2005 Seminar on Reinsurance Handouts

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Actuaries Versus the Insurance Cycle - An Executive View
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Insurance prices rise and fall much like ocean tides ebb and flow. While it is impossible to alter the tides or the insurance cycle, there are strategies that companies can employ to maximize profits throughout the cycle. There is a natural tendency to establish prices that are in line with market rates. After all, it is safer to stick with the herd than to risk the criticism that can come from being different. How do we keep underwriters and actuaries honest during market peaks and troughs? What is the actuary's role in helping the company manage through the cycle?

Should we simply write less of the same type of business during the soft phase? Should we pursue different lines or classes of business? As a reinsurer, should we change our mix of proportional and excess of loss business? How can we best position the company during a soft market to take full advantage of the next hard market? This session will explore some of the strategies that companies can employ to manage the insurance cycle and will focus on the actuary's role in developing and implementing these strategies.

Moderators:
Barry Zurbuchen, Senior Vice President and Chief Pricing Actuary, Allied World Assurance Company

Panelists:
John Doucette, President, P & C Reinsurance Division, Max Re
Brian Duperreault, Chairman, ACE Limited
Marc Grandisson, President & Chief Executive Officer, Arch Reinsurance, Ltd.

Federal Reform and Issues
With the recent activity in asbestos, medical malpractice, and the U.S. litigation environment as a whole, there has been much activity over the past few years in the halls of Congress and from the President about the need for federal reform. The past elections have further escalated the discussions. This session will focus on some of the more recent activity in Washington concerning the major issues and possible federal solutions. Our panelists will include the president of the Reinsurance Trade Group, a general counsel of a major insurer, a congressional staffer involved in writing legislation, and an actuary involved in the discussions concerning asbestos reform.

Moderator/Panelist:
Michael Angelina, Principal, Towers Perrin

Panelists:
Frank Nutter, President, Reinsurance Association of America
Robert Cusomano, General Counsel, ACE
TBD

Technical and Pricing Sessions

Risk Load, Profitability Measures, and Enterprise Risk Management
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The panel will take a fresh look at the interrelated pricing issues of profitability measurement, risk load, and enterprise risk management. Attendees will be given two related, leading edge, practical methods for integrating pricing (or hedging or plan portfolio composition) with an internal risk model, which is a core component of ERM for a reinsurer. The methods provide valuable insights into pricing individual risks, portfolio management, and reinsurance purchasing decisions.

Moderator:
Robert A. Bear, Consulting Actuary, RAB Actuarial Solutions LLC

Panelist:
Rodney E. Kreps, Managing Director, Guy Carpenter & Company Inc.
Donald F. Mango, Director of Research & Development, GE Insurance Solutions

A Comparison of Reinsurance Practices: United States vs Europe
This panel will compare and contrast reinsurance practices in the US, London and Continental Europe from the viewpoints of a global primary company, a European reinsurance perspective and an American reinsurance perspective. Differences in contract terms, exclusions, placing process, data availability, and technical pricing approaches will be discussed. In particular the European utilization of index clauses will be examined.

Moderator/Panelist:
Isaac Mashitz, Chief Pricing Actuary, Swiss Reinsurance America

Panelists:
Will Forster, Chief Actuary, Ace Tempest Re Europe
Pierre Laurin, Director and Senior Vice President, Zurich North America

Return Measures
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Why do different reinsurers often make different decisions when it comes to pricing the same risk? The answer can usually be found in the various ways that companies measure their profitability and evaluate their results. In this session, the panelists will be presented with various reinsurance opportunities. The panelists will discuss how different reinsurers could measure the return of each scenario. They will discuss the pros and cons of each measure while considering both actual returns and expected future results.

Moderator:
Todd D. Cheema, Vice President, Partner Reinsurance Company

Panelists:
Paul J. Kneuer, Chief Actuary, Holborn Corporation
Susan Patschak, Senior Vice President - Property Treaty, Endurance Specialty

Terrorism Pricing and Modeling
With TRIA due to expire in December 2005, many discussions are centering on extending coverage and terrorism pricing in general. This session will focus on terms and conditions, accumulations, and some of the underwriting and modeling issues associated with terrorism pricing. Pricing techniques to analyze and measure terrorism coverage will be explored. Panelists will examine issues related to measuring damageability of highly correlated exposures as well as issues related to underlying assumptions, data inputs, and underwriting capability.

