General Insurance Convention 1993

Claims run-off patterns update. - Hinton, Peter H; O'Ceallaigh, Sean M; Buchanan, Carol A. 87 pages.
The run-off patterns shown in the accompanying tables all relate to claim payments for direct insurance (and facultative reinsurance) business, before allowing for reinsurance recoveries and accounted for on a one-year basis. Four sets of tables are shown for each type of business analysed; they differ only as a result of the methodology used in the analysis.
The tables update those presented to the General Insurance Study Group (GISG) in November 1992, by including data from the 1991 returns in their calculation. The methodology derives from the report of the working party on claims run-off patterns presented to GISG in October 1989, and is described in some detail later in this report (paras 28 - 65).

The distribution and sale of UK personal lines general insurance products. - Brockman, Michael J; Button, Andrew D; Evans, Stephen L; Fuller, Derek; Hodkinson, Suzanne; Moyle, Keith M; Ross, Graham; Wells, Gary G. 69 pages.
It is clear to the Working Party that the distribution of UK personal lines general insurance products is indeed undergoing structural change. Recognition of the forces driving the change should allow general insurance actuaries to make a significant contribution to the outcome via the application of analytical techniques and influencing skills! We look forward to the debate and gaining further insights into the emerging trends.

Dynamic corporate management - maintaining solvency over time. - Bulmer, J Richard; Chacko, Francis X; Dean, James; Macnair, Andrew J; Manjrekar, Ravi; Michaelides, Nicholas; Rains, Peter F. 54 pages.
If we consider the personality profile of a typical insurance company manager, (s)he is likely to be task oriented, with a short-term perspective and a tendency to be pragmatic. Over-anxious to find solutions, (s)he will make decisions before understanding the problem or the implications of what is decided. It is then little wonder that the industry has the problems that it does. An idealistic, visionary leadership which sees through the ups and downs of the cycle to the real needs of the customer might generate some immunity from the worse excesses of price competition. If it is true that "people will always need insurance", we really have no excuse for losing so much money.
The primary purpose of this paper is to lengthen the horizon of thinking about the business so as to encourage realistic decision making that will create sustainable advantage without first crippling the balance sheet. The golden rule is that there are no golden rules so do not expect to find all the answers but try to answer the questions we pose.

Equalisation reserves. - Akhurst, Ron B; Macnair, Andrew J; Morgan, Kathryn A; O'Ceallaigh, Sean M; Orros, George C; Piper, Jonathan M. 4 pages.

Household rating. - Button, Andrew D; Bennett, Martyn C; Pettengell, Craig T; Shah, Nylesh; Singh, Budhiraj; Webb, Philip D C. 24 pages.
The work of the Household Rating Working Party (HRWP) for 1993 has concentrated on three main areas. Two of these are continuations of the work of the previous HRWP presented at GISG 1992, namely a market overview and analysis of the British Geological Survey Subsidence Database. The third area of work has been an attempt to determine if the frequency of some types of claims are affected by the current state of the economy.

Insurance futures. - Ryan, John P; Murphy, Helen M; Clark, Peter K; Lomax, Michael W; Lowe, Julian A; Rix, Stephen G. 66 pages.
One objective of the Working Party has been to overcome the learning curve that investors face, be they speculator or hedger.
We consider the uses of Insurance and futures and options contracts as proxies for reinsurance - futures behave like proportional reinsurance whereas options behave like non-proportional reinsurance. We have also looked at pricing, although much work remains to be done in this area (but will it be published?!).
The dynamics of an insurance futures market have been a particular interest for us, since the survival of the CBOT contracts appears to lie in the balance at the time lessons to be learnt from other futures markets.

Mortgage indemnity guarantee. Report of the Pecuniary Loss Working Party. - Akers, Peter J; Delbridge, T Paul; Edmonds, Paul M; Leigh, Julian C T; Masters, Graham A; Shah, Nylesh. 51 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 maintain concentration on Mortgage Indemnity Guarantee (MIG).
Section 3 contains descriptions of recent product developments, including the use of captives, and of current market practice in reserving based on a specially arranged survey.
The development of the Macro Relationship Model is covered in Section 4. The key conclusion here is that the PLWP has reached the stage where it can point the way ahead but further progress must be made by individuals and organisations with the appropriate resources.
The general evolution of research into a Catastrophe Warning Indicator is described in Section 5. It is hoped that detailed results will be available for presentation at the GIRO conference in October 1993. Section 6 covers the further development of the Premium Rating and Reserving Model. The key conclusion here is that not only the levels, but also the "shape" and basis of premium rates depends very strongly on the underwriting assumptions made.
Next steps are covered in Section 7.

Prudential margins. - Barlow, Caroline; Nye, Roger P; White, Martin G; Wincote, Helen L. 23 pages.
Anyone reading this paper to discover what margin on reserves would be prudent is going to be disappointed. There is no "correct" answer to this question and we do not presume to offer one.
The prime purpose is to discuss the philosophical issues and so to promote discussion both within and outside the actuarial profession. In particular, we hope that this will be of interest to regulators and insurance company management as well as those directly involved in reserving.
We have limited the discussion to margins on reserves, although much of it can be extended to margins on premiums, asset valuation etc. Indeed, the margins should be considered in the wider context of the risk taken in the company as a whole, not least the asset matching.

