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The Top Ten Casualty Actuarial Stories of 2003
by Vincent F. Yezzi and Robert F. Conger 

Based on our annual survey of CAS leaders, we have compiled a list of the top ten news stories affecting casualty actuaries   in 2003. This listing, as seen in the accompanying   chart, (.pdf) reflects a wide variety of issues and illustrates the diverse areas   where casualty actuaries influence the insurance industry.

This year, an unusually large number of the stories are about actuaries, including the CAS approval of mutual   recognition, actuarial malpractice, and the role of actuaries in evaluating loss reserves.   

In a second theme touching several stories, the tort system is likely to continue as a major driver for the insurance   industry and thereby affect a significant number of actuaries. Three top stories related to this theme are medical malpractice   reform, actuarial malpractice, and asbestos litigation.

Here's the top ten listing for 2003:

10.    Mutual Recognition Approved by CAS   Fellows. This approval allows the CAS Board to give Fellowship status   to members of other actuarial organizations who meet a set of rigorous requirements. This approval represents a change to the   CAS Constitution and is a significant step in the globalization of the CAS.

9.    Proposed Convergence of FASB and IASB in Fair Value   Accounting. This story also demonstrates the influence   of the international community on the work of casualty actuaries. Phase 1 of this process will only affect the definition of   an insurance contract, but the proposed Phase 2 would eventually require fair value accounting, where assets and liabilities need   to be valued at market value. This will challenge casualty actuaries to adjust reserving methods to incorporate the new   accounting standards.

8.    Continuing Medical Malpractice Crisis, Including Availability and Affordability   Problems. Many states have responded to this crisis by proposing reforms to limit non-economic (pain and suffering) claims to some fixed amount. In   addition, the federal government has proposed tort-
reform legislation related to medical malpractice. Casualty actuaries have provided analysis and testimony to states and   Congress on the potential impact of such legislation. Respondents noted that this high-visibility topic provides an opportunity   for actuaries to rise above partisanship and to be seen as a valuable source of information in this important debate.

7.    Actuarial   Malpractice. An actuary has been sued by the domiciliary state for his involvement in signing an   Actuarial Opinion for a failed insurance company. The work of other actuaries has come under increased scrutiny, as well. Actuaries   are being held more responsible in a legal setting for their work products and their impact on employers and clients. It is   more important than ever that actuaries adhere to the Code of Professional Conduct and various Standards of Practice, as well   as carefully document the work scope and responsibilities of the actuary and the client.

6.    Large Number of Reinsurers Out of Business In   2003. This directly affects actuaries to the extent that jobs are lost.   In addition, this serves as a challenge to actuaries to identify the factors that caused the downfall of these companies and to   provide better information to management in the future.

5.    Credit Scoring Use by Insurers in Underwriting and Rating Personal Lines of   Insurance. Actuaries have a major role to play in the debate among the insurance industry, consumers, and regulators. Actuaries need to identify and explain   any correlation between credit scores and insurance claim frequency/severity, and provide information that could be used to   educate the public regarding this controversial issue.

4.    Asbestos Claims' Continued Effects on Insurers and   Corporations. National legislation was proposed that   would provide for the settlement of all remaining asbestos claims from a trust. Casualty actuaries played a significant role in   crafting the legislation, including testifying before Congress. Actuaries need to continue to identify methods of reserving for   asbestos claims to help the insurance industry get its hands around the quantification of this liability.   

3.    The Influence of Sarbanes-Oxley on the Governance Standards of Insurance Companies and   Corporations. Increasingly, insurance company audit committees are requesting a direct meeting and dialog with the reserving actuary,   most frequently to help them understand the key risks and uncertainties in the reserves. In addition, the spotlight on corporate   governance has increased the demand for Directors and Officers insurance. Casualty actuaries will continue to help properly price   this product, reflecting the increased potential for claims against senior management and boards of directors.

2.    The General Level of Reserve Deficiency of the Property/Casualty Industry and the Resulting Reserve   Increases Taken by Insurers and Reinsurers. Despite substantial reserve increases by a number of insurers during 2003, rating   agencies estimate that the nonasbestos reserve shortfall for the industry is between $30 billion and $60 billion. There was   consistent concern among respondents that actuaries must be very effective in performing the core function of reserving and   effectively communicating our findings, if we are to maintain credibility with the insurance industry at large.

1.      Actuaries Come Under Significant Public Criticism for Perceived Poor Performance in Projecting Loss   Reserves. In particular, Standard & Poor's published an article in November stating that "actuaries are signing off on reserves that turn out   to be wildly inaccurate. It's an abysmal track record." This is a challenge to casualty actuaries to support the work that we   have done historically, to develop more rigorous analyses of loss reserves in the future, and to improve the way that we   explain reserves to non-actuaries. We hope all actuaries will respond in a way that enhances our reputations and increases the   value actuaries add to the insurance industry.

The chart summarizes the results of the survey. Fifteen points were awarded to a story which received a first place vote,   down to six points awarded to a story for a tenth place vote.

We have compared the consensus top ten stories with the responses of the individual participants to determine the   closest predictors of top stories and their ranks. This year's winner selected nine of the consensus top ten stories, including the   number one story. In addition to being a good predictor of the consensus, this person is either very shy or technically challenged, as   he or she did not enter a name! A number of participants selected eight of the consensus top ten stories, with   Dave Hartman coming in second and Gail   Ross third in overall scoring. This is the third year in a row that Gail has been one of the   top finishers!

Thanks to all of the actuaries who participated in this survey! Your responses are not only useful for this article, but are   used by the CAS in its long range planning process.

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