance Credit Scoring Models Filed in the State of Virginia (.pdf)