2002 Spring Meeting Handouts
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Dealing With Terrorism: Next Steps?
Last fall's terrorist attacks forever changed the nature of property/casualty business around the world. While industry leaders indicated that the industry had the ability to pay such lossesonceterrorism losses of such catastrophic size and unpredictability were not contemplated in the offer of coverage at the then prevailing price. Those losses forced the property/casualty industry to review fundamental notions about our businesscoverage grants, pricing, reserving, claims handling, catastrophe risk management, risk mitigation, reinsurance treaties, data collection, and the like. The scope and nature of this event and the magnitude of the resulting losses generated federal government involvement in the process of designing structures to deal with future terrorism losses.
This panel will analyze the strategic steps insurers, reinsurers, and regulators have taken to deal with the short- and long-term consequences of terrorism losses.
John J. Kollar
Insurance Services Office, Inc.
James P. Bonica
Casualty Practice Leader
U.S. House of Representatives, Committee on Financial Services
Robert D. Graham
Senior Vice President and Assistant General Counsel
General Reinsurance Corporation
William J. Kirven III
Colorado Division of Insurance
Enterprise Risk Management (ERM) has received considerable attention over the past few years. While, at times, the concept can appear more "academic" than practical, the events of September 11 brought ERM into the forefront, particularly from a disaster recovery perspective.
The discussion will focus on the specifics of disaster recovery plans, including loss of data, technology problems, impact on personnel, and the cost of business interruption. Session panelists will discuss what parts of their plan went well, what parts fell short, and the general lessons that they have learned during this difficult period.
Frederick W. Kilbourne
The Kilbourne Company
Stephen P. Ban
Senior Vice President, Director of Marketing and Communications
Senior Vice President Western Region
Control Risk Group
Director of Response Services
Crisis Management International, Inc.
Can We Talk?
Back by popular demand, the actuarial troupe that brought you the eye-opening "Can We Talk" skit at the March 1998 Ratemaking Seminar is returning to the stage. This time around, they take us on a satirical journey through a day-in-the-life of a "communications-challenged" actuary. Three tongue-in-cheek documentaries shed some light on how actuaries are perceived by coworkers, company executives, and fellow actuaries.
These outspoken and irreverent actuaries do not fall short in their candid honesty or their humor. There is something here for every actuary to reflect on, to learn from, and to beg the question, "Do I sound that goofy?"
Rose D. Barrett
Regional Vice President
AIG Risk Management
Martin T. King
Corporate Risk Finance Manager
Richard O. Kirste
Corporate Risk Finance Manager
With the poor industry results of the past few accident years, realization of poor reserving for prior years, and the terrorist attacks of September 11, the market has been hardening. Panelists will explore where the market has been over the past few years and where it is heading by answering the following questions:
- How long will the hardening continue?
- Will it be as severe as the hard market of the mid-1980's?
- Which lines will shift the most?
- How much of the past losses will be recouped?
- How has capacity been reduced?
- What new capacity is coming into the market?
- Will start-up companies prosper?
- How much more does a company's rating mean in today's environment?
Wayne H. Fisher
Executive Vice President and Risk Officer
Zurich North America
Gregory J. Ciezadlo
Vice President, Personal Lines Auto Product Management
Farmers Insurance Group
Kenneth A. Kurtzman
Senior Vice President and Chief Pricing Officer
Swiss Re Underwriters Agency Inc.
Jeffrey H. Post
President and Chief Executive Officer
Fireman's Fund Insurance Companies
C1: Actuarial Professionalism: Could Enron Happen Here?
This session will explore the CAS Code of Conduct in light of the current environment in the insurance and financial services industries. Panelists will speak to some of their own experiences related to the Code, how it can be a guide and a support in daily decision-making. much more than simply a guide for catching the "bad guys." A fictional case study will be presented for audience discussion.
Richard J. Currie Vice President & Actuary / American Re-Insurance Company
Robert J. Moser Actuary / State Farm Fire and Casualty Company
David J. Otto Actuary / The Kilbourne Company
C2: The Actuary as an Expert Witness
Beginning with a discussion of expert witness consulting assignments from the lawyer's perspective, session panelists will discuss what lawyers look for when retaining an expert. The session will focus on the strategies lawyers on both sides employ and how an expert witness can deal with those strategies appropriately.
