CAS 2007 Spring Meeting
Handouts and Audio Recordings
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KS1: Keynote Speaker
Naomi Robbins, Ph.D.
“Visual Presentation of Quantitative Information”
Naomi B. Robbins is a consultant and seminar leader who specializes in the graphical display of data. She trains employees of corporations and organizations on the effective presentation of data. She also reviews documents and presentations for clients, suggesting improvements or alternative presentations as appropriate. The author of Creating More Effective Graphs (published by John Wiley in 2005), Dr. Robbins conducts one- and two-day seminars on the book’s subject as well as offers the short programs “Recognizing Misleading and Deceptive Graphs” and “Just Because You Can Doesn’t Mean You Should: Better Charts With Excel.”
Dr. Robbins received her Ph.D. in mathematical statistics from Columbia University, M.A. from Cornell University, and A.B. from Bryn Mawr College. She had a long career at Bell Laboratories before forming NBR, her consulting practice.
GS1: Traditional Actuarial Roles—Putting it All Together in an Enterprise Risk Management Framework
Enterprise Risk Management (ERM) envisions a holistic treatment of risk—both positive and negative—across an enterprise. Pricing and reserving are the traditional actuarial functions. How do those “silos”—pricing and reserving—relate to an insurer’s enterprise-wide ERM process? How is pricing an ERM function? What aspects of reserving coincide with ERM? The panelists will address these and many more issues regarding ERM, including risk and return analysis and planning.
Donald F. Mango, Managing Director, Guy Carpenter & Company, LLC
Russell Bingham, Director of Research and Development, The Hartford
Eugene C. Connell, Senior Vice President and Chief Actuary, Erie Insurance Group
John J. Kollar, VP-Consulting & Research, ISO and CAS VP-Risk Integration and ERM
GS2: Florida Homeowners Insurance–How Big is the Availability Problem? Is There a Fair Solution?
Since Hurricane Andrew, availability and affordability for homeowners insurance in Florida has been an ongoing discussion topic. Over the past several months a variety of different solutions have been suggested. Recently, some companies have implemented their own solutions including restricting the amount of business they will write in Florida’s coastal areas, extreme rate increases, and buying additional reinsurance, then passing the cost on to insureds.
The Florida legislature has responded by recently passing legislation limiting the changes companies can make and providing greater reinsurance availability to companies doing business in Florida. Session panelists will discuss the viewpoint on how these changes affect the marketplace on both a short- and long-term basis, and if they think we are any closer to solving the homeowners insurance availability and affordability concerns in Florida—or if they believe that this really was an issue!
Jeffrey L. Kucera, Sr Consultant, EMB America LLC
Locke Burt, CEO, Royal Palm Insurance Co.
Bradley L. Kading, President and Executive Director, Assn of Bermuda Insurers and Reinsurers
Paul Palumbo, CUO, Citizens Property Insurance Corp
Ray Spudeck, Sr Research Economist, Florida Office of Insurance Regulation
GS3: Solvency II Round Table
Solvency of insurance and reinsurance carriers has been of utmost concern to insurance regulators throughout the world. In the early 1990s, the NAIC replaced a simplistic ratio-based approach to evaluating insurance company solvency with a risk-based capital (RBC) calculation. Solvency II is the European Union-initiated project that, similar to the RBC formula, aims at creating a risk-related solvency model. However, unlike the RBC formula, Solvency II will allow for use of internal ERM tools to quantify the risks associated with assets and liabilities of an insurance company as well as the interdependencies between such risks.
Solvency II regulation will affect many insurance companies conducting business in Europe, America and Asia. Its mandatory application is expected in 2009 or 2010. The EU insurance regulatory body CEIOPS (or the Committee of European Insurance and Occupational Pensions Supervisors) has published and received industry responses to two quantitative impact studies (QIS). Expected to be released in April 2007, the QIS 3 with a new view of the calculation, will provide further guidance on the quantitative assessment of the Solvency Capital Requirement. Will the players be ready?
This panel will explore insurer reactions to the Solvency II regulations, their means of planning for the changes, the implications of Solvency II to insurance companies, as well as a comparison to the current U.S. regulatory requirements.
