RE: Expected Policyholder Deficit

Zurbuchen,Barry C. ( (no email) )
Mon, 4 Jan 1999 09:35:48 -0600

An important element is the method used for valuing assets and
liabilities. If you are using statutory rules which are inherently
conservative, I can imagine that you may find extreme cases where
indicated (statutory) surplus is negative. If you are valuing everything
at fair market value, which admittedly can be tricky for certain types
of assets and liabilities, I don't see how you get negative capital
needs. Unless of course, you are a fast growing, very profitable
insurer... Can you give more details of your scenarios?

I guess I'm in set (1) and possibly in set (2).

> -----Original Message-----
> From: Meyers, Glenn G. [SMTP:GMeyers@iso.com]
> Sent: Sunday, January 03, 1999 9:32 PM
> To: 'casnet@lists.casact.org'
> Subject: Expected Policyholder Deficit
>
> One of the probabilistic criteria for insurer solvency is the expected
> policyholder deficit, where the insurer's capital is large enough so
> that
> the expected cost of an insolvency is less than some predetermined
> amount,
> such as 0.5% of the total expected loss.
>
> I have been constructing some examples and I am finding cases where
> the
> capital indicated by the expected policyholder deficit is negative!
> In
> fact, if you give me some predetermined percentage of expected loss, I
> can
> find a loss distribution that will give a negative surplus by this
> criteria.
>
> Now we could debate whether or not my examples are realistic. But even
> if
> they are not, this makes me wonder that if we can find some (perhaps
> unrealistic) examples that are obviously wrong, are there realistic
> examples
> that are 10%, 50% or even 100% wrong?
>
> I would be extremely surprised if I was the first one to come up with
> such
> examples.
>
> Now consider the following two sets of actuaries. (1) The set of
> actuaries
> who think the expected policyholder deficit is a good idea; and (2)
> The set
> of actuaries who are aware of that the expected policyholder surplus
> can be
> negative.
>
> I suspect that there are a large number of actuaries in each set. I
> would
> appreciate hearing from anybody in both of these sets on how they
> reconcile
> this problem.
>
> Glenn Meyers
> Insurance Services Office
> Internet mailto:gmeyers@iso.com <mailto:gmeyers@iso.com>
> Voice: 212-898-5938
> Fax: 212-898-6060
>
>
>
> Visit the CAS Web Site at http://www.casact.org
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