General Insurance Convention 1999

Brighton, 13-16 October 1999

Current issues. - Peter Wright, Chairman, General Insurance Board

GISG Working Party Papers

ART [alternative risk transfer] and insurance derivatives. - Walker, Stephen R; Fulcher, Graham; Green, Peter A G; Jones, Elizabeth A; Maxwell, Grant H; Sayers, Jeffery E; Seth, Anup; Silverman, Anthony H; Tudor, Tony. 99 pages.
In 1997 and 1998, papers on Securitisation were produced for GISG. These papers provided a background to Insurance Securitisation, a process allowing capital market investors to begin to enter a market traditionally the preserve of the larger reinsurers.
Insurance Securitisation is an example of the slowly moving process of convergence between the insurance and banking industries; from industries focussing traditionally on opposite sides of a customers balance sheet towards one managing a customers financial needs on a holistic basis. Here, we are using customer to mean major corporate entities.

Bodily injury claims. - Biswas, Shamit; Boulton, Roger J; Ellis, Philip; Falcone, Mike; Gibson, Lis R; Howard, Sheree K; Rispens, Hedzer P; Seago, Wendy A; Senator, Ian. 97 pages.
Bodily injury claims, which impact on a number of classes of insurance, have been subject to enormous change over the last few years and months. This paper summarises and considers those changes from an actuarial perspective.

General insurance and the public interest. - Newton, Derek F B; Bland, Richard H; Byrne, Kathy J; Clark, Ian; Cross, Martin; Fisher, Steven; Hinton, Peter H; Leigh, Julian C T; Maguire, Matthew J; Winter, Richard D. 73 pages.
The actuarial profession has assumed for itself a public interest role. It is promoting this fact widely. So, before actuaries working in general insurance end up on Today explaining to John Humphrys precisely how, for example, recommending premium rate increases relates to the public interest, they ought to think carefully about what that role means to them. This report is intended to stimulate those thoughts. It is far from being comprehensive, not all of the situations identified are applicable to all general insurance actuaries, and it does not have all of the right answers. In fact, it contains very few answers, as we on the Working Party have carefully avoided making specific recommendations of that nature. It is one of our conclusions that few situations are black and white, that most are different shades of grey and that, in each situation where an actuary is involved, it is down to him/her to decide what is and is not a matter of public concern, and how it relates to the actuary’s duty to his/her employer or client.
Those actuaries who believe that GIRO working party reports should be crammed full of formulae and data will loathe this report. It contains virtually no numbers, and certainly none that can be analysed. On the other hand, this leaves more room for qualitative issues to be highlighted and explored, and we have taken great advantage of that fact.
As mentioned above, one of our conclusions was that this remains an area of great uncertainty. It is also an area where, in the long term, the public interest is best served by all parties concerned behaving responsibly. Because of the uncertainty, there is a major public interest role for those, such as actuaries, who profess to understanding the industry and the market, to ensure that those others less well informed have an adequate understanding to enable them to undertake continually responsible actions.

Preliminary report of the Capital Allocation Working Group. - Ibeson, David C B; Czernuszewicz, Andrzej J; Eabry, Michael D; Kelsey, Richard; Moss, Gaynore E; Orr, James B; Pollack, Simon; Sayers, Jeffery E; Smith, Andrew D; Williamson Ian; Wright, Thomas S. 32 pages.
This is a preliminary report. In presenting this paper we seek to:
- describe the foundations of capital allocation;
- identify and discuss the perspectives of interested parties;
- begin to discuss the key issue of balancing risk and return;
- describe and critique some commonly used methods; and
- suggest what future research is required.
We also hope that this paper will act as a simple guide to the subject, for newcomers, and as a basic reference for practitioners.
We have tried to produce useful definitions for some of the terms relating to capital allocation. We do not claim that these are perfect or deserve the label “definitive”, but hope that they will provide a useful foundation from which discussion can proceed.

Reinsurance pricing. - Chandaria, Sanjiv; Mackie, Fergus J; Faulkner, James S; Gates, Paul D; Maguire, Matthew J; Maxwell, Grant H; Overton, Gregory L; Sheaf, Simon H. 48 pages.
The 1998 Reinsurance Pricing working party produced a paper which covered some of the actuarial and other issues encountered in arriving at a risk premium. A workshop was held at the conference which provided a detailed worked numerical example.
This year’s working party has attempted to build on this work by describing typical pitfalls which may confront the pricing actuary and some potential solutions. Some numerical examples are included. It should be noted that the list of pitfalls is not intended to be exhaustive.

