The snowflakes next to the session title indicate the level of difficulty for each session.
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No prior knowledge of the subject matter is assumed.
Little or no technical content. |
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General knowledge of the subject matter is assumed.
Moderate technical content. |
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Working knowledge of the subject matter is assumed.
Moderate to highly technical content. |
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Extensive technical/theoretical knowledge of the subject matter is assumed.
Highly technical content. |
Core Sessions
INT-1: Basic Techniques for an Overall Indication
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:
Brian M. Donlan, Pricing Manager, Allstate Insurance Companies
Panelists:
Gavin X. Lienemann, Actuarial Analyst, State Farm Insurance Companies
INT-2: Introduction to Ratemaking Relativities
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:
Theresa Ann Turnacioglu, Manager and Associate Actuary, ISO
Panelists:
Brian M. Donlan, Pricing Manager, Allstate Insurance Companies
INT-3: Introduction to Profit Provision Calculations
This session will examine the various methods that actuaries use to calculate the profit provision component of indicated premium. In this regard, the focus will be on understanding the key concepts that underlie each method. The session will also examine the true nature of the pricing actuary's role in a competitive market. The session will explore:
- How the choice of a model affects the selection of parameters, such as the interest rate.
- Why there are different definitions of Return on Equity (ROE).
- Which methods are more appropriate for rate filings and which are better suited for internal company profit analysis.
- How methods and techniques facilitate efficient reaction to competitive markets.
Some simple examples will be shown and observations will also be made 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/Panelist:
Chet Szczepanski FCAS MAAA, Vice President & Chief Actuary, Donegal Mutual Insurance Group
INT-4: Introduction to Increased Limits Ratemaking
This session will present an overview of increased limits ratemaking. Initially, the session will cover general concepts, such as calculating Limited Average Severities, and practical problems with developing Increased Limits Factors (ILFs) from a distribution of loss data. The session will also provide an overview of Excess and Deductible pricing. Finally, the session will discuss common approaches for calculating ILFs.
Moderator/Panelist:
Joseph M. Palmer, Assistant Vice President, ISO
Data/Technology Sessions
Data-1: The Actuary and the Data Manager
Session panelists will address basic issues behind data management including privacy and confidentiality, methods for controlling data and the need to be concerned about data quality.
Moderator:
Arthur R. Cadorine, Assistant Vice President, ISO
Panelists:
Peter Marotta, Principal, ISO
Bruce A. Tollefson - Minnesota Workers Compensation Rating Bureau
Christine Siekierski, Vice President of Operations, Wisconsin Compensation Rating Bureau
Data-2: Information Stored, Mined and Utilized
Warehousing data can prove to be an expensive prospect and it may be difficult to convince management of its benefits. One approach is to develop a database using traditional methods and data warehousing principles. As the utility of the increased availability of information becomes apparent, increased investment in the project may become less difficult to justify. This session will illustrate the creation of databases that evolve into useful warehouses.
Moderator:
Christopher S. Carlson, Consultant, Pinnacle Actuarial Resources
Panelists:
John A. Stenmark, Vice President and Actuary, Southern Farm Bureau Casualty Insurance Company
Patricia L. Saporito, Senior Insurance Industry Consultant, Teradata Division of NCR Corporation
Data-3: Actuarial/Data Standards - Yesterday, Today and Tomorrow
The panelists will discuss the transition of standards or lack of standards from where they were driven initially by business needs and state regulation to now being driven by technology and financial requirements. The panelists will also speculate where the transition to standards will ultimately lead to.
