General Insurance Convention 1994

Actuaries and auditors, or, the drunk and the lamppost [summary only]. - Hubbard, Andrew. 3 pages.

Asset liability matching and modelling. - Botterill, Alan W; Ibeson, David C B. 8 pages.
This Working Party was formed to make a start on identifying the asset related issues that are likely to be important to the successful management of a general insurance operation. There is growing support for the view that in due course actuaries working in general insurance will be required to widen their areas of activity from reserving, pricing and business management to include asset strategy and related risk issues.
Initial support for the Working Party failed to materialise and in practice only two members participated. Recognising this resource limitation, and the relatively little practical work currently done on the asset side by actuaries within general insurance organisations. this paper has the following limited objectives:
1. Identify the key issues for effective Asset/Liability Management, including risk related return
2. Provide information on published research
3. Provide information on some practical work undertaken by actuaries
4. Stimulate discussion, interest and support for further research.

Capital requirements and risk-based capital. - Hooker, Nigel D; Bulmer, J Richard; Cooper, Susan M; Hinton, Peter H; Newman, Andrew J; Silverman, Anthony H; Wright, Walter. 62 pages.
The paper looks at the problems of assessing the capital requirements of a non-life insurer from a regulator's viewpoint in the context of the United Kingdom. It considers how capital requirements might vary according to the different risks to which an insurer is subject and how this Risk-Based Capital (RBC) might be measured in practice.
Chapter A sets the scene by discussing insurer solvency and how to measure and compare the financial strength of insurance companies.
Chapter B looks at the considerations that an insurance regulator is faced with, including objectives, possible actions, desirable features of a solvency test, the stringency of solvency tests, and how public the results of such testing should be. A few brief remarks are made on the special features of Lloyd's that complicate the regulator's task.
Chapter C discusses various types of risk that an insurance business is subject to. it considers how these various risks interact and how an insurer can mitigate the effect of these risks in combination. There is a section on the miscellaneous factors that, while potentially significant, are difficult to measure in order to incorporate them into a mathematical formula.
Chapter D describes the US Risk-Based Capital system, including the formula itself with examples to illustrate its operation. Some results of testing are given, and a series of our comments and criticisms are included.
Chapter E closes the paper by outlining how a Risk-Based Capital formula could be constructed for the UK, but the difficulty of preparing a formula is acknowledged.

Claims run-off patterns update. - Hinton, Peter H; Cockroft, Mark A. 83 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 October 1993, by including data from the 1992 returns in their calculation. In addition we have analysed data for Professional Indemnity claims. 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 (paras 32-69).

Commercial insurance for companies in a franchise [summary only]. 1 page.

Disease and employers liability insurance. - Arterton, Alex J; Felisky-Watson, Kendra; Sande rs, David E A; Wilson, S. 44 pages.
Disease exposure in respect of Employer's Liability insurance is a key subject. Currently in excess of 50% of claims by number reported in Employer's Liability category is classified as a "disease", i.e. having a long potential exposure or development period. It is therefore vital for both pricing and reserving purposes that actuaries have a detailed understanding of these diseases, their causes, and the risk management process which will hopefully reduce the incidence of such claims. Rather than give an overview of many diseases; industrial cancers and so on, it was thought appropriate to concentrate on three specific diseases. The three selected were Upper Limb Disorders, Deafness and Stress. In addition rating and reserving issues will considered. These are vital for the sound financial management of an account writing business with a disease element.

Dynamic solvency testing [summary only]. - Charles, John M. 3 pages.

Effective management information. - Chacko, Francis X; Hindley, David J; Jones, Stephen Michael; Levay, Edward J; McConnell, William D; Orbell, Jonathan R; Simmons, David S; White, Martin G. 72 pages.
This paper provides a preliminary introduction to Effective Management Information (EMI) for general insurance companies. We first consider what is meant by EMI in the context of a general insurance company, and then give some examples of EMI that could be used by a direct insurance company. We have structured our thinking by considering the different users of EMI within such a company (eg Board of Directors, underwriter, claims manager etc.) followed by the functions that these users perform, and finally by the types of EMI that might help with these functions. The examples are intended as a starting point for the design of an EMI system, and the tables will require tailoring for use in practical situations.
We believe that, although EMI is not strictly "actuarial", actuaries do have a contribution to make in this field. Through their involvement with some of the key financial aspects of a company (eg reserving and pricing). they can identify the important driving forces, and hence design appropriate EMI systems. Furthermore. a genuinely effective management information system can enhance the actuary's performance, and in turn the company's.

