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CAS Reinsurance Research Committee Issues Request for Proposals

The CAS Reinsurance Research Committee is issuing a Request for Proposals (RFP) to develop tools and methods for better credibility weighting between an experience indication and a complement for common excess and reinsurance lines.

CASUALTY ACTUARIAL SOCIETY (CAS)

The CAS was organized in 1914 as a professional society for the promotion of actuarial and statistical science as applied to insurance other than life insurance, such as automobile, liability other than automobile, workers compensation, fire, homeowners, commercial multiple peril, and others. Such promotion is accomplished by communication with those affected by insurance, presentation and discussion of papers, attendance at seminars and workshops, collection of a library, research and other means. The membership of the CAS includes over 8,600 actuaries worldwide, employed by insurance companies, industry advisory organizations, national brokers, accounting firms, educational institutions, state insurance departments, the federal government and independent consultants.

REINSURANCE RESEARCH COMMITTEE

The Reinsurance Research Committee addresses actuarial issues related to property and casualty ceded and assumed reinsurance. The committee's charge includes furthering the development and dissemination of actuarial practice, theory, and principles of reinsurance; identifying topics for research and discussion; monitoring professional developments and regulatory activities; establishing liaisons with other organizations working in this area; and sponsoring panels, seminars, and other public forums on reinsurance issues.

RESEARCH PROBLEM DESCRIPTION

Actuaries in the field of excess pricing must frequently work with data which suffers from various imperfections and challenges. These data problems include, but are not limited to small volume, high volatility, timeliness, or completeness. A complement of credibility from a comparable business, state, or class benchmark will typically be used to adjust parameters and selections. While there is significant actuarial literature on methods of credibility rating at the primary level, there are few well established methods for excess layers except in cases of having access to expensive data provider circulars or large storehouses of internal claims and policies.

The committee is, therefore, seeking to broaden the available material on the question of excess and reinsurance credibility. We believe existing credibility methodologies are insufficient in the following ways:

Lack of powerful complementary data sets

Traditional complement of credibility methods assume robust complements which may augment experience. Few sources of such complements exist in reinsurance and those that do may not be close matches to the business being priced and are often quite expensive.

Lack of accepted practice

Traditional credibility methods depend on having hundreds or thousands of losses generated by risks similar to those being priced. Excess and reinsurance contracts often have only a very small number of claims and small claim count methods are not as established and accepted in actuarial literature.

Lack of mathematical underpinning

Square root rules are often used in primary pricing to determine increasing credibility. Often in actual excess and reinsurance practice, credibility tends to be treated as more additive than convex. This may manifest by use of a flat credibility amount per claim count or by selection of an arbitrary point at which full credibility for an experience indication is achieved.

PROJECT REQUIREMENTS

We are seeking researchers to develop methods and tools which address the shortcomings listed above for excess liability lines. An ideal submission would contain both a complement of credibility tool or data set and a method to credibility weight it with an experience selection. Submissions that contain just a complement of credibility tool or data set or just a method to credibility weight will also be considered.

Methods should have sound mathematical foundations, rooted in established principles of mathematical statistics or predictive modeling. With that understood, the techniques within a method should be intelligible to an actuary working in excess insurance pricing. Moreover, a method’s output should be explainable to insurance industry decision makers who may not have the experience or education of an actuary.

If a tool is provided such as complementary data set, there should be some indication that the data set is fit for purpose or behaves similarly to established industry data sets. Preference will be given to respondents who use publicly available data, or who make previously inaccessible data legally available to the public. Obviously, exposure of any data must comply with applicable privacy laws.

PROPOSAL REQUIREMENTS

Proposals should include a clear outline of the work that will be performed and the time frame in which it will be performed (including key dates). The proposal should be accompanied by the resumes of the researcher(s), indicating how their background, education, and experience bear on their qualifications to undertake the research.

The CAS contract will be awarded to the respondent who - in the judgment of the Reinsurance Research Committee and entirely on the basis of their written proposal - is best able to perform the work as specified herein. If the committee determines that no proposal meets the requirements of the RFP, then no contract will be awarded.

Receipt of proposals will be acknowledged in a timely manner. Respondents who are not awarded the contract will be so informed shortly thereafter.
Interested researchers should submit their proposals and any questions to:

Brian A. Fannin, Research Actuary
Casualty Actuarial Society
bfannin@casact.org
(919) 457-3439

TIMELINE

Interested parties are welcome to submit questions about the RFP. All questions and responses will be circulated to those respondents who have submitted questions, or who have expressed their intent to submit by May 1, 2020.


Week of March 30

RFP announcement

May 1, 2020

Question/expression of intent

May 15, 2020

Question response

May 29, 2020

Final submission

June 12, 2020

Selection


COMPENSATION

Compensation to researchers will be commensurate with the time required to carry out the work. Respondents should include an estimate of cost in their proposals. Total cost should not exceed $30,000.

PRESENTATION, OWNERSHIP AND PUBLICATION OF REPORT

As a condition of selection, the CAS requires that all right, title, and interest, including copyright and patent, in and to the report be owned by the CAS.

The selected researcher/research team must sign a formal research agreement that assigns all such rights to the CAS. In any publication of the report, the researcher(s) will receive appropriate credit with regard to authorship. The CAS may publish the report in its entirety, or any sections thereof, in any format and medium as it finds fit, including but not limited to CAS publications, and electronic versions such as on its Web site or physical storage media.

The researcher(s) should make every effort to be available to present the report at a CAS meeting or seminar.


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