Frank J. Karlinski, VP, American International Underwriters
Maryellen J. Coggins, Director, PricewaterhouseCoopers LLP
David M. Lightfoot, Managing Director, Guy Carpenter Instrat
Arne Sandström, Chief Actuary, Sveriges Försäkringsförbund/Swedish Insurance Federation
C1: 2006 ARIA Prize Paper: “Estimating the Cost of Equity Capital for Property-Liability Insurers”
This article presents new evidence on the cost of equity capital by line of insurance for the property-liability insurance industry. To do so we obtain firm beta estimates and then use the full-information industry beta (FIB) methodology to decompose the cost of capital by line. We obtain full-information beta estimates using the standard one-factor capital asset pricing model and extend the FIB methodology to incorporate the Fama-French three-factor cost of capital model. The analysis suggests the cost of capital for insurers using the Fama-French model is significantly higher than the estimates based upon the CAPM. In addition, we find evidence of significant differences in the cost of equity capital across lines.
J. David Cummins, Executive Director, SS Huebner Foundation, Wharton School, University of Pennsylvania
Richard D. Phillips, Professor of Risk Management and Insurance, Georgia State University
C2: Actuarial Malpractice: Guide for a Practicing Actuary
The term "Actuarial Malpractice" is, unfortunately, no longer a novelty.
Lawsuits against actuaries are becoming more and more common today. Is our profession ready for this environment? What does a practicing actuary owe to the public, his employer, his profession and himself? How does one stay out of trouble?
This panel will address this topic from several different perspectives; practical advice from the perspective of Professional Standards, a view point of an attorney involved in defending actuaries, and words of caution from a fellow actuary.
Simon Kai-Yip Wong, Consulting Actuary, Milliman, Inc.
Thomas C. Griffin, Senior Staff Attorney, American Academy of Actuaries
Ronald Lepinskas, Partner, Lord, Bissell & Brook LLP
C11: A Look into the Florida Hurricane Catastrophe Fund (FHCF)’s Ability to Meet Its Obligations
The Florida Homeowners General Session ('Homeowners insurance in Florida - How big is the availability problem? Is there a fair solution?') will cover a broad range of topics specific to this state and line.
This concurrent session will explore the specific recent legislative changes in Florida related to the FHCF’s ability to meet its obligations in the event of a catastrophic loss.
Our panelists will cover the mechanics of the FHCF’s ability to meet its obligations, including how much bonding they will need to raise based on latest projections, the amount of assessment needed to support the bond issue, etc. In addition, our panelists will look into the impact this change has on (re)insurance companies and summarize the positions taken by the rating agencies (AM Best, Moody’s, and S&P). Finally, our panelists will explore possible reinsurance solutions to address any company concerns and rating agency viewpoints.
Marcus A. Tarrant, Manager, PricewaterhouseCoopers LLP
John R. Forney, CFA, Raymond James & Associates, Inc.
Judith M. Durdan, Durdan Consulting, Inc.
Lara Mowery, Senior Vice President, Guy Carpenter & Company, Inc.
C3: Applications of “R” in Actuarial Modeling
“R” is a freely available open source computer language designed for statistical computing. This session will start with an introduction to “R”, including where to get it and how to use it. Next it will illustrate some actuarial applications of “R” in the areas of predictive modeling for insurance pricing and reserving.
Glenn G. Meyers, Chief Actuary, ISO Innovative Analytics
James C. Guszcza, Senior Manager, Deloitte Consulting LLP
C16: A Presentation About Presentations: Creating the “Dynamic Actuary”
Most actuaries are regularly called upon to present complex concepts to an audience. The more that actuaries can improve upon their presentation skills, the more their visibility within an organization – primary company, reinsurer, consulting firm, brokerage house – increases accordingly. Today, actuaries are counted on to present actionable information to CEOs, CFOs, CROs, and board of directors, in addition to clients and peers at industry conferences.
Like many business people in general, some actuaries are averse to making presentations, or lack the experience or confidence to be effective speakers. This session will help actuaries devise a game plan for confronting the fear of “performing” in front of an audience. The goal is to help presenters build confidence by identifying individual strengths in communication skills and capitalizing on them for future presentations.
Specifically, this session will help individuals identify and meld their personal and professional strengths and traits to create themselves into the “Dynamic Actuary.”
Linda K. Brobeck, Senior Actuary, Allstate Research & Planning Center
Robert Morand, Partner, D.W. Simpson & Company
C4: Assessment of Target Capital for General Insurance Firms
(A paper by Andrew Hitchcox, Ian Hinder, Allan Kaufman, Trevor Maynard, Andrew Smith and Martin White which was presented to the Institute of Actuaries in November.)
The paper discusses how to put financial economics views of risk and actuarial modeling of insurance into a common practical framework. It describes the different approaches to setting the target capital for a general insurance firm, and how to reconcile them. It describes the approaches to modeling the cost of capital, and the available stock market data to support them. Finally, it describes how the financial economics concept of 'frictional costs' can be applied in a practical way to set target underwriting margins.
