Actuaries Around the World
CAS members trekked the globe to participate in various meetings on developing insurance markets. Here are a few of their stories.
Pan-American Congress Focuses on the Actuaryby Thomas R. Bayley and David B. Sommer
This past September we represented the CAS at the Fifth Pan-American Congress of Actuaries, which was held in conjunction with the Fourth Argentine Congress of Actuaries in Buenos Aires, Argentina. We were fortunate to attend this three-day conference, which drew more than 200 attendees from the Latin American countries of Argentina, Brazil, Chile, Honduras, Mexico, Panama, and Peru, as well as from Spain, Canada, Great Britain, and the United States. The purpose of the congress was to foster discussion and understanding of the increasing role of the actuary in Latin America, as well as the need to strengthen actuarial qualification standards in many of the region's countries.
Several other actuarial bodies were present at the Congress, including the Society of Actuaries (SOA), represented by President Harry Panjer; the Institute of Spanish Actuaries, represented by President Ana Vicente Merino; and the Institute of Brazilian Actuaries, represented by one of its directors, Roberto Westenberger. Josh Banks, the chairperson of the SOA Latin America Committee, was also present.
The first day began with the opening ceremonies, conducted by the leadership of the Actuarial Congress of Argentina. During this session Tom gave the greetings of the CAS on behalf of its president, Bob Conger. Tom explained the role that the Casualty Actuarial Society plays in the property/casualty insurance industry, and he presented the CAS vision and mission.
Following the opening session, the agenda was packed with panel sessions on topics that included regulatory, product, pricing, and reserving issues. The attendees also had the opportunity to attend presentations on dynamic financial analysis modeling, the actuary and the Argentine social security system, and the IAA syllabus structure.
Tom participated in a panel session entitled "Regulatory Framework for the Actuarial Profession in Latin America." Dave was one of the speakers in the session on dynamic financial analysis.
In his presentation, Tom described the requirements for actuarial reserving in three of the Latin American countries. During the 1990's, actuarial loss reserving became a regulatory requirement in Argentina, Brazil, and Mexico. The methods employed and the level of involvement of an actuary in the preparation and certification of these reserves varies by country.
In Argentina, IBNR reserves have been required since 1994 for certain lines of business. The regulations regarding IBNR reserves have been revised recently, and now require that IBNR reserves be implemented for all lines of business by July 1, 2003. The new regulations require the use of the incurred loss development method. This method is applied mechanically, with no allowance for actuarial judgment. Any tail factor used in the loss development is also mandated by the Insurance Commissioner and differs by line of business. These regulations only apply to companies that have two or three years of experience, depending on the line of business.
Brazil implemented the rules regulating the IBNR reserves for the group life and non-life business in 1999. Insurance companies were required to book at least 50 percent of the IBNR reserve by the end of 1999 and the full reserve by the end of 2000. The IBNR rules for the individual life and pension lines were implemented in 2001, and the total reserves had to be booked by the end of 2001.
Brazilian insurance companies are permitted to select their own methodologies for the IBNR calculations and are allowed to use more than one method. Generally, the insurance companies employ only the paid loss development method, rather than some combination of the paid and incurred methods. The results of the methods may be adjusted by actuarial judgment. The superintendent of insurance requires that the companies file their IBNR methods and any subsequent changes for approval. As the legislation regarding the reserves was not clear, some companies were booking only the pure IBNR and others the total IBNR, which is the sum of the IBNYR (incurred but not yet reported) and the IBNER (incurred but not enough reported).
A recent regulatory change now requires that companies calculate and report the pure IBNR, which is only the IBNYR. The IBNER should be considered as a case reserve component.
In 1994 the Mexican Insurance Commission implemented the rules for the estimation of the IBNR reserves. These reserves had to be fully booked by the end of 1997.
In Mexico each insurance company may select their own IBNR method. This method must be filed with the Insurance Commission for approval, as well as any subsequent changes to it. These methods are applied mechanically to calculate the reserves. There is no allowance for actuarial judgment, with the sole exception of the selection of the tail factors to be applied by line of business.
In general the Mexican insurance companies use the incurred loss development method, rather than a combination of the paid and incurred methods.
In all three countries, the actuarial reserves must be reported at least annually with some form of reserve opinion from an internal actuary. In Argentina and Mexico, an opinion from an external appointed actuary is also required.