Moderator:
Peter Marotta, Principal, ISO
Panelists:
Arthur R. Cadorine, Assistant Vice President, ISO
Gary W. Knoble, Hog River Consulting, Principle
Data-4: Data Call Papers
Moderator: Virginia R. Prevosto, Principal, Consulting, ISO
Taming Text: An Introduction to Text Mining
One of the newest areas of data mining is text mining. Text mining is used to extract information from free form text data such as that in claim description fields. This paper introduces the methods used to do text mining and applies the method to a simple example. The paper will describe the methods used to parse data into vectors of terms for analysis. It will then show how information extracted from the vectorized data can be used to create new features for use in analysis. Focus will be placed on the method of clustering for finding patterns in unstructured text information. The paper shows how feature variables can be created from unstructured text information and used for prediction. Text mining has significant potential to expand the amount of information that is available to insurance analysts for exploring and modeling data. Free software that can be used to perform some of the analyses described in this paper is included in the appendix.
Author: Louise Francis, Consulting Principal, Francis Analytical & Actuarial Mining, Inc.
Presenter: Louise Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining, Inc.
Distinguishing the Forest from the Tree
In recent years a number of “data mining” approaches for modeling data containing nonlinear and other complex dependencies have appeared in the literature. One of the key data mining techniques is decision trees, also referred to as classification and regression trees or CART (Breiman et al, 1993). That method results in relatively easy to apply decision rules that partition data and model many of the complexities in insurance data. In recent years considerable effort has been expended to improve the quality of the fit of regression trees. These new methods are based on ensembles or networks of trees and carry names like TREENET and Random Forest. Viaene et al (2002) compared several data mining procedures, including tree methods and logistic regression, for prediction accuracy on a small fixed data set of fraud indicators or “red flags.” They found simple logistic regression did as well at predicting expert opinion as the more sophisticated procedures. In this paper we will introduce some available regression tree approaches and explain how they are used to model nonlinear dependencies in insurance claim data. We investigate the relative performance of several software products in predicting the key claim variables for the decision to investigate for excessive and/or fraudulent practices, and the expectation of favorable results from the investigation, in a large claim database. Among the software programs we will investigate are CART, S-PLUS, TREENET, Random Forest and Insightful Miner Tree procedures. The data used for this analysis are the approximately 500,000 auto injury claims reported to the Detailed Claim Database (DCD) of the Automobile Insurers Bureau of Massachusetts from accident years 1995 through 1997. The decision to order an independent medical examination or a special investigation for fraud, and the favorable outcomes of such decisions, are the modeling targets. We find that the methods all provide some predictive value or lift from the available DCD variables with significant differences among the methods and the four targets. All modeling outcomes are compared to logistic regression as in Viaene et al. with some model/software combinations doing significantly better than the logistic model.
Authors: Richard A. Derrig, President, Opal Consulting LLC
Louise Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining, Inc.
Presenters: Richard A. Derrig, President, Opal Consulting LLC
Louise Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining, Inc.
Variable Reduction for Predictive Modeling with Clustering
Thousands of variables are contained in insurance data warehouses. In addition, external sources of information could be attached to the data contained in data warehouses. When actuaries build a predictive model, they are confronted with redundant variables which reduce the model efficiency (time to develop the model, interpretation of the results, and inflate variance of the estimates). For these reasons, there is a need for a method to reduce the number of variables to input in the predictive model. We have used proc varclus (SAS/STAT®) to find clusters of variables defined at a geographical level and attached to a database of automobile policies. The procedure finds cluster of variables which are correlated between themselves and not correlated with variables in other clusters. Using business knowledge and 1-R2ratio, cluster representatives can be selected, thus reducing the number of variables. Then, the cluster representatives are input in the predictive model. The procedure used in the paper for variable clustering quickly reduces a set of numeric variables to a manageable reduced set of variable clusters.
Authors: Kevin F. Lonergan, Regional Vice President, St. Paul Travelers, Inc.
Robert Sanche, Consultant, Tillinghast Towers Perrin
Presenters: Robert Sanche, Consultant, Tillinghast Towers Perrin
Workers Compensation Sessions
WC-1: Workers Compensation Ratemaking-An Overview
The panel will review the essential components of a typical rate filing from the perspective of NCCI, other bureaus, and from the view of companies in loss cost jurisdictions. The discussion will highlight coverages, exposure bases, and data sources used for workers compensation ratemaking.