The paper will be of interest to all general insurance actuaries involved in the use of capital modelling for steering the firm's overall financial targets. It will also be of interest to actuaries outside the general insurance field for demonstrating the connections between actuarial and financial economic approaches to risk.
Allan M. Kaufman, Actuary and Consultant, AMK Consulting
C6: Data Quality and the Impact on Cat Modeling Results
The importance of accurate exposure data in ensuring the accuracy of CAT model output is now recognized by most insurers. While many companies have begun to improve the accuracy of replacement cost estimates, coding of risks and geocoding of addresses, there are still other critical data elements that can have a significant impact on model results.
In this panel discussion, catastrophe modelers will address the most important data quality factors for their catastrophe models and highlight how various levels of data quality can affect the results for the same portfolio.
Benoit Carrier, Actuarial Director, Zurich North America
Hesaam Aslani, Senior Catastrophe Risk Modeler, Risk Management Solutions, Inc.
David Lalonde, Senior Vice President, AIR Worldwide Corporation
C7: Dynamic Risk Modeling: Completed Research & Project Update
Dynamic Risk Modeling has developed from the application of Enterprise Risk Management's holistic perspective and broader scope of industries to the technical tools of Dynamic Financial Analysis. The CAS Dynamic Risk Modeling Committee (DRMC) has combined these valuable elements with the rarely tapped resource of truly dynamic modeling. Such modeling is based on the familiar stochastic processes, but it also includes corporate reactions to modeled events, creating a powerful system for dynamic modeling of enterprise risks.
This panel will discuss recent research and projects that have been completed under the guidance of the DRMC and its working parties. and provide updates to other projects. These subjects will include the first edition of the Dynamic Risk Modeling Handbook, a call for papers to Review and Compare Rating Agency Capital Models, and the Loss Simulation Model Working Party.
Nathan Babcock, Actuarial Director, Zurich North America
Robert A. Bear, Consulting Actuary, Reinsurance Consultant and Arbitrator, RAB Actuarial Solutions, LLC
Thomas P. Conway, Partner, Ernst & Young LLP
C8: The End of Free Sharing in the Insurance Industry
Intellectual capital is the main value actuaries bring to their respective employers. Historically, the Casualty Actuarial Society has operated in a very collaborative fashion and actuaries have freely shared information in various publications in an effort to improve the Society as a whole. In a landmark case in 1998, the U.S. Court of Appeals Federal Circuit reinterpreted the U.S. patent laws to include business processes as patentable subject matter.
As a result of that decision, there has been a proliferation of patents within the P&C insurance industry. Everyone from major carriers to independent actuaries are attempting to patent their new insurance inventions. Those that succeed may be able to dominate new markets. Those that pay no attention to this developing trend will be relegated to selling old forms of coverage or licensing the innovative new ideas of others.
This panel will debate the pros and cons of this movement for the P&C industry, discuss how companies' actions may need to change, and comment on the implications of patents on CAS education.
Stan Khury, Principal, Bass & Khury
Donald T. Bashline, Bashline Associates
Gerald L. DePardo, Partner, McCormick, Paulding & Huber LLP
C9: Homeowners Insurance in Florida – The “Citizens” View
The Florida Homeowners general session ('Homeowners Insurance in Florida - How Big is the Availability Problem? Is There a Fair Solution?') will cover a broad range of topics specific to this state and line.
Florida Governor Charlie Crist calls Citizens Property Insurance Corporation, the residual market property insurer, the “People’s Company”. This concurrent session will explore the specific recent legislative changes in Florida related to Citizens from both the special and regular legislative sessions – are the people of Florida helped on balance by these changes?
Our panelists will outline the legislative changes, their impact on the solvency, efficiency, and growth trajectory of the residual market insurer, and their effects on the economics of the private market and its participating insurers and reinsurers. Short and long run consequences will be considered. Our panelists will represent both the consumer protection and free market view points and will shed light on the big picture – are we any closer to solving the availability and affordability problems with Florida property insurance?
Throughout, the role of actuaries in educating political leaders, policy advisors, and the general public will be discussed by our panelists who have seen the making of insurance laws and regulations first-hand.
Marcus Tarrant, Manager, PricewaterhouseCoopers LLP
Judith M. Durdan, Consultant to Guy Carpenter on Florida issues
John Rollins, Vice President, AIR Worldwide; former Chief Actuary, Citizens Property Insurance Corporation
C10: Hot Claims Topics: Casualty Impacted Emerging Issues Management
Emerging Issues can be defined as trends or events that are rapidly gaining in impact and importance for insurance companies but which may be beyond the bounds of our existing underwriting and risk engineering best practices. They may also be beyond our actuarial calculations in terms of scale, frequency and timing. These issues may present both threats and/or opportunities. This session will explore three areas: overview of emerging issues management, casualty impacted natural catastrophe, and benzene litigation.
