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From the Readers
A Matter of WordingDear Editor:
In “From the Readers” in the May Actuarial Review, Michael Dubin’s letter (A Good Thing) included this statement: “The financial condition of an insurance enterprise has a high degree of uncertainty compared to other industries (it is more dependent on future contingent events).” The phrase, “dependent on future contingent events,” troubles me when it is applied to loss liabilities in P/C financial reports. In P/C insurance, pricing measures future contingent events; reserving measures future contingent developments. An event (as defined in the insurance contract) has to have taken place before there is any liability for payment by the insurer.
It’s a matter of wording that concerns me.
Ruth E. Salzmann, FCAS
Dear Editor:
Michael Dubin in his letter on rating agencies (“From the Readers,” The Actuarial Review, May 2004) says, “Bad actuarial work can kill a company.” True. It may be a bit more precise to say that bad actuarial work can contribute to the slow death of a company, as it takes a while for the eventual effects of bad work to play out. It might be even more precise to observe that bad work might also participate in the resuscitation of the patient. That is, otherwise bad work may mask the condition until there is time for remedial measures to take effect. That is one of the contradictions inherent in accounting and actuarial work. Asset/liability measurement is a snapshot; if the picture happens to be taken at an unpropitious corporate moment, the patient is killed. More than one company has occasionally dipped below the line of technical insolvency, only to live to another day and perhaps even prosper.
A further observation, one not usually discussed in these contexts, is that good actuarial work can also kill a company. It is an improper and hasty assumption that every time a company fails, the actuary on watch must have failed to do his or her job. The alternative assumption may be more valid: every time a company fails, it’s because an actuary was there to take it down.
Edward C. Shoop, FCAS
