Actuaries Among the Leeks and Daffodils
Croeso! Cymru am byth! (Welcome! Wales forever!)
This year's GIRO conference was held in Cardiff's City Hall; an absolutely gorgeous homage to the scions of Victorian mining industry complete with portraits of stern Victorians. (Travel tip: Cardiff is the capital of Wales but it is also a university town, therefore, full of pubs and coffee houses as well as more staid museums and castles.)
The conference opened with a general session on operational risk and other regulatory matters. Michael Tripp and his working party updated everyone on various regulatory developments and also discussed how the approach to measuring risk should be a multidisciplinary approach. Of keen interest was the report on the working party's interviews with various companies on what risk meant to them. The working party concluded that insurers have a less developed approach to operational risk than other financial sectors like banks. They concluded that little data collection or modeling was being done so far. The working party then presented a case study and several examples of how operational risk could be modeled. What were probably new to most actuaries were the causal model (all those arrows!) and the Delphi method.
The CAS contributed a general session on hot topics from "across the pond." Kevin Bingham talked about what was going on with medical malpractice, Raji Bhagavatula discussed the latest happenings with U.S. asbestos, and Gail Ross talked about recent happenings with other mass torts.
Another general session was devoted to the reserving cycle called "the Cycle Survival Kit." This working party was formed in response to Bob Conger's presentation at the 2002 GIRO conference where he offered a graph showing the relationship between the initial and current loss projections over the last 20 years for the U.S. industry. The working party's main question was, "is there such a reserving cycle in the U.K. and, if so, what causes it, how are our reserving methods affected by it, and how can we handle it better?" The working party found clear evidence of a reserving cycle in the U.K. that led them to investigate how this might have occurred due to the mechanical use of reserving methods. They then suggested a few proposals on method refinement, particularly with regard to rating indices. This paper led to an entertaining and thought-provoking discussion.
The Clearer Communication Working Party, chaired by Catherine Cresswell, had surveyed a subset of actuaries by asking them for their definitions of various insurance and actuarial phrases. The questions ranged from "what does IBNR mean?" to "what is a range of reasonable estimates?" The results were very interesting, if not slightly surprising, particularly when the differences between students and over 10-years qualifieds were compared. The working party proposes to continue its study for the next year as they did not have time to get into areas like what "premium" means in a U.S. versus U.K. context. (Hint: it has to do with whether commissions and brokerage are included or not.)
David Sanders, complete with illustrative graphs and photos, presented a very entertaining final session, on "Extreme Events—or What Happened to My Pension?" While nominally a presentation on financial catastrophes, it was a great romp through such historical disasters as the "South Sea Bubble," which involved Isaac Newton, tulipmania of the 1600's in the Netherlands, and the Wall Street Crash of 1929. Even more recent calamities such as Enron, LTCM, and Equitable Life in the U.K. were dissected. The conclusion was that modern economic theory breaks down when the market does not act in a rational manner and regulation offers no protection.
Workshops were held throughout the conference on a variety of topics including the New FSA Capital Requirements, U.K. and European Asbestos, U.S. D&O, Financial Guaranty business, and the entirely useful "Practical Issues in Modelling Dependencies." The CAS's own Doug Collins and Dave Powell presented a session on "Worldwide Actuaries… Separated by a Common Set of Standards and Practices" where they compared Actuarial Standards of Practice, Loss Reserve Opinions, and Accounting Standards in different countries. But way more entertainingly, they included a look at the top ten reasons actuaries on either side of the Atlantic are challenged to understand one another. These included such gems as "football is played with what shape of ball?" and commenting that the letter "u" is not supposed to be used at every conceivable opportunity. My personal "favorite" was "what's the point of playing cricket for five days if nobody wins?" They ended up with "A working party sounds like much more fun than a committee."
As usual, all the papers can be found on the Institute of Actuaries Web Site, www.actuaries.org.uk.
Working Parties are being set up for next year's GIRO on such topics as "Assessing an Insurer's Financial Strength," Reinsurance Pricing, and U.K. Asbestos. Again, a list of proposed working parties can be found on the Web site. I am sure that any CAS members that wish to participate or otherwise contribute would be very welcome.
Of course, the social side of such a large gathering played a substantial part of the proceedings. The fire alarm going off at 5:30 a.m. meant some of the actuaries were actually forced to leave the bar!
Next year's conference in Killarney, Ireland looks to be as informative and entertaining as this year's.
Erin go bragh!