Session attendees will have a brief overview of ASOP No. 17, Expert Witness by actuaries. Panelists will offer practical advice on how to keep files in preparation for an expert witness assignment as well as discuss the differences between being an expert witness in regulatory versus civil litigation settings.
This session will conclude with a review of the practical experiences of the presenters in expert witness consulting assignments. Audience participation is strongly encouraged.
Irene K. Bass Consulting Actuary / Bass & Khury
Shawna S. Ackerman Principal and Consulting Actuary / Miller, Herbers, Lehmann, & Associates, Inc.
David Appel Director, Economics Consulting / Milliman USA, Inc.
Steven H. Weinstein, Esq. Barger & Wolen
Allocating capital (or more accurately, allocating the cost of capital) has been a hot topic for several years. In spite of the attention, no consensus has developed on how to do this. The panel will discuss some new developments in this area. These include the development of an axiomatic treatment of risk called "Coherent Measures of Risk" and a corresponding notion of "Coherent Allocation of Capital," using game theory concepts. The CAS Committee on Theory of Risk has also been directing a project called the "Risk Assessment Database" that addresses this issue.
Glenn G. Meyers Assistant Vice President and Chief of Actuarial Research / Insurance Service Office, Inc.
Daniel B. Isaac Vice President / Swiss Re Investors, Inc.
Robert P. Butsic Assistant Vice President / Corporate Strategic Planning / Fireman's Fund Insurance Companies
Recent worldwide events have served to emphasize the uncertainty and volatility associated with many economic and financial variables. For example, interest rates have changed significantly over the past couple of years, affecting the market values of assets and liabilities as well as the general investment environment. Because of capacity issues and financial solidity concerns, insurers need to be very sensitive to potential changes in surplus resulting from interest rate movements.
This session will discuss the importance of interest rate risk to the insurance industry and describe some asset-liability management techniques available to insurers to deal with this risk. The CAS Committee on Valuation, Finance, and Investments will also present its research project involving the modeling of the impact of interest rate risk on property/casualty insurers.
Stephen P. D'Arcy Professor of Finance / University of Illinois
Kenneth Quintilian Consulting Actuary / Milliman USA
Raghu Ramachandran Senior Vice President / Brown Brothers Harriman & Co.
C5: CAS Election Process
Over the past several years, the CAS Board of Directors has been reviewing the processes by which CAS Officers and Directors are selected. That review resulted in several changes two years ago. At its March 2002 meeting, the Board of Directors addressed a specific proposed set of changes in the petitioning, nominating, and election processes. The Board's March 2002 discussions (and the reports of the Board's 2000 and 2002 task forces) are posted on the CAS Web Site, and thus will be described only briefly in this session. The primary purpose of this session is to give members an opportunity to ask questions and express views about the current changes being addressed by the Board, or any other aspects of the CAS election process. A summary of the session (without attribution to any individual speakers) will be communicated to the Board of Directors.
Robert F. Conger CAS President
Gail M. Ross CAS President-Elect
Susan E. Witcraft 2002 Election Process Task Force Chairperson
A session at the May 2001 CAS Spring Meeting presented the benefits of having a diverse actuarial staff. With this year's session, panelists will present some of their views, experiences, success stories, and challenges to help shed some light on how your hiring and personnel policies can better attract and retain a high-quality diverse actuarial staff.
Michael D. Poe Consulting Actuary / Tillinghast-Towers Perrin
Edwin H. Felice Director, Actuarial Resources / Allstate Insurance Company
K.C. Cho Senior Manager / D. W. Simpson & Company
Robert V. Mucci Senior Vice President & Actuary / Transatlantic Reinsurance Company
Stafford L. Thompson Jr. Senior Actuarial Associate / CIGNA
C7: Earthquake Catastrophe Modeling
The property insurance industry is hoping that time and the earthquake insurance premiums will allow insurance companies and the California Earthquake Authority to build surplus to a level that could sustain a major event. When "the big one" hits California, the adequacy of premiums collected over prior years will be a moot issue compared to the question of who is left standing. With this in mind, applying earthquake modeling to both pricing and exposure management will be presented. A personal lines insurance company and a catastrophe modeling software developer will present their perspectives on how earthquake catastrophes should be treated. The panel will provide an overview of the issues, techniques, and recent developments in the field of earthquake catastrophe modeling.