In his presentation, Dave described dynamic financial modeling, the motivations for using it, and some of the issues that should be considered when building a model. He then guided the audience through an example of a capital adequacy study.
New Exam Prep Class
Approximately 20 students attended the final session of the Congress, a preparatory class for the SOA Exam 1. Warren Luckner, a professor of actuarial science from the University of Nebraska, conducted the weekend session, which was sponsored by the SOA Latin American Committee. The training session was held for the first time in Argentina. It had been successfully conducted in Mexico over the last two years.
Eastern Europe's Emerging Actuarial Professionby Michael A. Walters
As CAS ambassador to the interna-tional actuarial conference in Lithuania last August, I discussed the role of the actuary in general insurance. Attendees were leaders of the fledgling actuarial professions in the Central and Eastern European countries. Presenters were from the U.K., France, Canada, and the U.S.countries with fully developed actuarial professions.
The view on general insurance was well received, and in fact they asked why we had not appeared at past conferences, as they had not heard this perspective before on the growth of a sophisticated general insurance marketplace. I offered the help of the CAS in designing their future actuarial exams and syllabus to cover general insurance topics.
In reality, however, most of the countries are in a developing economic mode and the lines of insurance business are not very complexbasic motor insurance (with not much third-party liability) and home insurance. Hence their early needs (say over the next several decades) may be satisfied more by the British model. Even in a more sophisticated local environment, they could still rely on a joint signature with an FCAS or an ACAS, but with a primary signature on a formal reserve opinion by a local qualified actuary who is familiar with the country's laws and regulations.
The International Actuarial Association sponsored this conference, the fifth such conference in Eastern Europe over the last ten years, in the capital of Lithuania, Vilnius. As for future conferences, the attendees strongly wanted them, not so much for technical content by their members, but for further guidance and comparison with how other countries are progressing in the development of the profession. These conferences are only for the leaders of the actuarial profession in their countries, not for the general membership.
In the future the CAS should continue to participate, to keep our truly international organization on the minds of these developing countries and to remind the other actuarial organizations that we intend to be an international player. (Editor's Note: for a more detailed perspective on this conference see Mike Walter's article on a possible restructuring of the actuarial profession internationally in the November 2002 The Actuarial Review. A panel on this subject is scheduled the 2003 CAS Spring Meeting.)
Looking for Actuarial Role Models: China's Developing P/C Insurance Marketby Guy A. Avagliano
Actuaries from various countries met in China this past fall for the first-ever seminar on property/casualty actuarial techniques held in the country. Hosted by the China Insurance Regulatory Commission (CIRC) in Beijing on September 23-24, the Non-Life Appointed Actuary Conference attracted nearly 100 people, including CIRC members, representatives from local insurance companies, and academic faculty and students. I was part of the CAS delegation, which included CAS President Bob Conger and David Hartman, Sebastian Tan, Catherine Cresswell, and Kai Lee Tse. International faculty from the United States, United Kingdom, Australia, Singapore, and Hong Kong were also in attendance.
CIRC is responsible for the regulatory supervision of insurance in China. CIRC wants to construct a sound framework for China's developing property/casualty actuarial profession, which in turn would contribute to the sound operation of the insurance business in China.
The purpose of the meeting was to introduce the CIRC to insurance and regulatory concepts currently in use in other parts of the world. Topics included technical matters like reserving, reinsurance, and dynamic financial analysis, as well as organization issues such as information systems. There was also a session on education and development of non-life actuaries.
An emerging middle class in China means that more people have assets that they want to insure. Most business is personal lines (automobile, homeown-ers). A smaller amount of business is for commercial property, but the tort system in China is different from the tort system in the United States and there's little need for liability insurance (or trial lawyers).
Attendees seemed enthusiastic about the conference and the variety of topics, in particular, the session on reserves. Several people asked about computer software that they could use to apply some of the models that were discussed. In addition to the formal sessions, many ideas were exchanged during informal breaks between sessions.
Some of the attendees were very new to property/casualty insurance; others had some background and were interested in learning more. At the conclusion of the meeting, many attendees expressed their eagerness to continue working and learning from experts from other countries to develop their insurance market and actuarial profession, picking and choosing from the various systems and models that will best suit China's insurance needs.
Actuarial Ambassadors to China