- When the past is no longer a reliable predictor of the future, we may have an emerging issue. Emerging issues can be hard to identify and address without a formal process in place. We will begin with a discussion of actual emerging issues facing us, today, to illustrate the practical applications of an emerging issues lifecycle process.
- Since September 11 and then following Hurricane Katrina, the industry has seen indications that third party bodily injury as well as property damage claims may be asserted against a wide range of potential defendants. This portion of the session will explore the potential emergence of casualty as a catastrophe impacted line by reviewing the history of casualty claims following catastrophes and discussing the future of third party claims in catastrophic eventss.
- Following in the footsteps of other industrial exposure based litigation, plaintiffs are now filing suits alleging that they contracted various blood diseases including acute myelogenous leukemia (AML) and multiple myeloma from occupational exposures to aromatic hydrocarbon-containing chemicals, solvents, paints and/or fuels. This presentation will discuss profiles of typical defendants, the attendant issue of insurance coverage, and current views on causation. It will then contrast this litigation with waves of mass litigation that preceded it including asbestos, silica and welding fumes.
Nancy Hoppe, AVP & Director of Corporate Pricing, Zurich North America
Steve Knutson, Vice President & Director of Emerging Issues, Zurich North America
Jason Schupp, Senior Vice President & Director of Regulatory Policy and Programs Zurich North America
William Brauer, Mass Litigation Claim Manager, Zurich North America
C12: Loss Reserve Ranges in Practice
According to the Actuarial Review, two of the top three 2006 news stories with implications for casualty actuaries related to loss reserve ranges, and reserve variability. Discussions of reserve ranges are moving rapidly from the technical back room, into the Board room and onto Wall Street, with a broadening audience becoming increasingly sensitized to uncertainty around loss reserves, and needing to understand the sources and implications of this uncertainty. Accordingly, this panel will focus on practical business perspectives on loss reserve ranges, rather than on the mathematics of quantifying the ranges. An overview of company practices and issues in the determination and presentation of loss reserve ranges will set the stage for a regulatory perspective and a case study of how one insurance company is approaching this issue.
Robert F. Conger, Principal and Consultant, Towers Perrin
Ronald E. Greco, Vice President & Corporate Actuary, Unitrin
Thomas M. Mount, Managing Senior Financial Analyst/Actuary, A.M. Best Company
C13: Mergers and Acquisitions in the Insurance Industry
Over the last decade or more, there has been an apparent increase in merger & acquisition activity within the insurance industry. This activity includes both large and smaller insurance organizations, and all have changed the insurance marketplace.
Will M&A activity continue at the same rate, or can we anticipate a slowdown in activity? Does the Underwriting Cycle have any influence in M&A activity? Are there any other financial market issues that influence insurance industry M&A activity?
Christopher P. Walker, Principal, PricewaterhouseCoopers LLP
William M. Carpenter, Consulting Actuary, Milliman, Inc.
John Marra, PricewaterhouseCoopers LLP
C14: The New NCCI Hazard Groups
The NCCI Hazard Groups aggregate workers compensation class codes with similar claim severity distributions. The Excess Loss Factors in the NCCI Retrospective Rating Manual are calculated separately by Hazard Group. NCCI recently revised its mapping of class codes into Hazard Groups. Now, partitions of the class codes into either 4 or 7 Hazard Groups are available.
This session will review background and describe the changes contained in the Hazard Group Item Filing B-1403, along with subsequent annual updates, and the impact of this new filing.
David Leblanc-Simard, Vice President and Chief Actuary, FCCI Insurance Group
Jose Couret, Senior Vice President, Guy Carpenter
Jonathan Evans, Actuary, NCCI
C15: Peer Reviews – Are We Doing Everything We Should?
The American Academy of Actuaries’ Committee on Professionalism Responsibility recently published a white paper on Peer Reviews. It covers such topics as what is a peer review? Why are they necessary? When should a peer review be required? What qualifications should a peer reviewer have? What is the peer reviewer’s role?
At a time when actuaries are subject to more and more litigation, the subject of peer reviews has become more and more critical. This panel will discuss the AAA’s recent paper and offer some insights of their own.