Moderator/Panelist:
Jay Rosen, Director and Actuary, National Council on Compensation Insurance, Inc.
Panelist:
Kevin Anderson, Actuarial Services Manager, Winterthur North America
WC-2: Workers Compensation-Selected State Issues
The panel will present key issues in the states of California and Texas. These states, which were among the highest workers' compensation cost states in the country, have both recently experienced comprehensive reforms. For California, the presentation will include a discussion as to how these reforms are impacting claim and insurance market trends. For Texas, the presentation will include an update on the workers compensation health care network certification process, the transition from the Texas Workers' Compensation Commission to the Texas Department of Insurance, and rules resulting from the 2005 legislative reform.
Moderator/Panelist:
David M. Bellusci, Senior Vice President and Chief Actuary, Workers Compensation Insurance Rating Bureau of California
Panelist:
Jaelene Fayhee, Vice President, Public Affairs, Texas Mutual Insurance Company
WC-3: Workers Compensation-State of the Market
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/Panelist:
Jeff Eddinger, Practice Leader and Senior Actuary, National Council on Compensation Insurance, Inc.
Panelist:
Jennifer L. Tomilin, Senior Vice President, Zurich North America
WC-4: Perspectives on Pricing Large Accounts
This session will focus on some aspects of the design and implementation of large risk insurance programs in the marketplace. Hazard groups are one way to distinguish individual risks. The panel will discuss upcoming changes to NCCI's hazard group mapping. The main emphasis will be on the methodology, though some comparisons of the old and new hazard groups will also be provided. In addition, basic principles and recent developments related to actual programs, including the trends in the types of plans written, risk appetites of large insureds, and use of alternative market mechanisms will also be discussed.
Moderator/Panelist:
Greg Engl, PhD, Director and Actuary, National Council on Compensation Insurance, Inc.
Panelist:
Brian Ingle, Vice President, Converium Reinsurance (North America), Inc.
Commercial Lines Sessions
COM-1: Emerging and Latent Risks for Commercial Liability
Latent claims activity continues to impact insurer balance sheets. This session will explore several major areas of continuing claim litigation; Construction Defects, and Asbestos and Environmental.
With impacts that can extend decades after policies are written, insurers must exercise caution in providing and pricing coverages. Construction Defect claims litigation has continued to develop in California and has spread to other states, as well as affecting a widening circle of classes. The session will focus on the background of Construction Defect claims, as well as current trends, developments, and prospects for the future. Also discussed will be current developments in Asbestos including an historical perspective, impacts on insurers, and current legislative initiatives. The panel will also touch on the latest developments in Environmental and Silicosis.
Moderator/Panelist:
Ronald T. Kozlowski, Consulting Actuary, Tillinghast Towers Perrin
Panelists:
Steven C. Lin, Consulting Actuary, Tillinghast Towers Perrin
COM-2: Product Development: Practical Considerations from Both Commercial and Personal Lines Perspectives
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.
With respect to personal lines, the insurance landscape is littered with examples of carriers who have made enthusiastic entries into new markets (states, lines of business, distribution channels) only to find higher than expected costs and a far longer payback period than initially anticipated. This portion of this session will focus on lessons learned from successful and unsuccessful entries into new markets and ways to lessen the risks inherent in such forays. Implications for pricing, product design, underwriting, claims, and marketing will be discussed. For commercial lines, as new insurance coverages are developed, the actuary must determine pricing without the reliance on traditional insurance data. This portion of the session will discuss the process of developing pricing for non-traditional insurance coverage’s.
Moderator:
Klayton N. Southwood, Consulting Actuary, Towers Perrin
Panelists:
Beth E. Fitzgerald, Assistant Vice President & Actuary, ISO
Dave W. McLaughry, Assistant Vice President and Actuary, The Hartford
COM-3: Considerations for Small Business Owners Policies
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 and rating small business risks and moving towards a more efficient approach for 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 of underwriting and rating including the application of statistical modeling.