Reinsurance Association of America Historical Loss Development Study 1991. Report of the London Market Group of Actuaries Working Party. - Martin, Paul; Morgan, Kathryn A; Pickton, Haidee P E. 69 pages.
The Working Party was formed in order to produce a discussion paper that would enhance the London Market Actuaries Group's (LMG's) understanding of the contents and construction of the Study.
Much of the contents of this document will repeat issues raised in the Study but are included for completeness. Those familiar with the Study may wish to initially read only from section 4 onwards.

Reserving for outwards reinsurance. [XL reinsurance reserving]. - Czapiewski, Colin J W; Archer-Lock, Philip; Clark, Peter K; Cresswell, Catherine; Hindley, David J; Shepley, Stuart M. 47 pages.
Of all the areas of non-life insurance, probably the one that is worst understood by practitioners (including actuaries) is reinsurance.
Despite the progress made by actuaries in the last 20 years, no paper has been written that explains how we should approach the tricky topic of reserving for outwards reinsurance. Nor does one really explain the various complexities and attributes of reinsurance.
This paper briefly explains the practical aspects of reinsurance and then goes on to suggest methods of tackling the estimation of the ultimate claims position. Normally, there is not one correct or even most accurate method that should be used, in view of the many factors that may have an impact on the reinsurance recoverables.

UK environmental pollution. - Sanders, David E A; Boulton, Roger J; Jones, Stephen Michael; Shepley, Stuart M. 37 pages.
The number of potentially contaminated sites in the UK is estimated at between 50,000 and 100,000, with area estimates of between 50,000 and 120,000 acres. If these sites were to be cleaned up, the maximum estimated cost is of the order of £30 billion, excluding litigation costs and third party claims. Two pieces of recent legislation namely the Environmental Protection Act 1990 (EPA 90) and Water Resources Act (1991), have emphasised the need to control the Contamination of land.
Twenty per cent of Europe's biggest companies have been prosecuted for infringing environmental laws. In the UK these include National Power, Mobil Oil, Shell, ICI, Bernard Matthews and a private prosecution of Albright & Wilson. There were over 25,000 reported water pollution cases. in 1988, 38% of cases were attributed to industry and oil pollution represented 60% of the total number of industrial incidents.

US legal system - implications for UK insurers. - Clark, Peter K; Felisky-Watson, Kendra; James, Dewi E; Mardon, Timothy P. 13 pages.
UK insurers can be exposed to the US legal system in a number of ways - by directly insuring US businesses or US ventures by European companies, or via reinsurance. This workshop paper will attempt to set out the basic structure of the US legal system, discuss idiosyncratic parts of the system, and present examples of how these can affect insurers. Our workshop presentation will assume knowledge provided in this paper and concentrate on examples.

Variance in claim reserving. - Brickman, Simon J; Barlow, Caroline; Boulter, Anthony W; English, Andrew B; Furber, Lloyd R; Ibeson, David C B; Lowe, Julian A; Pater, Richard; Tomlinson, David I. 125 pages.
This paper is educational. There has been considerable development of statistical techniques for predicting claim payments over recent years, which has yet to be assimilated by the profession and put into practice by practitioners. We want to spread the knowledge of these techniques, to dispel some of the mystique, and to give some examples which demonstrate how they work in practice. These techniques do not replace existing methodologies, but serve to enrich the actuary's tool box.
So that readers can form a view of the success of existing methods in the past we include a review of the variance of the actual out-turn from the reserves of some UK insurance companies over the past ten or so years, to which we add some thoughts on the factors which may have contributed to the variances.
We would like to encourage a healthy scepticism of "black box" techniques and some of the pitfalls for the unwary are presented as a warning against using them without an understanding of the limitations. For example we believe that the use of the term 'Confidence intervals' is to be discouraged since we think it conveys a false impression of the modelling process, which applies to past data. The circumstances that will apply in the future can not be known at the moment, so the model is emphatically not a crystal ball.

What ratios really matter? - Arterton, Alex J; Dean, J W; Michaelides, Nicholas; Silverman, Anthony H; Vince, A R. 28 pages.
What ratios really matter? Well it depends who is using them!
This was one conclusion the working party rapidly came to. It allowed us to develop a framework as to who would use ratios and to what end. With this in mind we defined the principal users as follows:

1. Security analysts,
2. Investors, and;
3. Management

Our enquiries revealed (to us) that these groups not only look at differing sets of ratios but also adopt differing approaches to the utilisation of those ratios. Ratio analysis is essentially quite different for each category of user.
Many of the ratios discussed in this report are used by all three categories of user but they are usually used for differing purposes. Take the solvency margin for example. The security analyst is concerned with the solvency margin as a tong term indicator of financial health and stability, the investment analyst is interested in the solvency margin as an indicator of potential performance relative to other insurance companies (can the insurer respond to a hardening market) and management (aside from the measurement of statutory solvency) are more concerned about what the security and investment analyst think about their reported solvency margin.

Return to Conventions listing