Moderator:
Jeanne L. Ying, Vice President, ACE Tempest Re

Panelists:
Michael Cash, Senior Vice President-Specialty Reinsurance, Renaissance Re
Christopher Harris, Chief Actuary, Montpelier Re
Timothy Tetlow, Senior Vice President Global Reinsurance, Axis Specialty

Workers Compensation Excess Loss Factors
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NCCI's Workers Compensation Excess Loss Factors (ELF) serve as industry benchmarks for analyzing WC excess layer costs and, as such, can have major implications for most self-insureds, insurers, and reinsurers. NCCI has recently revised its ELF methodology. The session will discuss the key components of the new methodology, review the resulting changes in the new ELF, and explore the reasons for the observed changes.

Moderator:
Robert Giambo, Senior Actuary, Swiss Reinsurance America

Panelist:
Gregory Engl, Director and Actuary, NCCI

Catastrophe Pricing - The Finer Points
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In light of the active hurricane season in 2004, many people have wondered whether the climate is changing to cause more events like this. The panelists will explore whether the climate is changing and the effects on land falling hurricanes. In addition, adjustments to modeling results will be explored to account for poorly modeled perils and changes in the market place, such as increased hours clauses and changes in laws.

Moderator/Panelist:
Sean R. Devlin, Chief Pricing Actuary-Property, GE Insurance Solutions

Panelist:
Dail Rowe, Ph.D., Senior Research Scientist and Scientific Operations Manager, Accurate Environmental Forecasting, Inc.

Property Ratemaking - An Advanced Approach
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This panel will explore advanced topics in property. Exposure rating for per risk and large losses will be a central point. Several lines will be explored that center on practical application of the tools in the actuary's and underwriter's arsenal, which are not widely known among the actuarial community.

Moderator/Panelist:
Sean R. Devlin, Chief Pricing Actuary-Property, GE Insurance Solutions

Panelist:
Steven B. White, Senior Vice President, Guy Carpenter Instrat

My Ceding Company's Data is Not Credible, So NOW What Do I Do?
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Reinsurance pricing actuaries are often in search of external sources of data to support their pricing activities. The panel will discuss sources of data in workers compensation, professional liability, personal lines, and other insurance lines of business. The discussion will cover the source, availability (cost) and form of the data, as well as advantages/disadvantages of particular data sets. As time permits, the speakers will also discuss how some of these data sets have been used to develop rating models.

Moderator:
Giuseppe Russo, Senior Vice President and Chief Actuary, ACE Tempest Re USA Inc.

Panelists:
Linda Bjork, Vice President and Actuary, American Re-Insurance Company
Moshe D. Goldberg, Vice President and Actuary, Swiss Reinsurance America
Jason Kundrot, Senior Actuary, GE Insurance Solutions

Reinsurance Research Corner
Hosted by the CAS Reinsurance Research Committee, the Research Corner is a forum to present preliminary reports on works in progress or recently completed. Research Corner participants can pose new problems and demonstrate innovative practical approaches. Individual investigators as well as representatives of research working parties and other groups are encouraged to participate. There is no need to preregister; "walk in" speakers are most welcome, though advance notice is appreciated whenever possible. Speakers should plan on having ten to fifteen minutes to make their presentation. Attendees who would like to present their work during this session are invited to contact the moderator at stewart.gleason@guycarp.com.

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

Reinsurance Research Committee
Call for Papers

This past summer, the Committee on Reinsurance Research issued a call for papers on "Pricing Low-Frequency, High-Risk Exposures," to be published in the CAS Forum, which would be released before the 2005 Seminar on Reinsurance. The accepted papers will be presented at the seminar and are eligible for the 2005 Ronald Ferguson Reinsurance Prize, which will be awarded at the seminar. The committee has had a good response to this year's call. Papers that may be presented in the Concurrent Sessions include:

"Reinsuring for Catastrophes through Industry Loss Warranties - A Practical Approach"
Author: Ali Ishaq, FCAS, MAAA
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Reinsurers may guard against extreme losses in the event of catastrophes through the purchase of Industry Loss Warrantees. The paper discusses pricing these using size of loss distributions.

"Stochastic Excess of Loss Pricing Within a Financial Framework"
Authors: Doris Schirmacher, Ph.D., FCAS, Ernesto Schirmacher, Ph.D., FSA, and Neeza Thandi, Ph.D., FCAS, MAAA
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The theory of extreme values can be used within a financial framework to price excess of loss reinsurance treaties.

