2003 Casualty Actuaries in Reinsurance (CARe)

Special Interest Limited Attendance Seminar on Workers Compensation

September 17, 2003
New York Marriott East Side
525 Lexington Avenue
New York, New York 10017
(212) 755-4000

This one day special interest, limited attendance seminar will explore issues associated with reinsurance transactions involving workers compensation. The workers compensation market has seen some hardening over the past few years, but it has not nearly met the pace of other liability lines of business. In response, reinsurers have attempted to customize their products to meet the needs of their clients yet still maintain a profit.

To adequately price these contracts, reinsurance actuaries must keep themselves up to date. Constant changes in workers compensation cost drivers, reform, and legislation must be taken into account in the projection process. In addition one must maintain knowledge of overall market issues like capacity, reserve deficiencies, insolvencies, and trends by claim type. Once written and on the books, the reinsurance reserving actuary has the challenge of recommending an amount regardless of the variability associated with the product.

Seminar topics will provide a range of information reinsurance actuaries can use in their dealings with workers compensation products. Presentations range from technical to a broad market overview. The five sessions are described briefly below.

Underlying Pricing Parameters

Pricing workers compensation covers is complicated by the numerous trends and other pricing parameters that impact estimating expected losses. Important parameters include: frequency, severity, exposure and loss ratio trends, loss development, and benefit levels. This panel will discuss these important parameters from both a historical and prospective point of view. They will also discuss State differences with a special focus on the California market.

Moderator:
Ernest S. Tistan, FCAS, Chubb Re
Panelists:
Karen F. Ayers, FCAS, Senior Actuary, National Council of Compensation Insurance
Esther Becker, ACAS, MAAA, AIG West Coast Regional Actuary, AIG
Richard A. Hoffman, ACAS, Principal and Consulting Actuary, EPIC Actuaries, LLC

Excess of Loss Pricing

Experience and exposure rating are both very important methods for pricing excess of loss covers. These methods are, however, very sensitive to the underlying assumptions. The panel will describe various pricing methods and then discuss their key assumptions, how to validate those assumptions, and potential pitfalls.

Moderator:
Ernest S. Tistan, FCAS, Chubb Re
Panelists:
Jose R. Couret, ACAS, Actuary, Swiss Reinsurance America Corporation
Tony Iafrate, FCAS, Chief Pricing Actuary, General Re

Reserving and Commutations

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This session will explore techniques appropriate for setting reserves and determining a fair commutation value on individual lifetime compensation claims or a small set of long-term compensation cases. A nontraditional, claim specific approach for setting reserves on a runoff book of business will be presented. This approach can be applied to a primary company in runoff but is applicable in many reinsurance contexts as well. When considering the impact on excess of loss reinsurance covers, it is important to consider the variability inherent in the future life expectancy, cost of medical care, probability of settling a claim, and probability of claims reopening. These and other issues will be discussed.

Moderator:
Barry C. Zurbuchen, FCAS, Vice President, Allied World Assurance Company
Panelists:
Gary Blumsohn, FCAS, Chief Actuary, Arch Reinsurance Company
James B. Kahn, FCAS, Assistant Vice President, Folksamerica Reinsurance Company

A Reinsurance Broker's View of the Marketplace

The workers compensation practice leader at one of the largest brokerage firms will discuss the state of the workers compensation reinsurance marketplace and the trends in buying patterns of ceding companies. Are companies keeping larger retentions? Are they buying less vertical coverage? How does the size and capital structure of a company relate to the type of reinsurance purchased? Are the purchase decisions made at a corporate level or at the business unit level? The panelist will also discuss trends in the cost of workers compensation coverage. How has pricing changed subsequent to the meltdown of the workers compensation carve-out market? How did September 11, 2001, impact the marketplace? Has the market peaked, or is it still getting harder?

Moderator:
Barry C. Zurbuchen, FCAS, Vice President, Allied World Assurance Company
Panelist:
Karl Amidon, Senior Vice President and Managing Director of Workers Compensation, Aon Re

Shifts Within the Marketplace; Where is the Premium Dollar?

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As changes occur in the insurance marketplace - hardening and softening of prices and coverages - so does the vehicle insureds' use to harness their risk. Those with capacity to spare may self insure when prices in the voluntary market move north of a tolerable level. Their purchases within the insurance/reinsurance arena move from first dollar to excess coverage. Others who are less fortunate may be forced out of the voluntary fraternity and be provided only one option assigned to them. This panel will discuss the risks on the edge, those impacted most by changes within the voluntary marketplace, and how their movement creates different opportunities for reinsurers.

Moderator:
Jean A. DeSantis, FCAS, Vice President, Swiss Re Underwriters Agency, Inc.
Panelists:
Jonathan B. Hale, FCAS, Vice President and Actuary, Travelers Insurance
David F. Mohrman, FCAS, Consulting Actuary, Tillinghast-Towers Perrin