Ronald T. Kozlowski Consulting Actuary / Tillinghast-Towers Perrin
Chesley R. Williams Lead Geologist / Risk Management Solutions, inc.
Edward J. Baum Managing Director / Actuarial Interinsurance Exchange of the Auto Club
C8: Improving and Protecting the Balance Sheet
With the changing conditions in the marketplace, companies are more willing to grow. However, they may have trouble with their financial statements, rating agencies, and regulators if they grow too quickly, even if their premium growth is driven by rate increases. Furthermore, the company may be forced to recognize the sins of their past in the form of reserve inadequacies driven by poor underwriting results and latent exposures.
This panel will look at financially oriented transactions. quota share, adverse loss development covers, and loss portfolio transfers. that will help a company put itself into a position to capitalize on the hardening market. Panelists will explore the benefits of each cover, how they are structured, and the account implications.
Sean R. Devlin Vice President / American Re-Insurance Company
Peter J. Doyle Vice President / American Re-Insurance Company
Michael J. Belfatti Senior Vice President and Chief Actuary / ACE Financial Solutions
C9: Modeling Capital Adequacy- A.M. Best's Perspective
A.M. Best uses its proprietary Best's Capital Adequacy Ratio (BCAR) model to help companies identify appropriate levels of risk-adjusted capital for their asset and liability structure. The BCAR model is also a key tool for the insurer rating process.
The session will include:
- An overview of the model;
- A comparison of BCAR to NAIC risk-based capital formula;
- A discussion of expected policyholder deficit, the model's basis for risk measurement; and
- A review of the key risk components of the model.
The session will also include an alternative view of capital strength that Best is developing using value-at-risk concepts. With continuing research and testing, Best seeks to gain a more comprehensive and dynamic view of insurance company capital adequacy.
Michelle P. Baurkot Rating Agency Consultant / Milliman USA, Inc.
Matthew C. Mosher Vice President and Actuary / A.M. Best Company
C10: Mold: The Next Looming Exposure Crisis for the Insurance Industry?
With the recent multimillion dollar award against an insurance company on one of the first mold claims of the industry, the looming "mold exposure" has piqued the interest of consumers, attorneys, and the industry at large. Each has their own concerns-personal and public health, individual insurance protection and financial welfare, adequate premiums for exposure, and the financial welfare of the insurance industry to provide coverage.
What are the facts behind this exposure and what are the positions and roles of the key players in ensuring appropriate writing and pricing of this exposure in the future?
Jeffery L. Kucera Consulting Actuary / MHL/Paratus
Bill Ehrlich Real Estate Consultant
Michael S. Wilson Attorney at Law / Davis & Wilkerson
Rick Janisch Risk Consultant / Marsh USA
C11: New Horizons: Actuaries and the Media
When CAS members interact with the media, they help to enhance the public perception of the casualty actuarial profession and promote the understanding of issues of concern to actuaries and their audiences. As public relations endeavors affect how our public policy makers, current customers, prospective customers, employers, and the public-at-large perceive casualty actuaries, the CAS Executive Council recently approved the formation of the Media Relations Committee (arc). Working under the auspices of the External Communications Committee, the arc is charged with developing media relations at the national, state, and local levels to enhance the external visibility of casualty actuaries and their work. The session will explore ways for the CAS membership to interact with the media and some guidelines as regards best practices. The panel will also outline the complementary roles of the CAS and the American Academy of Actuaries in this area.
Rade T. Musulin Vice President-Actuary / Florida Farm Bureau Insurance Companies
Chris Robichaux Assistant Director of Communications for Public Relations / American Academy of Actuaries
Cary Schneider Senior Vice President / Insurance Information Institute
C12- Proposals for Federal Chartering of Insurance Companies - What it Means to Casualty Actuaries
Several influential organizations, including the American Insurance Association, the American Bankers Insurance Association, and the American Council of Life Insurance, have introduced proposals to initiate federal charters for insurance companies. If federal charters are adopted, there will be substantive changes in the work casualty actuaries do. For example, elimination of state regulation of rates would affect the need for actuaries to prepare and defend rate filings. On the other hand, some proposals call for solvency statements from actuaries that would affect loss reserving work and might require dynamic financial analysis. This session will discuss the major proposals and ask for the views of session attendees.
