The Top Ten Casualty Actuarial Stories of 2002
The top casualty actuarial news stories of 2002 highlighted two key themes:
- The need for actuaries to measure, predict, and model the future direction and impact of challenging claim and coverage trends evident in today's property/casualty insurance market, and to assist in designing sound mechanisms in response; and
- The essential role of the actuary in the sound financial management and accurate financial reporting of property/casualty insurers.
Specific stories that exemplified these themes were closely ranked in our annual survey of CAS thought leaders. Click here to see how they ranked and why.
The resurgence of asbestos claims, and the resulting corporate bankruptcies, was identified as the top news story of 2002 affecting casualty actuaries. Respondents noted the significant financial impact of these claims on a number of insurers and the potential for insurer bankruptcies to follow the corporate bankruptcies. More broadly, CAS thought leaders saw the asbestos situation as illustrative of the problems that have emerged in the U.S. tort system, and suggested that the health of the economy could be impaired in the absence of significant remedial action to the current performance of the tort system. Actuaries have a critical role to play in projecting and modeling these types of claims trends, their impacts on insurers and policyholders, and the potential effects of legislative changes to the tort system.
Created in the aftermath of last year's number one story (the September 11 terrorist attacks), the number two story for 2002 was the enactment of the Terrorism Risk Insurance Act. Respondents expect to see a significant participation of actuaries in designing and pricing coverage for the terrorism peril (using new types of models) as well as in the design and sound operation of private reinsurance mechanisms.
Other problematic claim trends and coverage crises also were among 2002's top news stories affecting casualty actuaries. The emergence and dispute over mold claims and mold coverage was named as the number three story of the year, and story number five was the medical malpractice insurance crisis. These types of trends, and resulting unstable market conditions, create technical challenges for actuaries as well as financial, marketplace, and public relations challenges for many of the actuaries' employers and clients. Similarly, the broader hard insurance market, with tightening availability and affordability challenges, and increasing involvement of actuaries in evaluating and pricing policy coverage and pricing terms, was ranked as the number six story.
The regulatory environment accounted for news story number four and story number eight in 2002. The fourth-ranked story was the increased emphasis on transparency and accurate accounting. A related story, the passage of the Sarbanes-Oxley Act, ranked number eight. Respondents observed an increased emphasis on the actuary's important role in protecting the financial integrity of insurers and reinsurers, and actuaries increasingly are likely to be held accountable for failures of insurers and reinsurers. In both cases, the visibility of the actuary is significantly increased.
The active debate among industry observers regarding the current degree of loss reserve adequacy in the property/casualty industry was ranked as the number seven story for 2002. Respondents noted the need for actuaries and the profession to respond to the allegations of industry reserve inadequacy, either by rebutting the assertions, or by pinpointing and addressing sources (specific companies, lines of business, claim types) of any significant inadequacies. A related story, the recent spate of reserve increases across a varied array of insurers, was accorded ninth ranking in our survey this year.
Story number ten was the economic environment, presenting insurers with low inflation rates and low interest rates that will require a greater degree of actuarial involvement and accuracyand underwriting disciplineto establish prices that produce appropriate underwriting profitability.
As in prior years, this year's candidate stories were culled from the trade press to be externally oriented, and were not intended to review CAS internal actions. Survey participants, drawn from the CAS Committee chairs, past presidents, members of the Board of Directors and Executive Council, and Regional Affiliate presidents, identified their top stories and were invited to explain the importance of the stories to casualty actuaries. In an experimental departure from past surveys of this type, we conducted this year's survey in a single round, rather than inviting respondents to revisit their rankings in light of the consensus views from the first round of voting. The scores for the various stories were tallied using a sports polling method (15 points for the first place vote, down to 6 points for a tenth place vote). The specific scores shown on the chart illustrate the relatively close rankings accorded to the top stories. In fact, no one story was given top ranking by more than a handful of respondents.
Continuing this year are the prizes for the best predictors of the consensus of all participants. David Hafling came in first in this process by selecting 8 of the top 10 stories, as well as selecting rankings most closely aligned with the final rankings of the top 10 stories. Ralph Blanchard and Gail Ross also selected 8 out of the top 10 stories and came in second and fourth place, respectively. Ralph and Gail were top five finishers last year as well. David Oakden and Peter Wildman each selected 7 of the top 10 stories for third and fifth place finishes, respectively.
Thanks to all the actuaries who participated in this survey. This result also serves as an input to the Long Range Planning Committee on potential future directions of the actuarial practice.