Household rating. - Bolton, Clive G; Button, Andrew D; Levay, Edward J; Pater, Richard; Pettengell, Craig T; Rakow, James C; Webb, Philip D C. 33 pages.
Discussing topical issues in the household line and explore possible scenarios of the future: claims, premium rates, the market.

Insurance futures and options. 11 pages.
The Working Party gained direct and valuable experience in the need to hedge positions. At least 3 meetings were adversely affected by circumstances beyond the working party's control. Snow ruined one meeting, the rail strike another and finally one meeting was adversely affected by one member suffering a broken arm and another being involved in a taxi accident. As a result of these mishaps the working party only considered the three separate issues; the current position, pricing problems and trading strategies. These can essentially be regarded as four separate topics and have not been drawn together as a whole cohesive document.
The first item provides an update of the current position, the second reviews the current academic contributions to considering option of future pricing. Essentially this endeavours to translate, with considerable difficulty, financial options theory to insurance options. The third paper suggests a more conventional insurance approach and how credibility theory might be applied to solve the problem. This might be regarded as providing a pointer forward rather than being a vigorous academic treatise. Finally there is discussion of possible trading strategies. It is hoped that these papers will be read in conjunction with previous years paper and will provide an interesting discussion even if it does not contribute much to insurance academia.

Making money for shareholders. - Pettengell, Craig T; Phillips, Kevin; Skurnick, David; Smith, Peter; Upson, James R K; White, Martin G. 7 pages.
This paper resulted from a suggestion that there were some lessons to be learned from the financial performance over nearly 30 years of the US insurance and investment company Berkshire Hathaway. To form the basis of a useful workshop discussion, we have attempted to cover the subject more fully than just one success story. We intentionally take a simplified, even naive, view. Is insurance worth investing long term money in and, if so, in what circumstances?

Marine insurance. - Malde, Shailesh A; Ball, Angus; Gedalla, Brian; Miranthis, Constantinos; Rice, Hugh; Shore, Alastair C; Archer-Lock, Philip; Cresswell, Catherine; Lyons, Graham E; Morgan, Kathryn A; Sanders, David E A; Willis, Kathryn. 64 pages.
Marine Insurance is a vast subject and the aim of this paper is to provide background that will assist in understanding the principal features of the business. The paper examines each main class of business, Hull, Cargo & Specie, Liability and Energy, highlighting actuarial issues. The introductory section describes the market place, outlining how business is written and gives details of market organisations associated with Marine. It also covers some recent developments in the market, the way Marine business is accounted and key features on reserving.
For each class there is an outline of the main types of cover provided. This is followed by a detailed study of the key area of rating, both at risk and class level. It looks at the main rating factors, possible exposure measures, traditional approach to rating and possible actuarial methods. This analysis is necessary even though the market place will be the final decider of the price to be charged, this being particularly so in a worldwide market with the UK share written on a subscription (slip) basis.
We discuss how better data capture and enhanced analysis could improve the understanding of the past and likely future performance of the business, notwithstanding the problems caused by the diverse nature of Marine business, the international nature of Marine business, the size in terms of premium income written in the UK and the variety of problems should provide a challenging opportunity with potentially high rewards for the actuary.

PI [professional indemnity] claims. - Arterton, Alex J; Lang, David M; Mardon, Timothy P. 17 pages.
Both the frequency and severity of claims against members of professional bodies have dramatically increased since 1980. The type of professional suffering claims has broadened. and some categories (such as Accountants operating in the United States) have become virtually uninsurable. Insurers have reacted by dramatically increasing premiums and deductibles, but even in the most recent years it is unclear whether the mainstream PI classes have returned to profitability.
This workshop paper aims to provide background information on how claims are likely to arise, and comment on the trends in claims by profession. Some examples are included in this text, but more detailed cases will be incorporated in the presentation, as will a discussion of underwriting problems.