Jeff Kucera, Senior Consultant, EMB America LLC
Russ Sutter, Consulting Actuary, Towers Perrin
C17: Recent Enhancements to Rating Agency Models
Insurers, regulators and rating agencies are all focused on building more advanced capital modeling techniques. This session will focus on how the rating agencies have enhanced their models to assess capital needs. In the wake of major disasters (e.g. Katrina, 9/11), enhancements have been made in catastrophe modeling and reinsurance collectibility. Panelists will also discuss how ERM is used in evaluating the capital needs of each company.
Mike Schmitz, Consulting Actuary, Milliman, Inc.
Jeff Mohrenweiser, Senior Director, Fitch Ratings
Thomas Mount, Managing Senior Financial Analyst/Actuary, A.M. Best Company
C18: Recent New York Workers Compensation Reform
Shortly after taking office as Governor of New York, Eliot Spitzer signed landmark legislation in March of 2007 that fundamentally reforms the New York workers compensation system. The new legislation increases benefits for injured workers, establishes return-to-work incentives, establishes several fee schedules, attempts to curtail fraud, and questions the future role of the New York Compensation Insurance Rating Board.
This panel will give several perspectives on the new legislation. Background on the political and social climate leading to the change will be provided, followed by a discussion of the changes, the implementation process, and the anticipated effects on businesses, injured workers, medical providers, and insurance companies writing worker compensation in New York. We will wrap up the session with some initial estimates of the reform's cost and pricing implications.
Robert F. Conger, Principal and Consultant, Towers Perrin
Martin G. Heagen from New York Compensation Insurance Rating Board
Michael Moran, Director of Public Affairs for the NE Region, AIA
Joe Treacy, Assistant Vice President Workers Compensation, Hartford Financial Services Group
C19: Retention Modeling – How Do I Start Preparing Today?
Two topics receiving growing attention in the actuarial and insurance world are Optimized Pricing and Lifetime Values. Both of these areas require knowing more about retention and what drives it. While it may be a while before many companies are truly ready to tackle the problem of retention modeling, now is the time to begin considering what would go into a good model, and collecting and/or preparing your data so that you can be ready to model retention when you do decide to look closely at Optimized Pricing and/or Lifetime Values.
The panel will discuss some of the first steps that should be considered for retention modeling, and how you can begin your preparations now.
Geoff Werner, Senior Consultant, EMB America LLC
Craig Avitabile, Actuary, Liberty Mutual Group
John Emig, Actuary, Progressive Insurance Group
Robert S. Weishaar, Nationwide Insurance Company
C20: Seasoned Actuaries Section
Are you retired or thinking of retiring in the next several years? The CAS has formed a special interest section known as the Seasoned Actuaries section for those CAS members interested in giving back to the profession or on behalf of it. Join us for our regular semi-annual gathering to see what role you can play in this new section.
David G. Hartman, President
Allan Kaufman, President-Elect
Amy Bouska, Secretary-Treasurer
C21: Selecting a Claims TPA and the Potential Impact on Reserves
A claim administrator or third party administrator (TPA) is commonly used by companies of all sizes. Typically, companies in expansion will contract out the claims administration function, or may have a need to consolidate their claims management functions that were previously handled by several different TPAs. Bringing our claims data expertise to the table, actuaries should play a key role on the team that surveys and selects a claims TPA.
This session explores some of the considerations that one should include in a search for a new or replacement firm to handle claims administration. Line-specific (personal, commercial, workers’ compensation) will be discussed, as well as the many factors to consider when evaluating the potential impact that claims administrative changes may have on case reserving.
Robert J. Walling, Principal and Consulting Actuary, Pinnacle Actuarial Resources, Inc.
Craig A. Stroinski, Sr. V.P., Director, Business Intelligence, Sedgwick Claims Management Services
C22: Starting Up and Maintaining a Captive Insurer
This session will provide an overview of why corporations form captive insurance companies and key steps that must be taken to establish the company. The decision for a corporation to form a captive is generally thought of as strictly a financial one. Cost savings considerations include seeking alternative risk management in the face of exorbitant hard-market premiums, lower inherent expenses associated with claims handling and administration, and, of course, an improved tax position. Panelists will expand on these financial issues facing a corporation’s risk management and also provide other factors that are not financial which might affect the decision to establish a captive insurer.
Towards structuring a captive insurer, the session will cover:
- The different types of captive insurers;
- The advantages and disadvantages of having the captive insurer domiciled in the US or offshore;
- The considerations toward selecting the captive manager and other service providers;
- The structuring of the insured risk – coverages, excess vs. first-dollar, and the need for reinsurance; and
- The basic judgments involved in capitalizing the captive insurance company and computing the ongoing funding/premium.
