The Top Ten Casualty Actuarial Stories of 2001
Robert F. Conger and Vincent F. Yezzi
In our annual survey of CAS thought leaders, 93 percent of respondents identified the September 11 terrorist attacks as the top news story of 2001. Respondents enumerated various potential implications that these attacks may have for casualty actuaries (see separate article).
The top five stories identified were:
1. The September 11 terrorist attacks.
2. The hardening of both price and terms in the insurance market.
3. Mold claims, with resulting issues in the areas of coverage and availability.
4. The scarcity of reinsurance protection for claims arising out of potential future terrorist acts, and the debate over possible federal reinsurance mechanisms.
5. The demise of Reliance and other insurers.
Click here for the complete list of "How They Ranked and Why"
This array of stories illustrates that today's casualty actuary is involved in and affected by events and trends of significant societal and economic importanceevents that in many cases are visible to the general public as well as the insurance executive. Each of these top stories also illustrates the complexity and difficulty of the problems that actuaries are being asked to tackle, in collaboration with other members of management teams. Clearly, the actuary of the future will find no shortage of intellectual and technical challenges.
This year's number two story, the hardening of the underwriting cycle, was third in last year's survey. Respondents noted that as the market hardens, prices are based more directly on expected costs, and the pricing actuary is likely to have a direct impact on the improved industry results that should emerge from the hardening market.
Mold claims against homeowners policies was selected as the number three story. As homeowners insurers grapple with the coverage questions surrounding the current influx of mold claims, as well as evaluation and resolution of those claims, actuaries are considering the direct pricing implications. Further, the financial implications of these claims provide an example of the type and magnitude of extreme events that dynamic financial analysis models need to anticipate.
Another "claims" story, asbestos, was number six for 2001. Unlike mold claims, this story has been around for decades, but in recent years has surprised many observers with a renewed surge of claims. Actuaries are facing the challenge of revisiting projections of the ultimate financial toll of these claims on their employers, and also anticipating the characteristics of future events that may draw on the premium and capital dollars of today.
The number four story was the scarcity of reinsurance protection for terrorist events in the aftermath of September 11. As the federal government contemplates a possible role in this arena, actuaries are working with their management teammates to evaluate the implications for the exposure and risk profiles of their companies, the capital requirements, and possible responses such as coverage exclusions, withdrawals from certain coverages or markets, and pricing changes.
Three of the top ten stories related to the transformation of the insurance industry through new formations (No. 10: the establishment and capitalization of new reinsurers in Bermuda); acquisitions, mergers, and divestitures (No. 8: the continuing mergers and acquisitions activity); and liquidations (No. 5: Reliance and other companies put into liquidation, rehabilitation, or supervision). The speed with which several major companies slid from apparently solid financial ratings to liquidation, with little time for regulatory intervention, is prompting questions about the effectiveness of various regulatory financial checkpoints, some of which involve actuaries. In addition, actuaries are involved in analyzing company formation and merger/acquisition transactions, which affects the jobs and markets in which actuaries work.
This year's seventh story was the appointment of chief risk officers by various insurers and corporations. This marketplace trend reflects the growing recognition of the importance of evaluating and managing all dimensions of an organization's risk holistically. Actuaries have an important role to play in understanding, evaluating, quantifying, and modeling the diverse set of risks and their interactions.
Finally, the story rated ninth was the sluggish U.S. economy. Respondents noted that many casualty actuaries have worked primarily during an era of continuous economic growth. Anticipating the impact of economic turning pointsand a weaker economyon revenue, expense, and claim outlooks will require a change of thought processes for some actuaries.
As in prior years, this year's candidate stories were culled from the trade press to be externally oriented, and not intended to review CAS internal actions. In the first round of the survey, participants, drawn from CAS committee chairs, past presidents, Board of Directors, executive council and Regional Affiliate presidents, narrowed and consolidated an initial list of approximately forty stories. The first round of this Delphi study also highlighted reasons for top selections by various voters. The second round invited voters to review their initial selections. The final scores were tallied using a sports polling method (15 points for first place down to 6 points for tenth place).
Continuing this year are the prizes for the best first-round predictors of the final consensus of all participants. Shelly Rosenberg won top honors for naming all of the top eight stories, as well as for selecting rankings most closely aligned with the final ranking of the top ten stories. Gail Ross named nine of the top ten stories, and finished second in ranking the top ten stories, followed closely by Ralph Blanchard. Blanchard was one of our winners last year also. Patricia Furst and Walt Wright followed in fourth and fifth places this year.
Thanks to all the actuaries who participated in this survey. This result also serves as an input to the Long Range Planning Committee on potential future directions of the actuarial practice.