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From the Readers

Historic or Sad Moment?

Dear Editor:

I was delighted to see that there was a "Historic Moment For Casualty Actuaries" (August 1998, Actuarial Review). In one way, it was a positive historic moment. In another way, it was a sad day for casualty actuaries. Why? Because I think that it is a sad day when we, as a profession, get up in front of the world and announce that we cannot agree on something as fundamental to our profession as what constitutes "reserve strengthening." It is one thing to argue about Congress' intent behind the words, another to argue about the actuarial meaning of the words.

Frank D. Pierson, FCAS

Dividend Payments

Dear Editor:

In my mind, the only rightful source of dividends to policyholders is Actual Losses less than Expected Losses contemplated by the rate (Dave Schofield's letter, "From the Readers," August 1998). To build the cost of dividends into rates is simply to redistribute premium. Further, it violates the basic premise of the insurance mechanism, which is that the premiums of loss-free policyholders (good experience) will pay the losses of the unfortunate few (bad experience).

Policyholders share in the benefits of fortuitously good experience in the form of dividends. If the actual experience isn't better than that anticipated by the expected losses in the prospective rates, there is no "dividend" to pay, and there is no source from which to pay the "dividend."

Of course, the competitive environment skews these insurance/economic principles beyond recognition in the real market.

Edward C. Shoop, FCAS

Global Warming Debate Continues

Dear Editor:

When I graduated from college, Phi Beta Kappa, I was recruited by the U.S. Air Force to become a weather forecaster. I was first sent to MIT, where I received an equivalent to 54 semester hours of meteorology. I was one course short of a masters in meteorology.

This does not qualify me as an expert today, but I have followed articles on weather and climate since my three years as a weather forecaster after MIT. I feel that I at least know the terms used by meteorologists and understand what they are saying. I also realize the extreme complexity of daily forecasting and the even more complex nature of climatological forecasts.

At the onset I would like to state that I agree with Fred Kilbourne that the certainty of global warming is flawed. The major reason for this is that the proponents of global warming base their major arguments on models of the atmosphere that have been proven unreliable. By this I mean that when you input data from the 1940s or 50s and run the models, they do not come close to replicating the climate in the 1960s, 70s, 80s, or 90s. Models that cannot replicate past history are very poor predictors of the future. Actuaries, if anyone, should agree with that.

The climate of the earth has had many and dramatic changes during its history. Just yesterday, two articles in the Arizona Republic confirmed this. The first was reported by Paul Recer of the Associated Press. He states that studies of ice cores of Antarctica and Greenland show that there was significant warming of the earth 12,500 years ago. Twenty degrees Fahrenheit at the south pole and 59 degrees in Greenland, all in a period of 50 years or so. This was the end of the last ice age. No one believes that this warming was due to human activity. No one knows how such a large temperature change could occur in such a short time. In the second article, according to Stanley Ambrose, an anthropologist at the University of Illinois, a volcanic eruption in Sumatra, about 71,000 years ago, cooled the planet significantly for at least six years and may have been responsible for killing most humans alive at the time.

The earth has been warming for the last 350 years, since the little ice age. The temperatures today are still lower than those of the "Medieval Climate Optimum," which occurred around the first millennium. That is when Greenland was green and settled by Norsemen, and Europe experienced a period of prosperity because of longer growing seasons and the abundance of plant growth.

During the little ice age, there was a sparseness of sunspots, which led some climatologists to conclude that there is a variation in the radiation from the sun. Recent studies confirm that there is indeed a variation in the radiation from the sun. The earth-warming models consider radiation from the sun to be a constant. Since variations in the energy hitting earth from the sun cannot be forecast, the model assumption of constancy is about the only thing they could do, but past history tells us that this assumption is in all likelihood not tenable. In any event, this assumption, by itself, should render the results of the models questionable.

The proposition that CO2 levels are the cause of earth-warming are also in question. There have been many periods in earth's history when CO2 levels have been much higher than they are today. None were caused by humans. The primary causes were believed to be decaying vegetable matter and volcanoes. Even today, humans account for only about five percent of the total CO2 produced by the world. It has also been proven that higher levels of CO2 in the atmosphere enhance plant growth and add to the food supply of the earth. With increasing earth populations, this might be good.

Water vapor is a much more powerful greenhouse gas than CO2. It is also self-correcting. As more water vapor enters the atmosphere, more clouds appear and the clouds reflect the radiations from the sun back into space, which cools the earth. In the 1950s jets flying in the stratosphere and putting out nine pounds of water vapor for every pound of fuel burned were considered a threat to the earth by reflecting too much of the sun's heat and causing global cooling. As I understand it, the earth warming models do not take into account clouds or cloud formation as a counterbalance to warming through direct radiation or greenhouse gases.

The increasing concentration of CO2 in the atmosphere is a health problem and we should do what we can to reduce it. But, to use global warming as an excuse is very lame.

The Kyoto Protocol will do nothing to reduce CO2 emissions. More than half of the world is exempt from the controls of the protocol and with the free flow of capital and global competition in manufacturing, the production of electricity and other products that use energy will migrate from those countries adhering to the protocol to those that have no restrictions. Can't you see a string of electrical power plants on the Mexican side of the Rio Grande, expelling untold, unregulated tons of pollutants into the United States while furnishing the U.S. with the power it needs to keep growing? Can't you see the manufacturing labor force, who now complains of plants being relocated overseas, really being put out of work because of heavy industry's move to China or India or South America?

Finally, I find most distressing Mr. Bashline's dismissal of Dr. Seitz's work, not on its merits (or lack thereof) but simply because his work was financed by a "far right" organization. The arrogance of this dismissal, apparently without even reviewing the work, is not only non-scientific, it is typical of those who, when confronted with a message they disapprove of, attack the messenger, rather than refute the message.

If you review the Internet site of Dr. Seitz's report, you will find several things. First, he has a list of 19,200 scientists that agree with him, of which 2,380 are physicists, geophysicists, climatologists, meteorologists, oceanographers, and environmental scientists. Another 4,963 are chemists, biochemists, biologists, and other life scientists. Of the 19,200, 16,800 have qualifications for the evaluation of research data. Truly a "vast right wing conspiracy!" Second, most of the data he uses is from sources over which he has no control. It is available to anyone who wants to make an analysis. I am sure that if Mr. Bashline reviewed this material at, even he might agree that not all information from someone of a different political persuasion is not necessarily false.

I have much more to say on this subject, but will wait for a future time. For example, there is the whole argument that if the Kyoto Protocol is adopted, it will benefit those who wish to humble the U.S. (within and without) without reducing CO2 emissions.

My only wish at this time is that Mr. Bashline would look at the facts and not resort to name-calling as a way of proving his point, whatever it is.

Darrell W. Ehlert, FCAS

Bashline Responds

My point was that actuaries should not let politics prevent them from seeing an issue such as global warming in its scientific context. Obviously, there is a wide range of possible outcomes for the world's climate, and I am not rejecting any arguments for political or any other reasons. I am only arguing that we as actuaries should be able to evaluate these on their scientific merits without talking about Stalin's geneticist and the like. I didn't think I resorted to name calling (except for calling Fred "Fred"). If Mr. Ehlert is referring to my characterization of the Scaife Foundation as "far right," I stand by it.

Donald T. Bashline, FCAS

Editor's Note: The Actuarial Review staff would be happy to hear from readers on the global warming issue or any other issues. Send your letters to the Editor, Actuarial Review, in care of the CAS Office.