Presentations will include the actuarial role involved in many of these decisions, and how careful consideration of actuarial input is important to the long-term success of a captive insurer.
Panelists will discuss the regulatory climate for captive insurers, both in the US and offshore. Vermont and Bermuda are main locations for captive insurers, but are other states or offshore locales becoming increasingly popular? And, what are the significant aspects of a state’s captive law that successfully attracts new captives to domicile there.
The session will include a question and answer period from the audience.
Michael R. Mead, President, Crusader Captive Services, LLC
William N. Bartlett, President and Chief Actuary, Bartlett Actuarial Group, Ltd.
Robert J. Walling, Principal & Actuarial Resources, Inc.
C24: The State of the Reinsurance Market
This session will give the audience an update on the current Property and Casualty Reinsurance Market, the reinsurance needs of various insurance entities as well as how reinsurers are responding to those needs both from a Property as well as Casualty perspective.
James W. Larkin, Chief Actuarial Officer - Broker Market, Munich Reinsurance America, Inc.
Linda C. Johnson, Executive Vice President, Benfield Inc.
Sean F. Mooney, Chief Economist, Guy Carpenter & Co., Inc.
Joy Takahashi, Chief Marketing Officer, Munich Reinsurance America, Inc.
C5: The Business Case for Predictive Modeling
Predictive modeling is one of the hot topics among actuaries, but in reality it is hard work and time consuming. So why do it? This panel will describe how this tool is most appropriately used in a business context.
We will start by describing that predictive models provide competitive advantage by allowing you to better segment risks by expected loss experience. The strategic question is, how will you use the tool? Will it be in pricing, in underwriting tiering, in competitive price analysis or price optimization, or all of these?
Next we will examine the business rationale for a predictive model from a non-technical perspective. The following key considerations will be discussed: what are the critical elements of a business case, how should a cost benefit calculation be structured, and how are actual business benefits measured on a go forward basis.
Once a decision is made to use predictive modeling, we will discuss how to accomplish the business goals. The issues related to managing the development and implementation of these complex tools will be addressed.
Martha A. Winslow, Senior Consultant, Towers Perrin
Beth E. Fitzgerald, Assistant Vice President, ISO
Frank Zizzamia, Director, Deloitte Consulting LLP
C23: The State of the P/C Insurance Market in China
The rapid development of the China economy, the opening of the insurance market to private companies, and rapid growth (and enormous future potential) of premium volume has energized a significant wave of interest from foreign and domestic investors wanting to participate in the insurance business in China. This panel will provide an overview of the current property/casualty insurance market in China, and will share information and insights regarding the new compulsory auto liability law, the regulatory environment and the role of actuaries in the regulatory regime, solvency considerations, and various opportunities and challenges in the marketplace.
Robert F. Conger, Principal and Consultant, Towers Perrin
Zhigang Xie, Professor, Shanghai University of Finance and Economics
Peng Ding, Deputy Director, China Insurance Regulatory Commission
Qian Tao, Renmin University, Beijing
Ray Yao, Renmin University, Beijing
C25: Use of Predictive Modeling in Claims Management
This session will cover the various applications of preductive modeling to the claims function. Emphasis will be placed on the personal automobile and workers’ compensation lines. Some applications to be presented include estimating claim settlement values, estimating the impact of law changes on claim values, identifying potential fraudulent claims, and managing the claims process.
James Paugh, Deloitte Consulting LLP
Roosevelt C. Mosley, Principal & Consulting Actuary, Pinnacle Actuarial Resources, Inc.
C26: Uses of Modeling in Workers Compensation
This session discusses how computer modeling was recently applied for use in Workers Compensation ratemaking and how statistical modeling is currently being explored for predicting loss development. First, we will discuss recent modifications made in NCCI ratemaking methodology to handle a) large individual claims, and b) catastrophic events related to the perils of industrial accidents, earthquake, and terrorism. Included within the discussion is how the modeling was done for each peril. Then we will discuss a Bayesian statisical model of loss development and tail factor estimation.
Tom Daley, Director and Actuary, NCCI
Frank Schmid, Director and Senior Economist, NCCI
C27: Workers Compensation and Group Health Insurance - Comparisons of the Magnitude and the Cost Drivers of Medical Inflation
In response to feedback from a CAS Member survey, the CAS Committee on Health Care Initiatives chaired by Theresa Bourdon has been revived and, in conjunction with the SOA, is coordinating research and continuing education opportunities on health care issues impacting Casualty and Health Insurance. The CHCI is coordinating additional research for future continuing education opportunities on Medical Malpractice and other health care issues impacting Casualty Actuaries.