Rade T. Musulin Vice President-Actuary / Florida Farm Bureau Insurance Companies
James E. Rech Actuary / GPW & Associates
Value-at-risk (VaR) and risk-adjusted return on capital (RAROC) applications measure financial strength and performance in the property/casualty insurance industry. Discussions on VaR will demonstrate how it works and how it is used to measure financial performance, allocate capital, and assess risk-adjusted returns. The panel will also talk about how VaR can be used to make restructuring and strategic decisions.
As an adaptation of the banking approach to the property/casualty insurance industry, RAROC will be described in arriving at an effective and practical capital allocation tool for property/casualty insurance companies. In addition to VaR and RAROC, panelists will discuss how DFA can be used.
Robert F. Wolf Principal / MMC Enterprise Risk Consulting, Inc.
Peter Nakada Managing Director / E-Risk
Tim Freestone Managing Director / Seabury Insurance Capital LLC
Glenn Meyers Chief of Actuarial Research / Insurance Services Office, Inc.
C14: Risk & Return Part 2- What Are We Debating About?
As a profession, casualty actuaries have used the coefficient of variation and probability of ruin as common risk metrics. With the financial community continuing to consolidate, casualty actuaries are using many acronyms and terms that weren't readily used 5 to 10 years ago, namely RAROC, EVA, TVaR, and VaR, to name a few. Are these terms or acronyms something new, something old (just called something else), or a combination thereof? Are certain approaches, such as DFA or RAROC, better than others? Are certain risk metrics better than others? Are we mixing analytical approaches with risk metrics or analytical tools?
In this session, panelists will discuss, compare, and debate the essential elements of risk models used to gauge and measure or manage risk and return, in particular the corresponding actuarial considerations in reflecting optimal capitalization structures, adequate rates, and enterprise (shareholder) value. This session encourages audience interaction as the panel discusses and debates the merits of the myriad approaches to analyzing a casualty insurance company's risks and returns. The panel will attempt answer the above questions and put all of the above disciplines and metrics in proper perspective.
Robert F. Wolf Principal / MMC Enterprise Risk Consulting, Inc.
Russell Bingham Director, Corporate Research / The Hartford
Peter Nakada Managing Director / E-Risk
Glenn G. Meyers Chief of Actuarial Research / Insurance Services Office, Inc.
Tim Freestone Managing Director / Seabury Insurance Capital LLC
Donald F. Mango Vice President / Am-Reinsurance
C15: Risk Retention/Captives
As risk transfer markets are hardening, risk managers and other financial executives are wrestling with how to evaluate risk retention in terms of an investment decision. On the surface, risk retention appears to be the antithesis of an investment: the organization isn't investing premium dollars in an insured arrangement. In fact, it's doing the opposite: retaining funds otherwise paid out as premiums. This session will discuss how a nonfinancial corporation evaluates its insurance purchasing decisions as a capital-at-risk investment. This is not unlike the approach investment portfolio managers use to evaluate their decisions by looking at risk and return tradeoffs. This session will also discuss what to consider when using captives and risk pools to fund insurance exposures.
Barry A. Franklin Managing Director, DFA Practice / Aon Risk Consultants
David Bell Director, Corporate Risk Management / Kaiser Foundation Health Plan, Inc.
Steven Kahn Managing Director / ARM Tech
C16: Start-Ups and Increased Use of Captives in the Hardening Market
Even before September 11, the commercial insurance market was hardening. The terrorist attacks significantly decreased the capacity of the insurance market and led to even higher rates, along with coverage contraction. In response to recent events, several new insurance companies have been organized offshore. In addition, corporations are considering the advantages to increasing the use of their own captive insurance companies.
The panelists include a representative from one of these newly created insurance companies as well as a senior management member of a corporation that is attempting to use his captive as a competitive advantage.
