Casualty Actuarial Society

Research

1998 Reserving Call Paper Program
June 25, 1997

Committee on Reserves Announces 1998 Call for Papers - Best Estimates for Reserves

The Casualty Actuarial Society is pleased to extend a call for papers on the topic of selecting the best estimate for a reserve. Authors of accepted papers may be invited to present their work at the 1998 Casualty Loss Reserve Seminar. In addition, the papers will be published in conjunction with the Seminar, and a $1,000 prize will be awarded to the best paper submitted. Both CAS members and non-members are invited to submit proposals for papers.

In evaluating loss and loss adjustment expense liabilities, actuaries typically produce a range of estimates. While there is uncertainty about the amount of reserves needed, a single estimate must be selected as the booked reserve. This call for papers is intended to explore the issues that actuaries face in recommending which estimate to book. The following is a list of potential topics authors may wish to explore:

  • The NAIC Codification of Statutory Accounting Principles makes this topic particularly relevant. The current draft of NAIC Issue Paper No. 55, which details the treatment for recording unpaid Loss and Loss Adjustment Expense, states:

For each line of business, management shall record its best estimate of its liability for unpaid claims, unpaid losses and loss/claim adjustment expenses. Because the ultimate settlement of claims . . . is subject to future events, no single loss or loss/claim adjustment expense reserve can be considered accurate with certainty. Management's analysis of the reasonableness of loss or loss/claim adjustment expense reserve estimates shall include an analysis of the amount of variability in the estimate . . . . In the rare instances when . . . . it is determined that no point within the range is a better estimate than any other point, the midpoint within the range shall be accrued. (Emphasis added)

Authors may want to discuss the implications of the NAIC's proposed statement:
  • Is it possible to actuarially determine the best estimate in the range? How should the defining criteria for a best estimate be determined? Given this criteria, how does the actuary determine the corresponding best estimate?
  • How can the amount of variability in actuarial estimates be analyzed? What methods could be used to analyze the variability?
  • The decision to discount liabilities impacts the selection of the carried reserve.
  • Should discounting of reserves be permitted in certain cases? Under which conditions should reserves be discounted?
  • If reserves are discounted, what methods can be used to calculate the present value of the reserves?
  • Should reserves for mass torts be discounted? A recent survey published by the American Academy of Actuaries Environmental Working Group indicated that although consulting actuaries and CFO's generally favored discounting of reserves for asbestos, pollution and other mass torts, regulators expressed concerns about carrying reserves at discounted values. If reserves for mass torts are discounted, how are liabilities without a known payment pattern to be discounted?
  • If the best estimate is discounted, should an explicit margin for risk be included in the booked reserve? How should the risk margin be estimated?
  • How should any "implicit" discounting or margin be presented in financial statements?
  • Reserving policy may have financial implications for an insurance company:
  • Do companies that accurately set reserves enjoy a competitive advantage?
  • How is the stock price of a company impacted by its track record in accurately setting reserves? Do companies produce stronger stock market results by spreading reserve changes across several years in order to stabilize income rather than recognizing the full effect immediately? Can the impact of reserve accuracy be modeled and measured quantitatively?
  • How should reserve estimates be structured for use in mergers and acquisitions? How do the concepts of present value apply in these situations?
  • What are the tax implications of the selected reserve estimate?

Timetable

Timely submission of the discussion papers is critical to the success of the call. The procedures and timetable enumerated below will apply.

  1. By September 2, 1997, authors should submit proposals for their papers including the title, a short description of the topic to be addressed, and the approach that will be taken. Proposals should be submitted to:
    Casualty Actuarial Society
    N. Glebe Road, Suite 600
    Arlington, VA 22201
    Attn: Committee on Reserves
  2. By October 15, 1997, the Committee will make a decision on all proposals. The number of accepted proposals may be limited. The Committee will contact authors regarding their proposals, and assign a Committee member to work with each author and monitor the paper's progress. By mutual agreement the author and the assigned Committee member will establish a schedule for the production of interim drafts.
  3. By March 13, 1998, a first draft of the complete paper will be submitted to the assigned Committee member for review.
  4. By April 15, 1998, all comments on the first draft will have been forwarded to the author.
  5. By June 1, 1998 the completed paper and a 200-word abstract must be received by the Committee on Reserves for their review. Authors will have received further instructions from the Committee for the name and address of the committee member to receive the completed paper. Each paper will be screened by the Committee to assure that it meets the minimum standards established by the Committee (relating either to relevance of material or quality of exposition). The Committee may require further rewriting of the paper to bring it to an acceptable standard.
  6. By July 15, 1998 all authors will have been notified as to the results of this screening process. Accepted papers will be printed, bound, and distributed for the 1998 Casualty Loss Reserve Seminar.
  7. Authors may be invited to present their papers at the CLRS, scheduled for September 28-29, 1998 in Philadelphia.
  8. A prize in the amount of $1,000 will be awarded to the best paper submitted in response to the call, and will be presented to the author at the CLRS. The best paper will be selected by a review committee that will judge the papers anonymously. The criteria for evaluation will reflect:
    Originality of ideas
    Clarity of presentation
    Contribution to the literature on loss reserving
    Thoroughness of analysis
  9. Papers must be no more than 10,000 words, and should be prepared in accordance with the Guides for the Submission of Papers .

It is also hoped that the authors will also submit their papers for publication in the Proceedings in accordance with the procedures in the Yearbook. However, acceptance of a discussion paper for this call does not guarantee its acceptance for publication in the Proceedings.

The Committee on Reserves looks forward to receiving proposals to the call, and is happy to respond to inquiries from interested parties. Questions may be addressed to Joanne Spalla or Stuart Suchoff at their CAS Yearbook addresses.


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