Reserves Papers Focus on Changing Environment

Papers to be Presented at 2001 CLRS

by Jon W. Michelson, 2001 Reserves Call Paper Program Chairperson

The landscape for valuing insurance liabilities continues to change rapidly. Financial services reform, the NAIC codification of statutory accounting, and fair value accounting are only a few of the events influencing this change. This changing reserving environment is the subject of the CAS Committee on Reserves' 2001 Call for Papers. The papers submitted in response are now undergoing finishing touches in preparation for their publication and presentation in September, at the New Orleans Casualty Loss Reserve Seminar (CLRS).

The changing claim environment is a critical area for reserving actuaries. Three papers deal with this subject in different ways. One paper deals with the same type of development-pattern changes addressed almost 25 years ago by Berquist and Sherman, but presents new techniques for handling such situations. A second paper describes numerous types of claims department initiatives, reviews their impact from actuarial and claims personnel perspectives, and presents some adjustments to traditional actuarial techniques when such initiatives are implemented. Still another discusses the importance of regular and ongoing interaction between casualty actuaries and claim department personnel. Such interaction would include not only the pre-reserve-review interviews, but also the development of tools and diagnostics that can benefit both the actuary and claims department management.

Several papers deal with approaches and product lines with which many actuaries are relatively unfamiliar. Using bond insurance as an example, one paper shows how some property and casualty insurance products can be priced and reserved using techniques from life insurance and the capital markets. Another provides an actuarial primer on construction defects coverage. The paper includes background information, thoughts on current trends, and items that should be considered in actuarial analyses of construction defect data. Financial guaranty products are the focus of yet another call paper, which describes types of financial guaranty products, current market characteristics, and reserving procedures.

One author discusses the need for an estimated loss reserve range rather than a point estimate and describes an approach incorporating a random fluctuation component within a more traditional actuarial technique to yield a distribution of loss reserve results.

Two papers deal with the workers compensation line. One presents and applies a model for projecting losses based on the number and average size of open claims, and then discusses how California-specific assumptions can be input into the model. The second paper focuses on the distorting impact that catastrophic workers compensation claims can have on reserve projections and introduces techniques for eliminating that distortion.

One author presents a dynamic method to estimate fair value insurance liabilities based on a stochastic model of individual losses. The paper makes comparisons with the proposed method and existing methods.

Papers will be included in the CAS 2001 Fall Forum and will be available on the CAS Web Site under "Publications."

Authors are vying for their share of $2,500 in prize money to be announced and awarded at the opening session of the CLRS on Monday morning, September 10.