The Top 10 Actuarial Stories of 1996

Once again, consolidation of the insurance industry had the most significance for actuaries in 1996. The survey of CAS leadership picked the mergers of reinsurers (Swiss Re/American Re, Munich Re/National Re, Gen Re/Cologne Re and ACE/Tempest Re) as the lead story. Will a smaller but more sophisticated market diminish competition or intensify it?

The second story was the start-up of the California Earthquake Authority as a state-run catastrophic insurance pool, with unknown coverage amounts at the top end and pricing based on a catastrophe model.

A close third was the disclosure of EIL losses required by NAIC Foot-note 24, endorsing the measurability of liabilities and allowing a better comparison of company results to the industry or to peers.

The fourth story did not involve a single event but the emergence of in-tegrated risk management, which sig-nifies the expansion of actuarial techniques beyond insurance to gen-eral business problems.

The fifth most important story was a ruling by the U.S. Supreme Court (Barnett Decision) to allow banks to continue to market insurance nation-ally, using the base of small towns. This offers the possibility of intense new competition in personal lines.

Next came the revival of Lloyd’s of London, through tbe approved start-up of Equitas as the official runoff entity for the old Lloyd’s liabilities.

The seventh story was the Florida Hurricane Commission’s initial deci-sion to not accept existing hurricane models. Instead, the commission is-sued standards for models, requiring an extensive procedure for modelers to resubmit. This reflects continuing hurdles that the public will impose on modeling as a substitute for tradi-tional insurance ratemaking.

The CIGNA restructuring, another illustration of the good bank/bad bank strategy for casualty liabilities, took eighth place.

The ninth story also unfolded in California, with the DO1 finally issu-ing auto insurance regulations on im-plementing a numerical concept of “respective weight” (from Proposi-tion 103) in measuring classification rating factors. Surprisingly, these regulations have not yet been chal-lenged in the courts.

The tenth story involved the direct writing expansion of AIG and others, which also portends a future transfor-mation of the personal lines market.

Like last year, this yea’s compila-tion of stories was culled from the trade press and not from CAS com-mittee actions. In the first round, par-ticipants drawn from the Board, Executive Council, committee chairs and past presidents narrowed the in-itial list to 21 stories for a final vote.

This Delphi study then highlighted reasons for number one selections by various voters, and the tinal round pro-duced some changes. The biggest movement was the Supreme Court case on banks (Bamett), which rose to fifth place from eighth. Integrated risk management also move up one notch to fourth place. The final scores were tallied using the NCAA football polling method (10 points for first place down to one point for tenth place.)

A new feature this year was the "Bellwether" prize for the best predictor of the final consensus of all participants. Actually, there are three prizes. The Consistency Award goes to Anne Kelly whose 10 picks come closest to the final consensus voting in the top 20. She beat Jerry Degerness and Steve Goldberg who were tied for a close second. Regina Berens won the Insight Award because the final top 10 consensus came closest to her original picks, with weighted scoring. Finally, the overall Bellwether Award went to Jerry Degerness, who had the best combined score in both of the above categories.

Thanks to all the actuaries who participated in this survey, which serves as an alert to the Long Range Planning Committee on future directions of actuarial practice.

Editor's Note: This is Michael A. Walters' second Actuarial Review's Top 10 feature. He is a principal with Tillinghast-Towers Perrin in Parsippany, New Jersey.