Moderator/Panelist:
Beth E. Fitzgerald, Assistant Vice President & Actuary, ISO
Panelist:
Robert J. Walling III, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.
COM-4: Pricing Programs, Excess, and Surplus Lines
The importance of alternative mechanisms to underwriting property and casualty insurance has increased as market cycles have impacted the traditional markets. This session will explore two of these mechanisms, excess and surplus lines and programs. Pricing Actuaries working in companies underwriting this business often function in close alignment with other disciplines such as underwriting and marketing. The speakers represent companies underwriting business in each of these segments. Differences in business characteristics, regulation, marketing, and types and classes of business underwritten will be discussed. Also covered will be the approaches pricing actuaries use to address the unique challenges these differences create as well as changes in these
markets over the past few years.
Moderator/Panelist:
Ronald Herrig, Vice President and Actuary, Markel Corporation
Panelists:
Michael Petrocik, Chief Actuarial Officer, Munich-American RiskPartners
COM-5: The Medical Malpractice Insurance Crisis
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:
James D. Hurley, Consulting Actuary, Towers Perrin
Panelist:
John R. Pedrick, Assistant Director, Ohio Department of Insurance
Bruce P. Williams, NORCAL Mutual Insurance Company
COM-6: Price Monitors: Survival Strategies for a Soft Market
Insurers managing operations in a changing market have come to rely increasingly on quantitative measures of price change on both the new and renewal books of business. The advent of Sarbanes-Oxley has also influenced many insurers to increase their internal controls regarding the tracking of price changes over time as an important part of reserving for recent accident years. This session will explore practical challenges and considerations in constructing and interpreting price monitors. There will also be a discussion on the implementation of price monitors, resulting benefits, pitfalls, and best practices from a company wide perspective to help practitioners in making the most of price monitoring reporting.
Moderator/Panelist:
Chris Nyce, Senior Manager, KPMG LLP
Panelist:
Brian Hughes, Senior Vice President and Chief Pricing Actuary, Arch Insurance Group
Personal Lines Sessions
PL-1: Credit Scoring Update
The use of credit in insurance continues to be a topic that is hotly debated by insurers, consumers, regulators, and other federal and state government officials. This session will update attendees on insurer's use of credit as well as the political and regulatory issues surrounding credit. Topics to be discussed will include different ways insurers are using credit, state regulatory and legislative actions, correlation/disproportionate impact/disparate impact, and the Federal Trade Commission Study.
Moderator:
Mary T. Hosford, Actuary, Liberty Mutual Group
Panelists:
Richard A. Smith, Consultant, Towers Perrin
John B. Wilson, Assistant Vice President, Analytivs, ChoicePoint
PL-2: An Introduction to GLM Theory
The use of generalized linear models (GLMs) has taken the North American property/casualty insurance industry by storm, in many cases replacing traditional one-way actuarial analyses. This session is designed to provide the actuary with an overview of the statistical theory of GLMs and give illustrative examples and intuitive explanations that clarify the theory. The session will begin with an explanation on the formularization of GLMs-understanding the linear predictor, link function, offset term, error term, and the like. Building upon this foundation, the session will discuss typical model forms, the effect of different assumptions, model diagnostics and the use of interaction variables. (Practical applications of GLM theory will be covered in another panel session.)
Moderator/Panelist:
Claudine H. Modlin, Senior Consultant, Watson Wyatt Worldwide
Panelist:
Serhat Guven, Consultant, EMB America LLC
PL-3: GLM: Practical Applications
Predictive modeling, including methods such as Generalized Linear Models, has become extremely popular with actuaries and researchers in insurance companies. This session will begin with an overview of common insurance applications. The presenters will then provide practical insights into data preparation/manipulation, challenges with factor selection and model interpretation, and issues surrounding implementation.