Trends in medical inflation and utilization get a great deal of attention among group health and workers compensation actuaries alike, but there is little research on their interrelationship and the impact of common cost drivers such as healthcare provider incentives, underlying medical inflation and government programs (e.g., medicare) on them. This session brings together experts on current trends in the healthcare industry to discuss the magnitude and components of group health and workers compensation medical trends, how they relate to one another and factors that drive trends in both. This will include underlying medical inflation per service, changes and differences in the mix of medical services, the impact of managed care, the ability to obtain discounts from providers, the use and effectiveness of networks, and the impact of government programs. Discussion will also focus on the outlook for workers comp and group health insurers in terms of their ability to manage and control medical trends going forward.
William J. Miller, Senior Vice President and Actuary, ACE USA
John Cookson, FSA, Consulting Actuary, Milliman, Inc.
John Robertson, Director and Actuary, NCCI
Variance Paper Presentations
V1: “Extended Service Contracts, An Overview” and “Modeling Mortgage Insurance as a Multistate Process”
“Extended Service Contracts, An Overview”
by Roger M. Hayne
Download Audio (mp3)
Extended service contracts and their programs continue to evolve and expand to cover more and more products. This paper is intended to be a basic primer for the actuary or risk professional interested in either working in or understanding this area. We discuss the general structure of service contract programs and highlight features that should be considered in the review of the financial solidity of such programs.
“Modeling Mortgage Insurance as a Multistate Process”
by Greg Taylor and Peter Mulquiney
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This paper covers experiences in modeling mortgage insurance claims. In Section 2, mortgage insurance claims are considered an absorbing state in a Markov chain that involves transitions between the states of healthy, in arrears, property in possession, property sold, loan discharged, and claim. Section 3 considers the representation of this process by a cascade of five frequency generalized linear models (GLMs) and a further GLM for claim size. These models are applied to the forecast of technical liabilities in Section 4 and the estimation of the associated forecast error in Section 5.
V2: “The Common Shock Model for Correlated Insurance Losses” and “Multivariate Copulas for Financial Modeling”
“The Common Shock Model for Correlated Insurance Losses”
by Glenn G. Meyers
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This paper discusses an approach to the correlation problem in which losses from different lines of insurance are linked by a common variation (or shock) in the parameters of each line’s loss model. The paper begins with a simple common shock model and graphically illustrates the effect of the magnitude of the shocks on correlation. Next it describes some more general common shock models that involve common shocks to both the claim count and claim severity distributions. It derives formulas for the correlation between lines of insurance in terms of the magnitude of the common shocks and the parameters of the underlying claim count and claim severity distributions. Finally, it shows how to estimate the magnitude of the common shocks. A feature of this estimation is that it uses the data from several insurers.
“Multivariate Copulas for Financial Modeling”
by Gary Venter, Jack Barnett, Rodney Kreps, and John Major
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Although the copula literature has many instances of bivariate copulas, once more than two variates are correlated, the choice of copulas often comes down to selection of the degrees-of-freedom parameter in the t-copula. In search for a wider selection of multivariate copulas we review a generalization of the t-copula and some copulas defined by Harry Joe. Generalizing the t-copula gives more flexibility in setting tail behavior. Possible application include insurance losses by line, credit risk by issuer, and exchange rates. The Joe copulas are somewhat restricted in the range of correlations and tail dependencies that can be produced. However, both right- and left-positive tail dependence is possible, and the behavior is somewhat different from the t-copula.
V3: “Loss Reserve Estimates: A Statistical Approach for Determining ‘Reasonableness’”
“Loss Reserve Estimates: A Statistical Approach for Determining ‘Reasonableness’”
by Mark Shapland
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While accounting principles and actuarial standards of practice are all well designed, they provide only broad guidance to the actuary on what is “reasonable.” This broad guidance is based on the principle that “reasonable” assumptions and methods lead to reasonable” estimates. Unfortunately, this broad guidance can leave the low end of a range of “reasonable” reserves open to an interpretation that could lead to unintended consequences in practice. This paper reviews some current actuarial practices and examines how they relate to the question of what is “reasonable” from a statistical perspective. Moreover, it reviews and further develops some statistical concepts and principles that actuaries can add to the their repertoire when developing ranges and distributions of liability estimates and then evaluating the “reasonableness” of management’s best estimate within those ranges and distributions.