Joanne Ottone Principal / MMC Enterprise Risk Consulting, Inc.
C. Jeffrey Triplette Assistant Treasurer, Risk Management-Insurance / Duke Energy Corporation
C17: Trends in Medical Malpractice
Medical professional liability underwriting results have deteriorated significantly over the past few years and no slowdown to this trend seems to be in sight. Certain insurers are exiting this line completely, while others are more selective about the segments they are willing to write. What can we expect for the short- and long-term? The panel will review some of the causes of this ongoing trend and explore how certain insurers are making changes to their business practices in reaction to recent events.
James D. Hurley Consulting Actuary / Tillinghast-Towers Perrin
Richard B. Lord Consulting Actuary / Milliman USA
Linda Dembiac Chief Actuary & Infomation Officer / Med. Mutual Liability Insurance Soicety of Maryland
C18: Umbrella Liability
The soft market in umbrella pricing of the past several years changed abruptly because of several recent high-profile large losses. Reinsurance support has dwindled, terms and conditions have tightened, and attachment points are increasing. Umbrella frequency has increased, particularly from commercial automobile liability. This session will explore the recent industry experience, focus on some difficult coverages, including construction defect and professional liability, and review the current state of the market.
Thomas L. Ghezzi Consulting Actuary / Tillinghast-Towers Perrin
Russ Buckley Vice President & Actuary / American Re-Insurance Co.
David Westberg Consultant / Towers Perrin Reinsurance
C19: Understanding Insurance Fraud: Theory and Current Practice
With the advent of expanded company Special Investigative Units (SUIs) and the establishment of state-specific insurance fraud bureaus, the cost containment issue of insurance fraud gained new tools during the 1990's. This session will cover important parallel developments in understanding the current industry practices through the recently completed Insurance Research Council/Insurance Services Office survey, "Fighting Insurance Fraud, Survey of Insurer Anti-Fraud Efforts." The panel will also explore the mechanics of fraud by means of theoretical model development.
Richard R. Derrig Vice President, Research / Insurance Fraud Bureau of Massachusetts
Victoria L. Kilgore Senior Research Associate / Insurance Research Council
Sharon Tennyson Professor / Cornell University Insurance Research Council
Using credit information and other parameters in underwriting and placing risks has gained an increased place of importance recently. Yet, this growing use has not abated the level and intensity surrounding the efficacy of using credit in underwriting and rating. As a result, the NAIC Property and Casualty Committee has undertaken a review of the use of credit information and scoring in underwriting, including how states review and regulate this process. The panel will summarize the issues in the debate and provide a status of progress to date.
Jonathan White Assistant Vice President and Actuary / The Hartford
D. Lee Barclay Senior Actuary / Washington Insurance Commissioner's Office
Birny Birnbaum Executive Director / Center for Economic Justice
C:21 Using Expert Claims Systems and Reserving Issues
Automated loss reserving systems have been available for the past several years and are currently used by several insurers and third-party administrators. This session will provide an overview of several of these systems and discuss issues, including how to forecast loss reserves and IBNR in the midst of conversion when using one of these systems. Panelists will discuss the data issues that one should be aware of and the benefits of achieving accurate case reserves more quickly.
Wade T. Overgaard Second Vice President and Actuary / Travelers Insurance
Clayton Dukes Vice President / HNC Software
Steven Hancock Director / Computer Sciences Corporation
C22: Workers Compensation Catastrophe Modeling
The terrorist attacks on September 11 have created major changes in the availability and cost of catastrophe reinsurance for workers compensation insurance. Workers compensation coverage requires that primary insurers provide statutory or unlimited per occurrence limits. Whereas insurers have been able to obtain catastrophe support easily and affordably in the past, they are now faced with questions such as:
- How much reinsurance do we need to protect our surplus adequately?
- How can we convince the reinsurance market that our catastrophe exposure is limited or well managed?
- What is our per occurrence catastrophe exposure?
- How concentrated are we in any one location or zip code?
- What are the rating agencies' expectations of how much catastrophe reinsurance we need to protect our surplus adequately?
- Can we inform the rating agencies that we have adequate catastrophe reinsurance and why?
