CAS Reinsurance Research Working Group Issues Request for Proposals

The CAS Reinsurance Research Working Group is issuing a Request for Proposals (RFP) to develop methods for validating casualty catastrophe models.

1. 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 9,000 actuaries worldwide, employed by insurance companies, industry advisory organizations, national brokers, accounting firms, educational institutions, state insurance departments, the federal government, and independent consultants.

2. Reinsurance Research Working Group

The Reinsurance Research Working Group addresses actuarial issues related to property and casualty ceded and assumed reinsurance. The group'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.

3. Research Problem Description

Natural catastrophes like hurricanes and earthquakes which affect 1st party coverages are a well-studied problem in the actuarial literature. These events have several key characteristics: 1) they are rare, 2) they give rise to many claims, which – in the aggregate – threaten insurer solvency and the stability of markets and 3) specialized models are used for pricing. These models incorporate expertise in construction, engineering, seismology, meteorology, paleoclimatology, and other non-actuarial fields.

Casualty Catastrophe Model Evaluation and Integration

Actuaries in the field of excess and reinsurance pricing frequently deal with 3rd party risks with similar characteristics. Such events need not – and often are not – otherwise tied to a property catastrophe. These "casualty catastrophes” may involve dozens and potentially millions of injured parties. Total insurable losses reach into the millions to billions.

In the current insurance environment, the most common cause of such claims is product liability. Tobacco, talcum powder, opioid medications, and airbags have all received verdicts or settlements of $1 billion or more. Beyond product liability, casualty catastrophes can occur in other lines such as construction defect and homeowners liability.
Because of their rarity and scale, traditional actuarial methods are ill suited to estimate the pricing impacts of casualty catastrophes. Some firms offer casualty catastrophe modeling tools that purport to estimate exposures to casualty catastrophes, but practices and methods are evolving.

The group is, therefore, seeking to broaden the available material on the topic of casualty catastrophe evaluation and best practices or methods for integrating their outputs into reinsurance pricing.

4. Proposal Requirements

We are seeking researchers to develop methods and tools which address the shortcomings listed above for the excess and reinsurance lines of commercial auto liability, general liability, and professional liability as regards the topic of casualty catastrophe model evaluation or the excess and reinsurance lines of commercial auto liability, general liability, professional liability, and property as regards trend evaluation. An ideal submission would address one of the above topics (casualty catastrophe models or trend) with both technical recommendations on evaluating industry benchmarks as well as methods for integration into pricing.

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 and should not pre-suppose extensive familiarity advanced topics in those fields. Moreover, methods and processes should be explainable to insurance industry decision makers who may not have the experience or education of the actuary implementing the testing or integration of industry benchmarks.

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 Working Group and entirely based on their written proposal - is best able to perform the work as specified herein. If the group 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

5. 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 5, 2023.

6. 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 $45,000.

7. 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.