Moderator:
Roosevelt C. Mosley, Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Panelists:
Claudine H. Modlin, Senior Consultant, Watson Wyatt Worldwide
Richard A. Smith, Consultant, Towers Perrin
PL-4: State-Specific Issues in Personal Lines
Personal lines issues in New Jersey and the Gulf Coast are the subjects of this session. Panelists will discuss the New Jersey private passenger market, which has had significant reforms over the last several years. Panelists will also discuss lessons from the Gulf coast hurricanes in 2005 regarding the evaluation of catastrophe risk, and the impact on insurance markets in affected areas.
Moderator:
Katharine Barnes, Consulting Actuary, Towers Perrin
Panelists:
Bernard M. Flynn, Senior Vice President and General Counsel, NJM Insurance Group
David A. Lalonde, Senior Vice President, AIR Worldwide Corporation
PL- 5: Update on SUV Auto Insurance Costs/Other Make/Model Symbol Issues
The increase in size and types of vehicles on the road today coupled with the market leaders' desire for greater granularity in price points has resulted in a renewed focus in the necessity to price individual vehicles accurately - for both liability and physical damage coverages. Recent experience also points to significantly higher loss costs for performance versions of some makes and models. What can be done in the ratemaking process to adequately account for these differences?
The panel will present a discussion of the current pricing issues related to rating individual makes and models of automobiles including a discussion of the various "symbol rating" programs in use by insurers in the US.
Moderator/Panelist:
LeRoy Boison, Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Panelist:
Kim Hazelbaker, Senior Vice President, Highway Loss Data Institute
PL-6: Implementing a New Rating Structure Based on Predictive Modeling
Predictive modeling using multi-variate analysis is a relatively new hot topic for the P&C industry in the U.S. Although some companies have already gone down this road, there are a number of small to midsize companies that are just starting. As assistant vice president of property and casualty pricing for a company that has recently developed and put into production a new rating structure based on predictive modeling, this session's panelist will share his company's experiences in developing and implementing this large project. Specifically, the time and resources that were required, data issues, blending modeling into the existing rate review process, systems issues, testing and moving to a full production environment for subsequent states.
Moderator:
Wayne D. Holdredge, Principal, Towers Perrin
Panelist:
Donald L. Closter, Assistant Vice President - Property and Casualty Pricing, Horace Mann Companies
PL-7: Putting Your Company on the Map: Determination of Statistically Indicated Territory Boundaries
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. This session will discuss the application of spatial smoothing techniques to situations where the underlying claims experience in small geographic areas may not be fully credible.
The panel will demonstrate:
- the mechanics of spatial smoothing techniques that take into account the loss experience "in the neighborhood;"
- the determination of the optimum number of territories;
- the use of publicly available, non-claims data, when insurance loss data are not available or are too "thin;"
- actual analyses conducted on auto and homeowners data from Texas and North Carolina.
- actual results of spatial smoothing techniques from various world markets, including a discussion of the volume of data required.
Moderator/Panelist:
Klayton N. Southwood, Consulting Actuary, Towers Perrin
Panelist:
Duncan Anderson, Principal, Watson Wyatt Worldwide
Risk and Capital Management Sessions
RCM-1: Ratemaking and Economic Profit Loads: An Overview of Modeling Approaches
This session will expand beyond the "introduction to profit loads" in the introductory track which examined alternative methods used in various regulatory domains that actuaries are required to use in calculating the profit provision components of indicated premium. The panelists will discuss and compare discounted cash flow, internal rate of return, and accounting models as tools to consider "risk and return" with respect to the cost of capital, for the purposes of reflecting it in the profit and contingency load in ratemaking.
Moderator:
Louise Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining, Inc.
