Editorial: Nomenclature

by C. K. "Stan" Khury

We are all aware of the rapid expansion of applications of the casualty actuarial craft. It is certainly growing in size as well as in complexity. A growth of these dimensions inevitably brings with it more complex nomenclature. Consider two recent examples:

• In the March 16, 1998 issue of National Underwriter, a story reporting on a Zurich unit attaining a retrocessional capacity against Florida hurricanes included the following paragraph: "About $22.036 million of Class A-1 floating rate defeasance notes, paying a coupon of the London Interbank Offered Rate (LIBOR) plus 1.82 percent, and $61.533 million of Class A-2 floating rate notes, paying a coupon of LIBOR plus 4.36 percent, were issued in a Rule 144A transaction completed March 3, Center Solutions said."
• The first exposure draft of the proposed General Principles of Actuarial Science contained the following principle of "actuarial soundness." "For most financial security systems, there are combinations of margins that will produce, relative to a valid actuarial model, a degree of actuarial soundness that exceeds a given specified level less than one."

We find these descriptions to be bordering on the incomprehensible. One can argue that subjects as complicated as these two almost demand a highly specialized language. Perhaps. During the past few weeks I have shown these paragraphs to a few colleagues and their reaction is substantially the same as mine. We suspect if a number of actuaries were asked to explain these paragraphs, we might get as many different explanations as there are actuaries. Is this difficulty a necessary part of our constantly evolving field of practice? We don’t think so.

Consider, for example, the recently released Actuarial Standards Board exposure draft of Statements of Actuarial Opinion Regarding Property/Casualty Loss and Loss Adjustment Expense Reserves. Without advocating or disagreeing with the substance of this document, we do think the language that is used is something to write home about. For the most part, it is written in plain English. It is straightforward and user-friendly. The terms that are used are only minimally abstruse. A big hint on the degree of readability of the document can be found in the definitions section, where all the technical terms are defined. A quick glance at this section will confirm that the writers of this document are trying to communicate. Even as one scans through the rest of the document, the high readability of the proposed standard is crystal clear.

What is the difference between the two types of samples above? It is hard to tell from just reading them. One must be able to get into the minds of the writers to understand this choice of presentation. And since that is not possible, we are left with just making suggestions: perhaps a second level of editing may be helpful, a process that takes the originally proposed language and rewrites it in straightforward language. The national weekly news magazines often use this level of editing. After a story is produced by its original authors, the text is turned over to another type of editor to conform the language and style to those of the magazine.

Another thing each of us can do to foster clear communications is to make sure that in all of our dealings with clients and colleagues, whether written or oral, we make sure that we use plain English as much as possible. In my experience clients and colleagues appreciate this beyond our knowing. It brings the fruits of our labors much closer to their consciousness-and therefore increases its usefulness to them. Absence of such practice is likely to create and widen a gulf of miscommunication between ourselves and those who rely on us to illuminate the situation with our skills.

We close this column with a reference to Utopia, the classic work of Sir Thomas More, Chancellor to Henry VIII. Utopia is an imaginary faraway island nation in which life is idyllic. In the Utopian world, there are very few laws and no lawyers. Reason: Utopians believe that any law that requires a lawyer to interpret must be bad law. Therefore there are very few laws in Utopia, because it is difficult to write laws that are so simple there can be no ambiguity as to their intent and application. And when there are occasional disputes, the people take them to their elders for quick resolution. Imagine a world in which we apply this logic to the actuarial field. We would have very few actuarial standards, principles, guides, rules, annotations, and the like-as we simply could not write many of these things in clear and plain language. It would be an interesting world, wouldn’t it?