"On the Optimality of Proportional Reinsurance"
Authors: I. Lampaert, FKVBA, and J.F. Walhin, Ph.D., FARAB
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This paper analyzes possible selections of proportional reinsurance programs that can optimize performance for the ceding company.

"Exposure Rating Casualty Reinsurance Excess Layers with Closed Form Annuity Models"
Author: Jonathan Evans, FCAS, MAAA
The program Mathematica will be used to generate closed-form approximations of the parameter variance, as well as the process variance in mortality, inflationary trends, and the like.

"Simple Practical Estimation of Sub-Portfolio Catastrophe Loss Exceedance Curves with Limited Information"
Author: Jonathan Evans, FCAS, MAAA
The paper discusses how to use relative frequency and severity data to specialize information known for the total portfolio only.

"An Improved Method for Experience Rating Excess of Loss Contracts Using Exposure Rating Techniques"
Authors: Ana J. Mata, Ph.D., and Mark A. Verheyen, FCAS, MAAA
Standard experience rating can be significantly improved by utilizing the mathematics of exposure rating to take full advantage of available data. The paper explores the use of such techniques in trending and exposure adjustment.

"On Predictive Modeling for Claim Severity"
Author: Glenn Meyers, FCAS, MAAA, Ph.D.
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For pricing excess of loss reinsurance treaties, data usually includes only a handful of claims. How do you decide between the use of industry aggregate data and fitting a distribution to the submitted data?

"On Optimal Reinsurance Arrangement"
Author: Yisheng Bu, Ph.D
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To measure the cost of capital for catastrophe reinsurance covers, the paper cites a number of studies, such as Kielholz (2000) and Cummins and Phillips (2004).

"Transition-Matrix Theory and Individual Claim Loss Development"
Author: John B. Mahon
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This paper applies Transition-Matrix theory to a large collection of general liability reinsurance claims to model claim development and compares results to the empirical ones.

"Coherent Capital for Treaty ROE Calculations"
Authors: Ira Robbin, Ph.D., and Jesse DeCouto
You want your capital to be coherent, right? It's a good thing.

Business Segment Sessions

Crop Insurance
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Farmers purchase insurance to cover their agricultural crops against the reduction in yield or revenue because of specified perils. Expertise is typically required to underwrite and price a crop reinsurance program because of the wide range in agricultural crop exposures. This session will provide an overview of crop insurance, including an outline of the government assistance programs in the United States, and will discuss how crop reinsurance programs are developed. Additional topics may include the affect of projected climate changes and the crop insurance marketplace in other countries.

Moderator:
Jean A. DeSantis, Underwriter, Swiss Re Underwriters Agency

Panelists:
S. Ming Lee, Senior Vice President, AIR Worldwide
James Maher, Senior Vice President, Platinum Underwriters Reinsurance Inc.
Susan Witcraft, Managing Director, Guy Carpenter & Company Inc.

The D&O Market: Current Issues and Pricing Approaches
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The first part of this session will provide an overview of the history of the D&O market and discuss current trends and issues. Despite a belief by many actuaries that D&O is difficult to price, especially D&O reinsurance, our panel will argue that D&O is not as difficult to model as other long-tail casualty lines. Then the session will shift to a presentation of the paper "D&O Reinsurance Pricing-A Financial Market Approach," written by Athula Alwis, Vladimir Kremerman, and Junning Shi. A brief discussion of current ratemaking practices will be followed by a proposed methodology that incorporates market capitalization, frequency of lawsuits, loss as a function of market capitalization, and correlation between and within industry sectors.

Moderator:
Elliot Burn, Senior Vice President, Guy Carpenter & Company Inc.

Panelists:
Athula Alwis, Vice President, Willis Re Inc.
William Garland, Managing Director, Guy Carpenter & Company Inc.
John J. Lewandowski, Senior Vice President & Actuary, ACE USA
Junning Shi, Senior Vice President, Willis Re Inc.

Medical Malpractice
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Panel discussions will include updates on medical malpractice financials, tort reform, and insurance reform. In addition, current approaches in modeling retentions, and pricing and reserving for physician and hospital professional liability will be covered.