Panelist:
Richard Derrig, President, Opal Consulting LLC
RCM-2: Town Hall Session: Logic, Fallacies, and Paradoxes in Risk and Return Analysis in Ratemaking: Town Hall Meeting
Among the research forums including those on the Committee on the theory of Risk, have produced numerous thought-provoking issues and considerations in determining profitability benchmarks within the property/casualty insurance products. Issues discussed will include, but not be limited to, the best use of risk metrics, comparing and contrasting the different philosophies of “capital appropriation to line” techniques (capital allocation, capital sharing, etc.), how to best address correlation and parameter risk considerations, and a host of other topics. Is there a true market value to consider and how is it best measured? How is the time value of risk reflected? The session will be structured as a Socratic dialogue between the moderator, who will serve as host in the audience, the panelists, and the audience themselves.
Moderator:
Robert F. Wolf, Principal, Mercer Oliver Wyman
Panelists:
Louise Francis, Consulting Principal, Francis Analytics & Actuarial Data Mining, Inc.
Glenn G. Meyers, Chief of Actuarial Research and Assistant Vice President, ISO
David Ruhm, Portfolio Risk Manager, The Hartford Financial Services Group
RCM-3: Ratemaking: An ERM Function
ERM envisions a holistic treatment of risk - both positive and negative - across an enterprise. Ratemaking and reserving are the traditional actuarial functions. How does the ratemaking silo relate to an insurer's enterprise-wide ERM process? How is ratemaking an ERM function? The panelists will address this and many more issues regarding ERM, risk and return analysis, and the ratemaking function.
Moderator:
John Kollar, Vice President ISO
Panelist:
Russell Bingham, Director of Research and Development, The Hartford
Curtis M. Parker, Vice President and Chief Actuary, Grange Insurance Companies
RCM-4: The Economics of the Large Corporate Insurance Buyer and Value Creation
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.
Moderator:
Thomas J. Duffy, Consulting Actuary, Milliman, Inc.
Panelist:
Scott M. Sanderson, Marsh USA
Regulatory Session
REG-1: Actuary as an Expert Witness
Actuaries are often called upon to deliver expert testimony. This can be a daunting task, especially when the actuary must work closely with other hearing participants to effectively communicate technical concepts to a variety of audiences. This session will provide valuable insights on how an actuary should prepare for this set of challenges.
In addition, panelists will comment on their experiences and field questions from the audience.
Moderator:
Irene Bass, Consulting Actuary, Bass & Khury
Panelists:
Cara Blank, Property Casualty Actuary, Massachusetts Division of Insurance
Charles McClenahan, Managing Director, Mercer Oliver Wyman, Inc.
REG-2: Regulatory Roundtable Discussion
Each member of this panel of regulators will present a short overview of the rate regulatory climate and process in their state. “Hot Button” issues will be identified and discussed. A roundtable group discussion will follow, with audience participation strongly encouraged. The differences and the similarities in regulatory approach will be highlighted.
In addition, panelists will comment on their experiences and field questions from the audience.
Moderator:
Cara M. Blank, Property Casualty Actuary, Massachusetts Division of Insurance
Panelists:
Kenneth M. Creighton, Actuarial Supervisor, Pennsylvania Insurance Department
Tomasz Serbinowski, Actuary, Utah State Insurance Department
John R. Pedrick, Assistant Director, Ohio Department of Insurance
Reinsurance Sessions
REI-1: Reinsurance - State of the Market
The reinsurance market is in the midst of one of the most tumultuous eras in its history. Higher frequency of natural catastrophes and terrorist acts, evolving severe event modeling techniques, and heightened scrutiny of accounting issues relating to risk transfer are just some of the issues facing both reinsurers and ceding companies. This dynamic session will touch upon these and other topics, as well as provide insights and perspectives on the current market conditions.
Moderator:
Robert Blanco, Second Vice President, GE Insurance Solutions
Panelists:
John Aquino, Executive Vice President, Benfield Group
John Tedeschi, Managing Director, Guy Carpenter & Company
REI-2: Incorporating Reinsurance Costs and Risk Loads into Personal Lines Rates
Although much has been written on how to properly determine reinsurance rates, relatively little literature exists on how the primary insurer, once it pays that rate, should incorporate the cost of reinsurance in its rate level indication. In the first part of this session, the presenter will discuss the two basic, theoretically identical approaches of including the cost of reinsurance in the indication, review the pros and cons of each, and provide an example of the preferred approach, the "Net Cost of Reinsurance" method.
