There's No Holding Back the Committee on Reserves
by J. Michael Boa, Manager, Communications and Research
Although your CAS acronym dictionary is already over-flowing, here are a few new entries: CORTFOP (kôrt´fahp). URIL (ûrl). CASCOR (kas´kôr).
These additions to the CAS lexicon are courtesy of the CAS Committee on Reserves, or CASCOR for short. This research committee is charged with addressing actuarial issues related to reserves associated with property and casualty exposures, including loss and loss adjustment expense reserves, premium reserves and other contingent reserves. To accomplish this, Chairperson Jon Michelson has divvied up the Committee into subgroups, which are not only the source of the new acronyms, but also of much hard work. Here is a closer look at a few of the CASCOR subgroups and the work they are doing on behalf of the casualty actuarial profession.
Reconciliation Guidance Subgroup
This subgroup was formed in response to concerns regarding reconciliations performed in support of the opining actuary's Statement of Actuarial Opinion. Its primary goal was to enhance the existing guidance for these reconciliations in an effort to improve their overall quality and consistency. The subgroup focused on Appendix 1 (Evaluation and Reconciliation of Data) of the American Academy of Actuaries Committee on Property and Liability Financial Reporting (COPLFR) Practice Note to evaluate the current guidance provided therein and to determine whether it could be enhanced in an effort to achieve its goals. The subgroup recently submitted suggested modifications to the Practice Note for COPLFR's consideration. Each suggestion included a detailed explanation of the reasons for the proposed change. Led by Gloria Huberman, this subgroup includes Rick Burt, Jeff Carlson, Steve Herman, and Warren Johnson.
Under-Reserving/Insolvency Link (URIL)
URIL was formed to investigate and report on the impact of inadequate reserves on recent property/casualty company insolvencies as well as to review the cause of recent reserve increases taken by ongoing companies. This subgroup's work is currently proceeding on two fronts. Project 1 involves an examination of Statements of Actuarial Opinions (SAO) from insolvent companies (1990-2000) and ongoing companies with large reserve changes (2000-2003). The subgroup is attempting to measure the quality of information in SAOs relative to company performance. For example, were there problems identified in the SAO prior to a company's insolvency or reserve movement? The data gathered about these companies will be compared to statistics from the universe of SAOs in order to draw conclusions. Project 2 will examine the reserving process for ongoing companies with recent large reserve changes. The goal of this project is to rigorously examine the reserve methods and identify any problem areas such as assumptions, methods, or selections. The subgroup is planning to use independent researchers to protect the confidentiality of the companies, and a request for proposals to do that work is under development. Progress on both of these projects will be the focus of a concurrent session at the 2004 CAS Annual Meeting. This subgroup is being directed by CASCOR Vice Chair Tom Ryan, and includes Jeff Guttman, Aaron Halpert, Gloria Huberman, Stan Khury, and Jon Michelson. Sarah Fore is rotating off the subgroup but was extremely valuable in completing the initial research performed by the subgroup.
Committee on Reserves Task Force on Principles (CORTFOP)
CORTFOP has been charged with the painstaking task of updating the 1988 CAS Statement of Principles Regarding Property and Casualty Loss and Loss Adjustment Expense Reserves. The group has been working on this for a couple of years and recently presented a draft to the full committee. The updated version of the Principles will eventually be released to the CAS membership as a discussion draft for review and comment. The group is chaired by Bert Horowitz and includes Aaron Halpert, Jon Michelson, Toni Mulder, Dale Ogden, David Powell, Debbie Rosenberg, and Rodney Kreps.
Reserves Working Parties
CASCOR recently formed two new research working parties. The Bornhuetter-Ferguson: Initial Expected Losses Working Party, co-chaired by Jeff Carlson and Chris Olson, is aiming to produce a paper regarding the initial expected loss assumption in the Bornhetter-Ferguson reserving method. The goal of the Tail Factors Working Party is to produce a paper that will survey existing literature on the topic and then identify additional methods in use. This working party is co-chaired by Tony Phillips and Steve Herman.
Based on the results of the last CASCOR meeting, more subgroups are on the way. The committee brainstormed potentialgoals for 2005 and settled on reserve reasonableness testing as an area of focus. In addition, the committee plans to begin utilizing the CAS Web Site to initiate focused discussions to facilitate increased sharing of information and ideas on reserving issues.
More details about the Committee on Reserves are available at www.casact.org/cor/reserves.htm.