1997’s Actuarial Top Ten

by Michael A. Walters

How They Ranked and Why

For the first time in three years, casualty actuaries did not pick consolidation as the leading story of the year. Despite continuing mergers among insurers internationally and consolidation of big brokers and big accounting firms, a relatively new phenomenon captured the attention of actuaries in 1997: the emergence of risk securitization as a viable option to traditional insurance. In fact, actuaries voted this story No.1 by a much wider margin than they had given to the stories of 1995 and 1996.

The second most important story was the overture by the federal government to welcome banks directly into the casualty business. The Florida Hurricane Commission’s approval of catastrophe models followed closely in third place.

The fourth-ranked story involved the further growth of enterprise risk management, which signifies the application of actuarial techniques to general business problems beyond insurance. In fifth place was the rapidly expanding use of the Internet for speed and breadth of communication and research.

Next came the continued integration of health and disability management, which portends a possible change in the workers compensation system. Once again, the CIGNA restructuring appears in the Top Ten, this time in seventh place, as the courts overturned their prior decision. This complicates the possibility of a "good bank/bad bank" strategy for casualty liabilities.

Consolidation fell to No. 8 in the 1997 list, with mergers involving four of the Big Six accounting firms.

The ninth story was the start-up of Direct Response in the U.S. However, if the 12th-ranked story (GE Capital’s purchase of Colonial Penn) were combined with it, that combination ("big money backing direct marketing") would have had enough votes to finish seventh. The Year 2000 problem took the final spot in the Top Ten, with the SEC requiring disclosure of problems, if material.

Of particular significance, the actuarial Top Ten does not really overlap A.M. Best’s Top Ten property/casualty insurance stories. The actuaries’ first- and fourth-ranked stories (and possibly the sixth) show that traditional insurance-related skills may be outmoded in the near future.

The results serve as important inputs to the Long Range Planning Committee on potential future directions of actuarial practice. As in prior years, this year’s candidate stories were culled from the trade press to be externally oriented, and were not intended to cover CAS internal actions. In the first round, participants drawn from the Board, Executive Council, Committee Chairs and Past Presidents, narrowed the initial list of 53 stories to 25 for a final vote.

This Delphi study then highlighted reasons for number one selections by various voters, and the final round produced some changes. The final scores were tallied using the NCAA sports polling methods (10 points for first place down to 1 point for tenth place).

Continuing this year is the "Bellwether" prize for the best predictor of the final consensus of all participants, and again there are three prizes. Anne Kelly won the Insight Award because the final Top Ten consensus came closest to her original picks, with weighted scoring (10 points for the No. 1 pick). Chuck Bryan was second.

The Consistency Award goes to Phil Ben-Zvi, whose ten picks came closest to the final consensus voting, up to the top 29 stories. He beat Kevin Thompson, who was a close second.

Finally, the overall Bellwether Award went to Chuck Bryan, who had the best combined score in both of the above categories. Phil Ben-Zvi was second and Mavis Walters was third.

1997’s Top Stories for Casualty Actuaries
How They Ranked and Why

Rank	Story	Actuarial Significance	Sum	# Voting	1st Place Votes
1.	Growth of risk securitization	Implications on expanded capacity beyond alternative catastrophe coverage	359	45	16
2.	Insurers urged by OCC to welcome banks into insurance business	State regulation vs. federal regulation implications	297	43	12
3.	Florida Hurricane Commission approves catastrophe models	Computer modeling vindicated as a method of estimating loss costs	279	42	3
4.	Growth of enterprise risk management	Expands use of actuarial skills beyond traditional insurance	243	36	9
5.	Expanded use of Internet	Expansion and speed up in research and communications capability	199	39	1
6.	Continued integration of health and disability management	Eventual change to workers compensation system	184	31	1
7.	CIGNA restructuring overturned in court	Potential limitations on ability to seal off problem areas	143	32	1
8.	Mergers: Peat Marwick and Ernst; Coopers and Price	Distractions and conflict of interest questions vs. global expansion	115	26	0
9.	Start up by Direct Response in U.S.	Can UK success story be repeated in the U.S.?	102	22	0
10.	SEC requests disclosure of Year 2000 problems	Forces facing problems earlier; less chance of "occurrence" in 2000	96	19	0
11.	Prop. 103 auto class plan filings ordered into effect	Complicated rules perpetuated	94	21	1
12.	GE Capital buys Colonial Penn	Potential expansion of direct marketing	65	14	0
13.	AIA proposes repeal of McCarren Ferguson price controls	Will casualty rate regulation ever be repealed?	65	15	0
14.	Merger of Marsh and J&H	Expanded influence of megabrokers	53	12	2
15.	Lloyds gets A rating from rating agencies	Lloyd’s survives, with implied acceptance of new actuarial techniques	52	17	0
16.	Global consolidation of insurers continues	Actuaries will need to have global focus	51	9	1
17.	State Farm successfully tests Florida’s new rate arbitration feature	Arbitration as a new form of regulatory rate dispute resolution	46	10	0
18.	U.S. Supreme Court rejects asbestos class action settlement	Might limit future mass torts	45	14	0
19.	Volatility of stock market	Start of hard market?/Asset-based overcapacity not permanent	32	6	0
20.	International deregulation continues	Overseas "laboratories" for U.S. insurers?/more international opportunities	24	5	0