An alternative to reinsurance is the use of internal capital. However, if an insurer chooses to use internal capital, an adequate risk-adjusted return must be earned on that capital. In many instances, insurers have found it difficult to convince regulators to allow actuarially sound risk loads in property lines. This has had unintended consequences, increasing the size of residual markets and the use of expensive reinsurance. The second half of this session will examine how regulators may be able to improve the availability and affordability of property insurance by creating incentives for insurers to tap internal capital to support Homeowners writings.
Moderator:
David Appel, Principal and Director, Milliman USA
Panelists:
Eric D. Huls, Assistant Actuary, Allstate Insurance Company
Rade T. Musulin, Vice President Operations, Public Affairs, & Reinsurance, Florida Farm Bureau Insurance Companies
Special Interest Sessions
SPE-1: Policyholder Retention and Its Impact on Pricing
Policyholder retention and its effect 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, and an approach to modeling prospective retentions by market segment.
Moderator/Panelist:
Claudine Modlin, Senior Consultant, Watson Wyatt Worldwide
Panelist:
Robert J. Walling III, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.
SPE-2: Bayesian Estimation of Parameters: Advantages and Practical Examples
Bayesian methods are an alternative to maximum likelihood when estimating parameters of a loss model. The major advantage is that information regarding estimation and prediction error is an immediate by-product of the analysis. In this session, the Bayesian paradigm will be reviewed and two computational methods presented. One is the discrete approach advocated by Glenn Meyers (PCAS, 1994) and the other is the use of Markov Chain Monte Carlo as advocated by David Scollnik (PCAS, 1996 and NAAJ, 2001).
Moderator/Panelist:
Stuart Klugman, Principal Financial Group Professor of Actuarial Science, Drake University
SPE-3: Simpson's Paradox, Confounding Variables and Insurance Ratemaking
The insurance process is complex, with numerous factors combining to produce both premiums and losses. While compiling rates, actuaries often aggregate data from more than one source, while at the same time stratifying the data to achieve homogeneity. However, such exercises may lead to biased and sometimes even surprising results, called Simpson's Paradox, because the variables involved in the aggregation process or the stratification process are confounded by the presence of other variables. In this session, we will introduce to P&C actuaries Simpson's Paradox and confounding and the statistical underpinning associated with those phenomena. We will further discuss how such bias may exist in P&C actuarial rating applications and solutions that can resolve the bias.
Moderator:
Jun Yan, Manager, Deloitte Consulting
Moderators/Panelists:
John A. Stenmark, Vice President - Actuary, Southern Farm Bureau Casualty Insurance Company
Cheng-Sheng Peter Wu, Director, Deloitte Consulting LLP
SPE-4: Actuarial Analysis of Catastrophes and Terrorism for Commercial Insurance
Subsequent to September 11, 2001 the insurance industry has been struggling to prepare for large-scale terrorist attacks. Sophisticated catastrophe models for terrorism have been developed and continue to evolve. This session will discuss the challenges actuaries face in translating the output from catastrophe models into financially meaningful numbers, such as rate indications and solvency analyses. In particular, modeling the impact of TRIA necessitated combining catastrophe model output with complicated assumptions about the allocation of losses to individual companies throughout the industry. In the future, actuaries are likely to be faced with many more similar requests at all scales of the insurance enterprise.
Moderator/Panelist:
Jonathan Evans, Actuary, National Council on Compensation Insurance, Inc.
Panelists:
George Burger, Assistant Vice President, Insurance Services Office, Inc.
David A. Lalonde, Senior Vice President, AIR Worldwide Corporation
SPE-5: 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.
Moderator/ Panelist:
Paul J. Brehm, Guy Carpenter & Company, Inc.
