Actuaries Abroad Congratulations! It's a Euro!

by Kendra M. Felisky-Watson

On the first of January, the single European currency (the "euro") was born. Do not underestimate the enormity of this undertaking! It is not just that French francs and Spanish pesetas will disappear; it is that the fiscal management of the 11 different and very culturally diverse countries will be centrally coordinated, meaning interest rates, government debt, etc. And then Finance Ministers and governments of these countries must agree! Some countries, well one in particular—The United Kingdom—has refused to play ball, so the sterling, or pound, will be around for a while. In actuality all the currencies will still be around for the next several years but they will operate on a fixed exchange rate to the euro. The euro will be accepted currency in all the European Union countries in parallel to the traditional currency but you won't be able to use your Portuguese escudos in Belgium—they'll accept either Belgian francs or euros.

Y2K and Potential Liabilities

Y2K is an interesting exposure to insurers and reinsurers in Europe because each country is preparing for it in different ways. Some countries believe a doomsday scenario and massive preparations and reviews are taking place. Others see no need for any alarm. (Are they ostriches with their heads buried in the sand or what? Only time will tell.) Since each country must be evaluated separately, these differences present interesting problems for reinsurers trying to assess their exposures across Europe. And of course, most reinsurers have some significant involvement in the U.S. with its threat of major litigation.

The actuarial opinions on the reserves for Lloyd's syndicates for the 1998 year-end included discussion of potential liabilities arising from Y2K and other date-related claims. This was not a requirement for the opinions required by U.S. regulators on the U.S. Trust Funds set up by Lloyd's syndicates—an unusual case of the U.K. actually being ahead of the U.S.! The more interesting bit is the discussion that took place about how to reserve for Y2K liabilities, including whether it could be done at all. A working party for the Institute of Actuaries wrote a thought-provoking and controversial paper on this topic. Copies of the paper are available from the Institute and make interesting reading. Luckily, by the next year-end we should have an idea of what is going on.

European Insurance

The first general session of the CAS Spring Meeting in Orlando will be on European insurance. There have been quite a few changes affecting not just European insurers but anyone else doing business in Europe. As mentioned previously, the most obvious change is the move to the single currency, the euro. But there have been other developments such as changes in regulations (the German primary lines market has transformed from very intense rate regulation to an open market) and the worldwide consolidation taking place among insurers, reinsurers, and brokers. This general session will hopefully discuss how people are coping with the current changes and what the panelists see as the changes going forward.

The Institute and Faculty of Actuaries have just instituted Practising Certificates for general insurance actuaries who want to sign Lloyd's loss reserve opinions. The aim is to ensure that people signing the opinions have the knowledge and experience to do so, the assumption being that the qualifications are a given. At this point the applications have just come out and the actual process has not been completed yet. We are waiting to see if anyone is denied. A heavy requirement of this certification is Continuing Professional Development. Some of the more cynical believe that the Institute may be more fiscally motivated since it costs £125 to apply and the certificates must be renewed annually. And when I say certificates, I mean that they are going to actually send out pieces of paper saying you are able to sign opinions for the next year. But remember you can't use your leftover deutsche marks to pay for your practising certificates.