Reinsurers and rating agencies are wrestling with these or similar issues from their perspectives. Self-insurance groups and self-insurers are also affected by the dramatic changes in the catastrophe excess reinsurance market. This session will cover these issues and discuss tools that can be developed or used to answer these questions. We will also discuss the new data elements that are typically being required on workers compensation insurance and reinsurance submissions so that databases can be created to measure, monitor, and manage catastrophe exposure.
William J. Miller Vice President and Actuary / ACE USA
Steven E. Math Senior Vice President and Chief Actuary / ACE USA
Richard W. Palczynski Group Senior Vice President and Chief Actuary / The Hartford
Seth Ruff Assistant Vice President / Suiss Re Underwriters Agency Inc.
In May 2000, a CAS task force was formed to explore offering general business skills education to the CAS membership. As a result of the task force recommendations, a Committee on General Business Skills Education (GBSE) was formed in 2001. The CAS has successfully offered sessions on executive presentations, writing skills, and negotiation at the 2000 Spring and Annual Meetings. The CAS is pleased to offer a session on effective presentations at the 2002 Spring Meeting.
How to Talk so People Will Listen
Actuaries are intelligent and can offer valuable insights. However, opportunities to contribute are often lost when information is not presented as effectively as possible. This session will show you how to present yourself and your ideas in a professional and cogent manner. Talk so people will listen!
Specific topics include:
- self presentation
- use of visuals
- organization of material
- techniques to make any presentation interesting
The first three hours will include lecture and exercises. Afterwards, attendees will have the option of remaining for an afternoon session that will give them the opportunity to apply their communication skills in videotaped exercises. Attendance will be limited to the first 20 registrants. Please indicate on the registration form if you would like to attend this session.
Gerald A. August, Communications Consultant
The Gramm-Leach-Bliley Services Modernization Act of 1999 (GLB) will have a far-reaching impact on the business of insurance, bringing with it new challenges to casualty actuaries. This development is only one of a number of drivers currently affecting the insurance marketplace. Other examples include commercial lines deregulation, e-commerce, globalization, enterprise risk products, litigation changes, and many others. This Discussion Paper Program offers a forum to share thoughts and ideas on changes we are likely to see in the insurance industry.
The LIHTC Program and Considerations for Guarantors of Affordable Housing Funds
By William J. Guthlein, DQE Financial Corporation Kevin M. Bingham, Deloitte & Touche LLP
The Low Income Housing Tax Credit Program (LIHTC) was created by the Tax Reform Act of 1986 and was first utilized by the real estate development community during 1987. Each year the IRS allocates tax credits to each state based on population as defined in IRC Section 42. Under the LIHTC Program, developers of rental housing must meet certain affordability tests and the property must remain in compliance with the low income tenant set aside and rent restriction requirements for a period of not less than 15 years from the first taxable year of the credit period.
Participation by guarantors and insurers in the affordable housing investment yield guarantee business requires the willingness and ability to assess and underwrite the risks associated with a financial guarantee of a structured, tax-motivated real estate investment. These unique skills, plus the niche nature of the opportunity have limited entrants and the resulting rate competition between guarantors.
The authors predict that a strong insurance/reinsurance market will emerge as the primary guarantors seek to transfer risk to accommodate concerns about the remote but large liability assumed by the guarantor over the 17-year investment life. The market will initially be led by the formation of strategic partnerships between top-tier guarantors (or sponsors) and insurance/reinsurance companies. In the end, the authors believe the individuals who create the strongest multi-year partnerships will ultimately dominate the affordable housing investment yield guarantee business in terms of market share (percentage of annual estimated $135 million to $180 million industry guarantee fees), geographic diversification and profitability.
- Are You Ready?
By John J. Kollar, Insurance Services Office, Inc.
This paper presents a possible vision for the treatment of property/casualty and other related risks in a converging financial-services marketplace. While each market-generated development is not equally probable, substantial change is likely.
To succeed in the coming decades, actuaries - like their employers - will have to meet changing marketplace needs. The CAS brings value to its members and their clients by providing education and research that help members meet those changing needs.
The purpose of this paper is to encourage CAS members to develop their own visions of the future marketplace and to stimulate change in CAS research and education to meet the needs of the new, and still evolving, financial services marketplace.