From the Readers
The Potential Harm of “Being International”
If “being international” only meant what Ralph Blanchard describes in his “From The President” column (“What Does it Mean to be International?,” AR, February 2011), then everyone would want to be international. The column covered little other than the wholesome, noncontroversial side of the current issue. Almost no one opposes cooperation on international accounting standards, research conferences, journals, or supporting our members overseas. However, this is like saying that to be a National Socialist means to support full employment and an adequate national defense.
Over the last decade or so, the banner of internationalism has been hoisted up as the main sail to drive a myriad of causes for which the vast majority of CAS members are strongly opposed. Internationalism has been used as an excuse to dramatically weaken our exam system because many other countries, along with having a much smaller and less influential actuarial profession, do not have an exam system and the United Kingdom, with which we adopted mutual recognition, has a long-term plan to effectively eliminate its exam system. We have also been told that we must adopt a rigid bureaucratic set of continuing education requirements, along with a system of audits and penalties, up to and including effectively suspending a member for insufficient compliance, because a lot of our members work in Bermuda. Ironically, the IAA “minimum” educational standards have mostly been used as a maximum ceiling while CAS volunteers have been heavily pressured by the Board to strip down the exam system to a skeleton that would “still meet the minimum standards set by the IAA.” There are other examples too numerous to list. It seems like whenever any unpopular proposal to change the fundamental nature of the CAS for the worse is brought forward we are told that we absolutely have to go along because we must be “international.”
The most foreboding part of President Blanchard’s column was when he described the IAA as “The IAA is the actuarial version of the United Nations, but with more potential teeth to it than the United Nations.” We all love the old IAA, which meant things like ASTIN Bulletin and seminars in Switzerland with Hans Bühlmann, but few of us support it metastasizing into a brutal authoritarian New World Order. However, this appears to be happening as so many CAS leaders desperately strive to make sure that the CAS is “international.”
—Jon Evans, FCAS
Editor’s Note: The U.K. Actuarial Profession (UKAP) was consulted on the aspect of Mr. Evans' letter citing the U.K.’s “long-term plan to effectively eliminate its exam system.” UKAP is making use of new educational approaches that are shown to be effective. These approaches may include different approaches to testing students’ knowledge and applying their knowledge, for example, using complex judgement. UKAP maintains, however, that there is and will always be a big role for traditional paper-based examinations in their qualification system and they have no plans to eliminate them.
Rajesh Sahasrabuddhe, CAS Syllabus Chairperson, responds:
The primary focus of the most recent redesign was to update the CAS basic education structure to meet current and potential future needs of property/casualty actuaries. Only after the new structure was drafted to meet the needs of the CAS was the review made to ensure that it was in compliance with IAA standard. This review was necessary since the CAS is an IAA member.
The following excerpt from the October 16, 2006, “White Paper on CAS Education Strategy” illustrates some of the driving factors for the restructuring.
The CAS Board of Directors believes that there are a number of factors that require a new strategy for education of current and prospective CAS members. These factors include:
- The scope of practice of existing members has expanded greatly and is expected to continue to expand in the foreseeable future. We need to support members’ expansion into enterprise risk management and other emerging practice areas.
- Many new areas of practice (e.g., generalized linear models, stochastic reserve models, enterprise risk management) are not conducive to testing by timed, closed-book exams.
- Not all skills are needed at the same level of mastery. The introduction of Validation by Educational Experience (VEE) was a first step in recognizing that different mastery levels may be appropriate.
- We need to continue to balance syllabus content creep against travel time.
Our goal was to design a Syllabus that was pedagogically superior by using new methods of learning delivery and by improving grouping of existing material.
This has resulted in a Syllabus with more in-depth treatment of advanced unpaid claim estimation and enterprise risk management with some topics determined to be “non-core” moved to on-line courses. I would disagree with the characterization of this change as a “stripping down.”
Appropriate Treatment of Insurance Liabilities
Neal Schmidt addresses an important concern (“Opinion: Discount Rate for Reserves Should Not be Increased for Illiquidity,” AR, February 2011). Those of us who have been working to create liquidity for insurance liabilities agree that, “The illiquidity of insurance liabilities relates to the lack of such a secondary market rather than the relationship between creditor and issuer.” Real markets charge for risk. Schmidt is almost certainly correct when he forecasts that creating liquidity for insurance liabilities will provide data showing that liabilities have higher nominal prices than, say, the “expected value” of future payouts.
Real markets have their own weaknesses. As the news media are overwhelming us with news of the earthquake in Japan, markets tend to forget the risks of flood, drought, and wind. Real markets are not perfect. As Schmidt implies, real markets are nonetheless risk averse. Creating a trading floor for insurance liabilities that provides price discovery will serve to stabilize the costs of risk across risks and over time.
—Oakley E. (Lee) Van Slyke, FCAS, ASA, MAAAThe Limits of Modeling Loss Ratios
As usual, Glenn Meyers does a good job creating a model and describing it for us (“Brainstorms: Predicting Loss Ratios with a Hierarchical Bayesian Model,” AR, February 2011). One thought occurs though: for certain applications, selection bias complicates parameter estimation. Modeling loss ratios to price an aggregate stop loss contract will only happen for a select set of insurers. The actuary will not see insurers that went out of business because their loss ratios were too high. Moreover, an insurer with historically high loss ratios will probably choose not to shop for this kind of protection, because it will be too expensive.
—Chris Svendsgaard, FCASIn Their Opinions…
In regards to Grover Edie’s article, “I Won the Lottery” (“In My Opinion,” AR, February 2011), the odds of being alive are lower than the odds of winning the lottery. The sequence of DNA transmitted from generation to generation in order to get the right combination that is in your genes makes you luckier than any lottery winner. Therefore the other reasons in the article are irrelevant. Just feel happy being alive—that is enough. In fact the difference between DNA from a fly and a human being is less than 1%. So feel happy being human and not a fly.
I loved [Grover Edie’s] article. Thank you for putting a mathematical bent to a philosophical topic! We are truly a blessed bunch.
—Yvonne Cheng, FCAS, FCIA