Actuaries Parley on New Issues at 1996 Annual Meeting

BOCA RATON, FL- The role of actuaries in Dynamic Financial Analysis (DFA), the impact of technology on the profession, and the future of Lloyd’s of London were among the topics discussed by general session panelists at the 1996 CAS Annual Meeting held here last November.

Reviewing the evolution of DFA, panelists said that DFA will enable actuaries to expand their roles as financial risk managers and strategic business planners for insurers.

Susan T. Szkoda, president Szkoda Actuarial Services, described DFA as the process by which the actuay analyzes the financial condition of an insurance entity. She said the DFA analyst needs to have a broad array of tools because an assessment of an insurance company’s financial condition involves both sides of the balance sheet as well as the ability to generate income and grow surplus through retained earnings, or to raise funds.

Stephen P. Lowe, consulting actuary, Tillinghast - Towers Perrin, remarked that actuaries use two key components in the tool kit of DFA. The first is a forward-looking financial model of the enterprise that can generate balance sheet and income statements, including projections on taxes, cash flow and capital adequacy measures.

The other component, Lowe said, is the ability to generate scenarios that will help actuaries understand the correlation of a variety of variables and how they interact with one another.

Robert B. Downer, vice president, Farmers Insurance Group, DFA "crystal ball enhancement" giving actuaries full-field views of the company from two dimensions. One full field "brings together all the financial components of the organization onto one page, enabling the actuary to see how they work together," Downer said. "The other full field is the opportunity to scenario test and know the range of possible outcomes."

Like DFA, new technology poses special challenges for actuaries as it generates rapid change in data man-agement, underwriting, claims processing and marketing.

"Changes in technology will enhance, not reduce, the need for the actuary to exercise informed professional judgment whenever the actuary provides professional service," said Lauren M. Bloom, general counsel for the American Academy of Actuaries.

Bloom cautioned that while the acceleration of technology has enormous benefits, "excessive speed is the enemy of reasoned professional judgment."

Reviewing the condition of Lloyd’s of London, panelists reported that after years of losses, investor insolvencies and litigation, Lloyd’s is returning as a competitive force in the global insurance market following the largest reconstruction and renewal plan in insurance history.

David Shipley, deputy underwriter for Harvey Bowing & Others Syndicate, reported that Lloyd’s had recorded a total profit of $4 billion for the years 1993-1995. "Much of that profit came through marine and catastrophe lines of business," Shipley said.

Alan Punter, managing director of London-based Alexander Howden Developments, remarked that even with the progress made through reconstruction and renewal, the continued soft insurance market combined with overcapacity and low rates is a major concern.