ERM1: Introduction to ERM – The Measurements, Quadrants, Tools, and Solutions
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Enterprise Risk Management (ERM) does not reflect any new concepts; rather, it is an evolving “organizing” concept and/or philosophy. This session is essentially “ERM 101,” and panelists will discuss the key elements of what ERM is and what it is not. Panelists will discuss the framework of design, risk categorizations, an overview on tools, and approaches and disciplines to manage and measure opportunities, constraints, and threats with regard to the four sectors of risk:
Mark Vonnahme, Visiting Lecturer, College of Business, University of Illinois
ERM2: A Capital Idea: Economic Capital as a Support to the ERM Process – But How Much is Too Much or Too Little?
Panelists will discuss the role of Economic Capital in the ERM process -- to support the ongoing operations of a P&C insurer with respect to gaining the necessary confidence from the marketplace, its investors, and its regulatory supervisors. To provide this confidence, assessing the adequacy of capital needs must reflect and balance aspects of both the protection and the productivity of a company. Disciplined economic capital management involves a tradeoff between having enough capital to minimize insurance company failures, and having a minimum amount of capital to effectively deploy (e.g., as the cost of excess capital increases, investors may either flee or rates must increase to offset that cost).
Robert F. Wolf, Director, Navigant Consulting
Michael J. Belfatti, Consultant, Towers Perrin
ERM3: ERM Implementation – Real-Life Stories
In this session, panelists will discuss their organization’s experiences in the ERM implementation process.
Including topics such as:
- Reasons for beginning an ERM program
- Initial steps – how to begin
- The ERM process – identifying, analyzing/quantifying, integrating, assessing/prioritizing, treating/exploiting, and monitoring risks
- What areas of the company are most involved in the process
- Progress and successes to date
It is intended that the discussions will generate a dialogue between the panelists and the audience about similarities, differences, challenges and successes they have experienced in their own organizations. It is also intended that there will be opportunity for significant audience participation.
Kevin G. Dickson, Consultant, Towers Perrin
Emily C. Gilde, Finance Officer, Nationwide Insurance Company
Janet S. Katz, Senior VP ACtuarial and Ceded Reinsurance Manager, American Agricultural Insurance Company
David A. Murray, Senior Vice President, CNA Insurance Companies
ERM4: The Power of an ERM Program – Diversification and Correlation
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The power in implementing an Enterprise Risk Management (ERM) approach is essentially not reflective of any new concepts but, rather, in its optimizing and categorizing the best strategies to employ to create value by using the characteristics and tools involving the laws of probability and statistics.
When risk is managed in silos, a potential domino effect or a diversifiable event can be missed. Inherent hedges to risk may be ignored, thereby not optimizing the best risk/return trade-off of a company strategy. This session, in essence, will discuss the lifeblood of ERM; namely, measuring and exploiting the threats and opportunities underlying diversification and correlation of risk.
Chester John Szczepanski, Vice President & Chief Actuary, Donegal Insurance Group
ERM5: The Goal of ERM is to “Create Value” – But to Whom?
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This session will discuss the mechanics of the potential value creation for a P&C insurer and its potential benefits with respect to the company, stakeholders, the market place, and regulators. In particular, the discussion is intended to reflect the value creation of ERM with respect to:
- Value to the Foreign parent
- Value to the Insurance Group
- Agency Ratings
- Wall Street
- Regulatory Review
- Value to a Small Company
Alfred O. Weller, Weller Associates
Wayne H. Fisher, Consultant, Zurich Insurance Group
David N. Ingram, Consulting Actuary, Standard & Poor's
William H. Panning, EVP, Willis Re
ERM6: ERM Case Study
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This session will describe the work casualty actuaries are doing to develop an ERM program for the Casualty Actuarial Society as a non-profit organization.
Steven J. Johnston, Chair, ERM for the CAS Committee
ASTIN Paper Presentations
The ASTIN Colloquium papers will be presented on Wednesday during the joint morning sessions.
General Business Skills Workshop
GS1 & GS2: General Business Skills Education Workshop: “Writing Technical Papers That People Will Read”Wednesday, June 20, 2007, 9:15 a.m. – 12:15 p.m.
Limited to the first 50 workshop registrants.
Covers two concurrent session time slots.
Learn to produce papers that are readable, effective, and suitable for the new journal, Variance. The first half of this experiential workshop focuses on developing good writing skills and the second half on editing. Please indicate your interest in this workshop on the registration form as there are only 50 spots available. Be sure to check the box for this workshop on the registration form under “Proposed Concurrent Sessions.”
Henriette Anne Klauser, Ph.D., professional speaker and author of Writing on Both Sides of the Brain; Put Your Heart on Paper; and Write It Down, Make It Happen.