by Kendra M. Felisky-Watson
General Insurance, Lloyd’s Highlight Fall Activities
Fall is the time for the annual ASTIN Colloquium and the annual gathering of general insurance actuaries in the U.K., the General Insurance Convention. This year the first joint ASTIN and General Insurance Convention conference was held in Glasgow, Scotland. Five hundred and three actuaries, including 11 CAS members and a large contingent of European actuaries, attended from 24 countries ranging from Australia to Iceland.
While both gatherings are about general insurance, some significant differences are apparent in their approach to actuarial science. ASTIN tends towards the more theoretical aspects of actuarial methodology while the U.K. General Insurance Convention leans more towards the practical aspects of actuarial practice. This joint conference was a wonderful opportunity for each side to learn more about the other's approach.
The themes for the ASTIN Colloquium were "Asset-Liability Modeling Including Capital Management" and "Applications of Multi-Variate Modeling Techniques to Non-Life and Health Care Problems." At the plenary sessions, papers on topics such as pricing, reserving, and finance were presented and discussed. In addition, a number of workshops took place on more specialized topics such as reinsurance pricing, benchmarking, and tobacco and stochastic claims reserving. Guest speakers included the well-known Professor Hans Bühlman and the chairman of Lloyd's of London, Max Taylor.
Two thick volumes of papers were distributed (complete with nifty tartan covers!) and are currently available from the Institute of Actuaries. I think the prize for the best title of a paper must go to Miguel Usabel from Spain for his work, "Pricing the Risk of a General Insurance Portfolio Using Series Expansions for the Finite Time Multivariate Ruin Probability in a Financial-Actuarial Risk Process." The prize for the best concluding paragraph in a paper goes to Gianni Bosi and Roberto Daris for their paper, "Minimum Solvency Margin of a General Insurance Company: Proposals and Curiosities," where the concluding line was: "It is somewhat surprising that 1/B=7Pn."
Another occurrence this fall was the third annual Lloyd's capacity auctions. Previously, when a Name wanted to get out of Lloyd's or died, their existing capacity just went into a general pot. Eventually, people realized that this capacity actually had value and could be traded. This year more than ten percent of Lloyd's capacity, around £1 billion, was traded through the capacity auctions. The average price for the capacity was 15.9 pence for each pound of capacity traded with the highest price being 48.1 pence for Syndicate 1176, which writes exclusively nuclear risks.
Prices are greater than last year, which means that the purchasers still value participation in the Lloyd's market. What is more interesting to note is that the main purchasers were corporate vehicles while the sellers continued to be mainly individual Names. Corporate vehicles are buying capacity particularly in their own syndicates, which means they are supplying capacity to themselves, like a real insurance company! In fact, over half of the capacity for 1999 will be provided by corporate capital and many analysts believe that by 2003 there will be no more individual Names at Lloyd's.
Actuaries in London have become involved in determining the price of capacity to be traded. Past profitability of the syndicate can be much more easily determined than future profitability. However, future profitability should have more influence on the price. Various actuarial models exist to calculate the prices for a syndicate's capacity. Some are fairly basic and some are incredibly complicated. It is interesting that this is another nontraditional area where actuaries can add value.