General Insurance Convention 1992

APL [summary only]. - Joseph, Bryan R P; Duncan, Fred. 2 pages.

Assets and matching workshop. - Downing, Peter N. 16 pages.

Captives. - Thomson, Andrew K; Brockman, Michael J; Charles, John M; Dean, James; Malde, Shailesh A; Sanders, David E A; Wells, Gary G. 23 pages.
This paper looks at captives from a U.K. perspective.
It is now common for major companies to have a captive insurance subsidiary and further expansion of the captives' activities are anticipated in the next few years.
Section 2 considers "What Is a Captive" and concludes that a captive is part of the overall risk management process by being the special purpose financial vehicle to provide the funding and risk servicing mechanism for the risk management process.
In Section 3, the reasons for forming a captive are considered. Real cost benefits may accrue to a company as a result of having a captive through improved risk management, access to the reinsurance market, saving on the direct insurer's commission and expenses and investment income on the insurance funds. A further important aspect is that the captive can assist in providing coverage in problem areas that may otherwise be very difficult to place in the direct insurance market. Tax advantages are not considered to be a significant reason following recent U.K. legislation. Section 4 considers the management of a captive. It is important to ensure that matters are so arranged as to avoid unnecessary tax penalties. A captive, either through its own staff or through a professional management services company, requires the same services as a conventional insurance company.
Tax matters are considered in more detail in Section 5. An essential factor is to ensure premiums are deductible for U.K. tax purposes. Many captives are established overseas and the Controlled Foreign Companies legislation is described together with brief notes on tax rules in the more popular locations for captives.
Section 6 looks at factors to consider in choosing a domicile. The first choice to be made is whether to establish the captive onshore or offshore. Factors to take account of when building a profile of a captive location are set out.
Involvement of a direct insurer as a fronting company is considered in Section 7. In some circumstances this is essential. The problem of security for the direct insurer is considered.

Claims run-off patterns update. - Hinton, Peter H; O'Ceallaigh, Sean M; Buchanan, Carol A. 89 pages.
This paper analyses claims reported on form 33 of DTI returns for around 20 large insurers in the fire, employer's liability and motor classes to derive run off patterns and reduce them to mean term as a single parameter comparator. Results are produced for 4 distinct estimation methods, basic chain ladder, inflation adjusted chain ladder, average claim method and ad hoc company incurred method. Formulae for calculation of the ratios are discussed together with adjustments appropriate to each class of business, and results are tabulated. There is no comment on the meaning of the results.

Equalisation reserves on a European basis. - Working Party on Claims Equalisation. 68 pages.
This paper reports on the systems of claims equalisation, both statutory and voluntary in most of the European Community and Scandinavian countries. Case studies of the systems in Finland, Germany and Denmark are presented. The attitude of the industry bodies and the Inland Revenue in the UK are discussed. Appendices discuss technical formulae for determining transfers to or from equalisation reserves and the upper and lower limits for such reserves. The paper also discusses: taxation treatment, whether these reserves can be included in solvency calculations, and whether they are owned by policyholders or shareholders. The paper is in the form of an incomplete draft with some topics, particularly those relating to the use of actuaries, identified but not discussed.

European Working Party [report 1991-92]. - Akhurst, Ron B; O'Connor, David K; Orros, George C; Shore, Alastair C; Tripp, Michael H. 49 pages.

European Working Party: Summary of issues for presentation at the General Insurance Convention. - Akhurst, Ron B; O'Connor, David K; Orros, George C; Shore, Alastair C; Tripp, Michael H. 2 pages.

Financial reinsurance. - Wilkinson, Richard C. 6 pages.
Natural catastrophes and prior year claims development have had a profound effect recently on market results within the UK. Alternative solutions have been sought to conventional reinsurance, with "time and distance" policies being the first instance of financial reinsurance. Such policies in effect discount claims reserves for past years and discount at a gross rate by being sited offshore.
As reinsurance costs escalated and capacity became limited, financial reinsurance developed into prospective covers, with an insured paying for its own losses over time. Concern was expressed by various interested parties as to whether such contracts contained sufficient elements of risk to be classified as reinsurance.
The debate continues as accounting, taxation and regulatory bodies discuss the validity and presentation of such contracts within the UK. Financial reinsurance is still evolving.

Household rating. - Household Insurance Working Party 8 pages.
In contrast to the heavily analysed motor account the risk factors underlying household insurance have in the past attracted little attention and rating was on a simplistic basis. The losses arising from storm and particularly subsidence have led to changes in the rating of cover for buildings in the past year. The working party initially hoped to identify the underlying risk factors and relate these to claims data but it soon became apparent that no worthwhile data would be available as the relevant factors are not recorded. Data analyses have, therefore, been restricted to one particular topic which concerns the usefulness of geological data for rating the subsidence element of the risk.

Lloyd's syndicates - guidance for reserving: Taskforce recommendation 33. 12 pages.

