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2002
The same methods used to price retrospectively rated Workers Compensation policies can also be used to price large deductible policies that include aggregate loss limitations. In particular, a table of insurance charges (“Table M”) or a modified Table M can be used to determine the incremental cost of adding an aggregate loss limit to a large deductible policy.
2002
The Table of Insurance Charges (commonly known as "Table M") is an essential tool for retrospective rating. The purpose of this Study Aid is to provide the student with a clear understanding of how to do Table M construction problems.
2002
Genesis.
In an effort to provide some considerations to the CAS membership on risk transfer testing, the CAS Valuation, Finance, and Investment Committee (VFIC) conducted a research project. This paper is the culmination of VFIC's work.
The demonstration of risk transfer for a reinsurance contract is required by FAS 113 in order for the contract in question to receive reinsurance accounting treatment for GAAP purposes.
2002
By evaluating the financial implications of future contingent events, an actuary would have been able to spot the fatal weakness in Enron's doomed house of cards.
2002
Perrot and Hines have written an excellent paper contrasting fair-value earnings with U.S. GAAP earnings for a single-premium deferred annuity. They have used a realistic set of interest rate scenarios and a reasonable basis for both fair value and GAAP assumptions in those scenarios for purpose of the comparisons. They have shown that fair-value earnings are much more volatile than GAAP earnings.
2002
There are two competing and seemingly different methodologies for calculating fair values—the direct and indirect methods. The direct approach has the advantage of providing a more reliable assessment of the risk of financial leverage. The indirect method can be structured to adjust for financial leverage, however, the methodology becomes excessively complex.
2002
In this paper we present the fundamental approaches of financial economics to valuation. Three methods are demonstrated by which financial economists account for risk. We illustrate how these methods relate to one another and how they can be applied in the valuation of risky corporate bonds, guaranteed investment contracts (GICs) with and without interest rate contingencies, and whole life insurance.
2002
This Practitioner's Guide is geared to the practicing actuary who would like to optimize classification relativities. It provides the intuition underlying the minimum bias procedure and the alternative methods that have been proposed subsequently. It uses a simple illustration to show the computations required for each method, and to evaluate their advantages and drawbacks.
2002
The Stanard-Buhlmann procedure is a major advance in casualty actuarial loss reserving methods. It has proved especially useful for reinsurers lacking the pricing data to perform Bomhuetter-Ferguson analyses. Primary companies may benefit equally from this technique, particularly if the pricing actuary's expected loss ratio is not consistent with actual experience.
2002
This paper recognizes that entering into a risk-sharing financial arrangement with another entity creates credit risk. One can use a distribution outcomes to price both aggregate and credit risk. This paper presents a way to price aggregate and credit risk for deals in which another entity is contractually liable for losses.
2002
The Percent of Loss Cost statistic (PoLC) is an effective tool, either alone or in conjunction with standard renewal pricing reports, to measure changes in commercial lines price levels in a loss cost environment. This paper demonstrates the calculations and definitions associated with the PoLC statistic.
2002
Operating or riding in a vehicle is one of the most dangerous things the typical person does on a regular basis. This paper describes how one company is using new technologies and techniques to mine massive amounts of vehicle crash statistics. In 1998, the company invested in new data mart technology that opened the door to more sophisticated analysis of real world insurance claims data by vehicle, by driver, and by geographic area.
2002
Risk Classification represents one of the most important and controversial topics of actuarial science. It is covered broadly throughout the Casualty Actuarial Society's exam syllabus. The importance and persistence of this topic is also reflected in the long array of papers that permeate the casualty actuarial literature.
2002
More and more ceding companies are asking for global protections of their portfolios. One example is the protection by the reinsurer of two (or more) lines, e.g. fire and motor third party liability. Clearly this allows the insurance company to optimally balance its portfolio and to pay the lowest reinsurance premium. In this paper we analyze how to price an excess of loss treaty covering multiple lines.
2002
Significant progress has been made in the last decade in developing models to describe the distribution of unpaid losses for a line of insurance. Line-by-line distributions must be aggregated, however, in order to address company-wide issues such as enterprise risk, capital requirements, fair value, and more.
2002
Between 1992 and 2000, significant reserves increase announcements were made by several major property/liability insurers. These reserves increases were for the purpose of funding expected asbestos and environmental liability. Although most analysts agree that U.S. insurers are underreserved for asbestos and environmental liability, how the market reacts to an insurer's announcement of an increase in these reserves has not been analyzed.
2002
The paper takes the reader through a real life example of an entity in runoff. In some instances, certain calculations and data examples have been amended from their original forms for the purposes of simplicity and demonstration. The runoff operation's reserves are predominately those of Florida Workers Compensation (WC) self-insured funds. WC has its own unique properties, which need to be considered when reserving in a runoff environment.
2002
As reserving actuaries focus more on reserve ranges and less on point estimates, the question of how to develop a reasonable reserve range in the aggregate becomes more and more relevant. When working with a single set of "best estimates", the answer is simple - assuming all the best estimates are the mean values for each block of business being analyzed, the best estimate for the total is equal to the sum of the parts.
2002
An economically rational way for management to set reserve estimates is to utilize the future change in the value of the company as a statistical decision function and then to choose the reserve estimate so as to minimize the average value o f this function. The mean of the reserve distribution is almost surely too low as an outcome.
2002
How should practicing actuaries consider materiality in the context of formal Statements of Actuarial Opinion? The specific issue of materiality has come to the forefront for casualty actuaries recently with the requirements of Actuarial Standard of Practice (ASOP) 36.
2002
The Actuarial Standard of Practice No. 36 has highlighted several issues which have been implicitly cons/dared by property/casualty actuaries for years. For the first time, the types of statements of actuarial opinion have been standardized and listed for categorization by property/casualty actuaries. However, many other areas which the actuary needs to be familiar with are not documented in standard actuarial literature.
2002
This paper presents a possible vision for the treatment of property/casualty and other related risks in a converging financial-services marketplace. While each market-generated development is not equally probable, substantial change is likely.
To succeed in the coming decades, actuaries - like their employers - will have to meet changing marketplace needs.
2002
The Low Income Housing Tax Credit Program (LIHTC) was created by the Tax Reform Act of 1986 and was first utilized by the real estate development community during 1987. Section 42 of the Internal Revenue Code (IRC s. 42), as amended, is the federal law that governs the LIHTC Program. Each year the IRS allocates tax credits to each state based on population as defined in IRC s. 42.
2002
Actuaries who want to model correlated joint distributions have a choice of quite a few copulas, but little basis for choosing one over another. Methods are provided here to describe the features of different copulas, so that more informed choices can be made. Copulas differ not so much in the degree of association they provide, but rather in which part of the distributions the association is strongest.
2002
A fundamental aspect of insurance ratemaking is the calculation of the indicated rate level change for a segment of an insurer’s book of business. The indicated rate level change is simply the difference between the current rate level and the indicated rate level. So how do we determine the indicated rate level?
