Committee Seeks Authors to Revise Foundations Textbook

The CAS Textbook Rewriting Committee seeks authors to rewrite the Foundations of Casualty Actuarial Science (FCAS). Now in its third edition, the FCAS or Textbook was first published in 1990. The committee's objective for the 4th edition is to have the Textbook written on a more introductory level than the previous editions. Prospective authors should be familiar with corresponding chapters in the current Textbook. Authors should outline how they would meet the goals of their chapter of interest, keeping in mind that the new Textbook is to be targeted toward those of a college level and to those taking entry-level actuarial examinations.

Proposals are due by September 15, 1998 to the CAS Office, either by E-mail (esmith@casact.org) or fax (703/276-3108). The committee will select chapter author(s) by October 15, 1998, chapter outlines will then be due from the selected author(s) by January 1, 1999, first drafts by June 1, 1999, reviews thereof by appropriate CAS committees should be complete by September 1, 1999, and final versions are then due by December 1, 1999. With this schedule, a completed Textbook should be available by June 1, 2000. Proposals, outlines, drafts, and final versions will be reviewed by the Continuing Education, Examination, and Syllabus Committees, and possibly other committees as work on the Textbook progresses.

Following are brief descriptions of Textbook chapter objectives and suggested revisions for the new edition.

Chapter 1—Introduction

The current chapter emphasizes developments in credibility theory primarily. Adding material on ratemaking, reserving, classification, dynamic financial analysis, and new fields being explored by actuaries would enhance the chapter's value.

Chapter 2—Risk Theory (new chapter for 4th edition)

The committee wants a more thorough treatment of risk theory in this new chapter. Prospective authors should refer to the partial treatment of risk theory in the current Textbook's Chapter 9.

• Define risk, discuss insurance vs. gambling, and compare and contrast risk transfer and elimination.
• Treat risk transfer mechanisms, the social benefits of insurance, and other topics specific to the property-casualty environment; explain how these concepts are handled in traditional insurance, self insurance, and insurance pools, groups, and other risk financing mechanisms.
• Cover risk transfer and risk reduction from the standpoint of the insurance buyer, both consumer and business.
• Cover reinsurance and possibly treat excess insurance attachment points from the standpoint of the insurer.
• Present theory and illustrate with examples.

Chapter 3—Ratemaking

The existing Chapter 2 will not be rewritten but used as is in the revised Textbook.

Chapter 4—Individual Risk Rating

The underlying concepts covered in this chapter are explained clearly, and need very little, if any, rewriting. The committee suggests eliminating the overlap with current Chapter 2 in the terminology section and updating references and some of the examples to reflect current rating plans.

Chapter 5—Loss Reserving

Suggestions include moving the "Actuarial Model" to the end of the chapter after the reserving techniques are presented (the mathematical level is beyond the rest of the chapter), simplifying and standardizing definitions, and updating the numerous date references.

Chapter 6—Risk Classification

• Expand the "Measures of Efficiency" section to more fully explain the issue and demonstrate the calculations in more detail.
• Revise the examples of estimating class relativities to better coordinate with the examples in the current Ratemaking chapter.

Chapter 7—Reinsurance

The committee suggests rewriting the chapter taking a more basic approach but retaining some of the more advanced examples so that mathematically talented students might see the potential for using higher-level mathematics in casualty actuarial science.

Chapter 8—Credibility

The universal recommendation is to start from scratch and develop a chapter that introduces the basics of credibility theory to actuarial students.

Chapter 9—Investment Issues in Property-Liability Insurance

An extensive rewrite is recommended de-emphasizing older material and including more recent material on investment income in pricing. In addition to addressing new types of investments and updating graphs and charts, the new chapter should discuss asset-liability matching more fully to reflect increased actuarial emphasis on this subject in the last decade.

Chapter 10—Special Issues

The committee has decided to remove risk theory entirely from this chapter (see description for Chapter 2).

• Address risk-based capital requirements and surplus notes and other means of raising capital.
• Develop more in-depth treatment of planning and forecasting.
• Update data sources.
• Treat securitization of catastrophe risk in general, and, in particular, quasi-governmental responses such as wind pools, catastrophe funds, and catastrophe modeling.