Moderator:
Anne Marlene Petrides, Senior Vice President, Haverford Insurance Managers

Panelists:
James Hurley, Consulting Actuary, Towers Perrin
Kirk Bitu, Assistant Vice President, Willis Re

Excess Liability
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Industry leaders will present a global perspective on the excess liability market, including developments in pricing and exposure across insurance and reinsurance in the United States and overseas.

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

Panelists:
David Gansberg, Underwriter and Actuary, Arch Re
Russell Buckley, Vice President and Actuary, American Re

Other Sessions

Getting to Know Your Customer - What Motivates the Purchase of Reinsurance?
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The motivation to purchase reinsurance and how to determine its structure are often decided by many internal and external factors. The decision may be influenced by technical issues, relationships, market conditions, as well as numerous other items. This session will explore this topic from the perspectives of individuals employed at organizations representing the three main parties to a reinsurance contract: a primary company, a broker, and a reinsurer.

Moderator:
Daniel Kamen, Vice President, Folksamerica Reinsurance Company

Panelists:
Pierre Guy Laurin, Director and Senior Vice President, Zurich North America
Gerard J. Palisi, Vice President and Pricing Actuary, Swiss Reinsurance America Corporation
John L. Tedeschi, Managing Director, Guy Carpenter & Company Inc.

Risk Transfer - What Changes Are On The Horizon?
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In the past twelve months there has been an elevated level of scrutiny in many areas of the insurance industry including the use and alleged misuse of structured products. As a result of this heightened state of scrutiny, questions regarding risk transfer are coming up again and again. What changes might occur from a regulatory, audit and industry perspective regarding how risk transfer will be analyzed? Is the 10%-10% rule of thumb appropriate? Who should ultimately be responsible for determining whether risk transfer exists? Please join this session to hear from an audit actuary, a regulatory actuary and a reinsurance brokerage actuary about what changes may be on the horizon.

Moderator/Panelist:
Bruce D. Fell, Consulting Actuary, Towers Perrin

Panelists:
Marc Oberholtzer, Director, PricewaterhouseCoopers LLP
Chester Szczepanski, Chief Actuary, Pennsylvania Department of Insurance
Lisa Walsh, Senior Vice President, Benfield

The Reinsurance Buying Process-Have the Rules Changed?
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Learn what factors drive reinsurance purchases, how markets are selected, and how the deal gets "done" (or not). Session panelists will discuss what constitutes a "successful" placement, whether the claims process has changed, and whether it influences buying. This session will address collection issues such as disputes, insolvency, runoff, and will argue if reinsurance is as valuable today.

Moderator:
Thomas J. Duffy, Consulting Actuary, Milliman, Inc.

Panelists:
Robert C. Andrews, Vice President and Manager of Ceded Reinsurance Operations, Liberty Mutual
Scott C. Belden, Managing Director - Risk Reinsurance, Travelers/St. Paul

International Regulatory Changes
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As approaches used by regulatory regimes and rating agencies to evaluate capital adequacy are converging, insurance companies are refocusing risk management systems to support a more robust evaluation of corporate capital adequacy. With this in mind, current capital adequacy requirements from various regulatory regimes and rating agencies will be discussed in the session as well as the capital adequacy approach anticipated under the Solvency II Directive (effective date thought to be 2009 or 2010). Preliminary views on insurance companies' plans for meeting these anticipated requirements will also be presented.

Additionally, the session will focus on the new guidelines on liability valuation for general insurance. These guidelines have been implemented in the Asia Pacific Region in 2001 and similar guidelines will be implemented in Europe under IFRS Phase II. Practical actuarial applications that can be used to satisfy some of theses valuation requirements will be presented.

Moderator:
Paul Silberbush, Senior Vice President, Guy Carpenter & Company Inc.

Panelists:
Frank Achtert, Senior Vice President, Guy Carpenter & Company Inc.
Eric Lecoeur, Chief Actuary, SCOR Non Life Group Actuarial

Managing a Global Catastrophe Portfolio
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Catastrophes continue to be a major risk factor for the reinsurance industry. Managing a global catastrophe portfolio is a complex task. The panel will discuss some of the aspects of management of a global cat portfolio, such as accumulations, portfolio optimization, pricing implications, volatility and diversity, and diversification leverage.

Moderator:
Todd D. Cheema, Vice President, Partner Reinsurance Company

Panelists:
Kevin O'Donnell, Senior Vice President, RenaissanceRe
Brian Secrett, Senior Vice President - Head of Bermuda Reinsurance Operations, Partner Reinsurance Company