A practical guide to measuring reserve variability using: bootstrapping, operational time and a distribution-free approach. - Lowe, Julian A. 40 pages.
The purpose of this paper is to describe some of the practical steps that are involved in various ways of measuring reserve variability. It is aimed at those who have been tempted by the theory but have been put off by the lack of explicit details of what on earth you do in practice!
The three methods described are Bootstrapping, Operational Time and Thomas Mack's Distribution-free approach. The first two of these methods were described in a 1993 Working Party paper on Variance in Claim Reserving. Following that paper, various people expressed an interest in trying out some of the techniques, but stumbled at translating theory into practice. This stumbling was the prompt for this paper to be written.
It is not the intention to go into the theoretical considerations of the various methods in any great detail. For further information regarding Bootstrapping and Operational Time, the reader is referred to the 1993 Working Party Paper on "Variance in Claim Reserving". Thomas Mack's Distribution-free approach is described in his prizewinning CAS paper "Measuring The Variability Of Chain Ladder Reserve Estimates". Details of all three methods may be obtained from the various sources listed in the bibliography.
The 1993 Working Party Paper compared the results from a variety of stochastic reserving methods as applied to three sets of real data. This work has been extended in this paper to include Thomas Mack's Distribution- free approach. The results of various different measures of variability are then compared (Bootstrapping, Operational Time, Distribution-free approach and Log-Linear Regression), to see how consistent they are in producing variability measures.

Proposed equalisation reserves systems [summary only]. 2 pages.

Report of the Pecuniary Loss Working Party. - Akers, Peter J; Cross, Martin; Davies, D; Leigh, Julian C T; Shuker, Norman A. 31 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 reasons for examining creditor covers at this time.
Section 3 contains the results of our recent market survey into Mortgage Indemnity Guarantee ("MIG") issues. This survey is based on responses not just from MIG insurers, but also from intermediaries and mortgage lenders. An overview of the recent history of creditor covers is provided in Section 4. This is an important element of background to the next section. Section 5 covers the possible provision of some unemployment benefit by private sector insurance arrangements.

Risk management [summary only]. - Wells, Gary G; Pettengell, Craig T; Townsend, Stephen N; Miranthis, Constantinos. 1 page.

Risk selectivity, or, the availability of insurance. - Taylor, Philip J F. 8 pages.
This paper discusses the connected issues of risk selection, pricing and the availability of insurance with a view to helping the General Insurance Joint Practice Board form a view on the extent to which this is an issue for the profession and what action, if any, the Board should take.

Statistical Premium Rating Working Party. - Carter, Timothy D; Chandaria, Sanjiv; Johnson, R Henry; Leifer, Andrew R; Pitt, Helen R; Turnbull, Andrew J. 21 pages.
This paper considers how generalised linear models are used to assess the adequacy of premium rates for personal lines insurance business. It considers the practical steps involved and discusses the results for various models that were fitted to a sample set of data. The results of the models that were fitted illustrate the usefulness of these techniques when assessing the impact of several risk factors upon insurance claims experience. Being a practical paper it is hoped will make this an accessible introduction to the techniques involved.

Stochastic v deterministic for reserving [summary only]. 1 page.

Structured settlements [summary only]. - Tucker, Keith D. 1 page.

US medical malpractice insurance. - Clark, Peter K; Lyons, Graham E; Mardon, Timothy P; Wilson, W Edgar. 56 pages.
This paper seeks to explain aspects of US medical malpractice insurance. Part 1 considers the recent history, current position and trends of the insurance market. In Part 2 we explain the terminology and definitions which may not be familiar to those not dealing with this class of insurance. Part 3 looks at the different types of rating commonly used by US actuaries and briefly consider reserving. Typical reinsurance programmes that are bought in the London Market are examined in Part 4. We analyse a fictional example of an actuarial submission that a London market actuary would expect to see from a cedant in Part 5.

No paper is available for the following Workshop:

• Capital projects workshop.

If anyone can supply a copy of this paper we will add it to the site.

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