Mortgage indemnity guarantee. Report of the Pecuniary Loss Working Party. - Akers, Peter J; Delbridge, T Paul; Fuller, Derek; Leigh, Julian C T; Masters, Graham A; Silverman, Anthony H. 87 pages.
This paper describes the recent work of the Pecuniary Loss Working Party (PLWP).
Section 2 provides the context for the recent work and describes the decision to concentrate on Mortgage Indemnity Guarantee (MIG).
Section 3 contains descriptions of recent developments in the MIG marketplace, covering the UK housing market, reserving practice and product development.
A particular methodology has been used to describe the complex relationships between factors affecting MIG. This methodology is described in general in Section 4. Two relationship models have been developed and are also described in detail in Section 4. The Macro Relationship Model describes the economy wide relationships, whilst the Micro Relationship Model describes the relationships relevant to an individual risk.
Section 5 describes the development from the Macro Relationship Model of a Catastrophe Warning Indicator.
Section 6 describes the continued development of a Premium Rating and Reserving Model, which has been assisted by the development of the Micro Relationship Model.
Next steps are covered in Section 7. In particular, the PLWP requests feedback on the work to date and direction for the future, both for MIG and other product lines.

Reserving for catastrophe reinsurance. - Craighead, David H. 39 pages.
Recent years have seen the impact of a large number of catastrophes, not only on the London catastrophe market but on most general insurance offices. The paper starts off from the assertions that
a) the development pattern of the loss advices of each catastrophe is unique to that catastrophe and can differ by source of advice, and that
b) the development pattern of the net account is heavily by the outwards reinsurance pattern of protections, hence
c) traditional methods of claim development estimates will not provide the correct answers in the reserving process.
The paper then explains a method of reserve estimating by following through a number of steps.

Shareholder value analysis. - Field, Richard J; Lomax, Michael W. 14 pages.
Insurance is not risky - Reinsurance is a waste of money - Dividends are there to be cut - Capital allocation is irrelevant - Your performance measures are meaningless - You can make money out of the cycle
If you find any of these statements surprising, you should read this paper and come to our workshop to find out more.
We have used concepts from financial economics and Shareholder Value Analysis (SVA) to challenge conventional wisdom about general insurance. Our focus is strategic, not technical.

Some thoughts on the estimation of pollution claims (draft). 8 pages.
The general insurance actuary may be required to estimate the future liabilities for latent claims arising from the portfolio of an insurance or reinsurance company or a Lloyd's syndicate. This may be as part of a normal reserve valuation or as an exercise specifically dealing with latent claims. Papers have been presented to the 1990 and 1991 GISG conferences as an introduction to latent claims, but no specific advice has been given to actuaries as to the factors which should be taken into account and approaches to the problem which should be given attention. This unofficial note has been prepared for the consideration of the London Market actuaries who are particularly exposed to such problems.

Storm rating in the nineties. - Christofides, Stavros; Barlow, Caroline; Michaelides, Nicholas; Miranthis, Constantinos. 84 pages.
This paper is based primarily on a report on "Storm Severity over Britain" written for Commercial Union by Dr J.P. Palutikof and A.R. Skellern [11] of the Climatic Research Unit of the School of Environmental Sciences of the University of East Anglia. This report, which will be referred to as the "UEA" report from now on, examined the frequency and severity of wind storms from 1920 to 1990 in order to place the events of 1987 and 1990 in their long term context. The researchers identified 47 storms, classed as severe, during this period. Each of these storms is described in the report and the maximum gust speeds and duration, as well as the size of area affected, are given. The report also has a map for each storm showing the areas where gust speeds exceeded 60 and 80 knots.
The Commercial Union (CO) agreed to release this report to the Working Party and also supplied a sample of its own exposure and loss data from the 1987 and both the 1990 storms for analysis. The CU has recently made copies of the UEA report available to other interested parties and the authors hope to publish work related to this study in the near future. The Working Party also obtained data from the ABI Household Risks Statistics Panel on the January 1990 and October 1987 storms [1]. These reports were confidential to the contributing Panel members and we are particularly grateful to the Panel, and to Brian Hudson the ABI Chief Statistician, for agreeing to release these to the Working Party.

Taxation, reserving and actuaries. - Tomlinson, David I; Czapiewski, Colin J W. 13 pages.
This paper is the product of a difference of opinion between the two authors during the discussion of a paper on Financial Reinsurance at the GISG convention at Llandrindod Wells in October 1991.
Further discussion showed that the differences were mainly matters of presentation rather than substance but some topics were identified on which there seems to be no consensus view and we believe that there is need for a debate.
Our intention is to produce a paper which would promote a discussion among actuaries about issues which we consider the profession (or that part of it involved with General Insurance) needs to resolve. Where we suggest solutions, they are intended to provide a basis for debate and we are quite prepared to be argued into something better.
We believe that what we say is of general application but it will be obvious to any reader that it is written from a London Market background.

No papers are available for the following Working Parties:

• Education.
• Extended Warranty Working Party [report].
• Future plans.
• Reinsurers' security.

If anyone can supply a copy of these papers we will add them to the site.

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