Reserving for unknown liabilities. - Archer-Lock, Philip; Bishop, David A; Clark, Peter K; Czapiewski, Colin J W; Stock, Richard A; Taylor, Peter; Wilkinson, Helen C. 57 pages.
The consideration of unknown liabilities is a difficult area because there is a high degree of uncertainty involved in any analysis which can be performed. However, this uncertainty should not be used as an excuse to avoid carrying out any analysis where it is thought that there is potentially material exposure to such liabilities arising.
This paper looks at some examples of unknown liabilities and a categorisation which may assist with identifying other potential liabilities. We consider some of the factors affecting the approach to reserving, and some methodologies which can be applied.
We hope that this paper will be of use to practitioners who are involved in reserving classes of business with potential liabilities which are not reflected in the available historical data. We also hope that it will be a useful source of reference when justifying the reserving approach adopted to the Inland Revenue, regulators, reinsurers, auditors or other interested parties.

Vehicle postcode zoning in personal lines rating. - Anderson, J Duncan; Charlton, Saideh; Coughlan, David P R; Harrison, Mark; Jones, Stephen; Massey, Roger; Spiller, Chris; Pape, Kim E; Tanser, James W; Verrall, Richard J. 32 pages.
This paper examines the methods and information that can be used to group individual postcodes in to rating areas for pricing.
We have tried to highlight where companies can obtain additional useful information to help them in this exercise and have set out a description of some methods that can be used to complete a zoning exercise.
We have also examined how companies currently rate postcodes. This has highlighted some inconsistencies in our approach as a market to individual postcode rating. This may suggest this is an area which insurers could usefully review.

GISG Workshops

Catastrophe modelling [pdf]. - Catastrophe Modelling Working Party. 79 pages. [ppt] (1,398 kb) This paper consists of two parts:
Part 1: Current developments in catastrophe modelling.
Part 2: DIY catastrophe modelling

Chainladder and Bornhuetter/Ferguson - some practical aspects [slides - pdf]. - Mack, Thomas.
[ppt] (129 kb)

Correlation and dependency structures [slides]. - Czernuszewicz, Andrzej; Papachristou, Dmitris.

Extreme value techniques [slides - pdf]. - Gates, Paul; Orr, James.
[ppt] (1,162 kb)

Everything you always wanted to know about the 100 Series exams [slides]. - Armstrong, Kevin. 17 pages.

How to buy an insurance or reinsurance company [summary]. - Gibson, Lis. 2 pages.

Integration of insurance & capital market products [slides]. - Walker, Stephen R. 11 pages.

An introduction to personal lines premium rating techniques [summary]. - Anderson, Duncan. 1 page.

Mortgage payment protection insurance [summary]. - Taylor, Keith M. 3 pages.

Motor postcode zoning [slides - pdf]. - Motor Postcode Zoning Working Party.
[ppt] (1,156 kb)

Practical tips for efficient generalised linear modelling using SAS under NT. - Bland, Richard H. 3 pages.
This is a preview note for a workshop. The workshop will cover:

guidelines for memory usage and time taken with Genmod
preparing data for more efficient running with Genmod
tuning NT for greater performance
practical demonstrations of performance improvements.

Pricing for bodily injury claims within a UK private motor account [summary]. - Jones, Stephen Michael; Mitchell, Grant R J. 2 pages.

Shareholder value in practice [slides]. - Copeman, Peter.

TSUNAMI: linking insurance and science [slides]. - Orr, James

UK asbestos [slides]. - Shah, Nylesh.

Weather derivatives/insurance. - Hartington, Tony. 9 pages.
This paper and the workshop will concentrate on the issue of pricing this business, as this is likely to be where the actuary is asked to help.
Portfolio management issues will also be mentioned.
Some actual weather data, as provided in a typical submission is provided in the appendix. You may find the workshop more useful and interesting if you have an attempt at using the data provided to estimate the expected loss costs of the contracts suggested.
Some suggested approaches to pricing these risks are suggested in this paper. These are intended to provide food for thought and are not intended to be prescriptive.

The Woolf reforms [summary]. - Ryan, Jim; Falcone, Mike. 10 pages.

Paper submitted for the Brian Hey prize

Practical 'modern' Bayesian statistics in actuarial science. - Pereira, Fernanda. 40 pages.
The aim of this paper is to convince actuaries that Bayesian statistics could be useful for solving practical problems. This affirmation is due to two main characteristics of Bayesian modelling not yet fully explored by practitioner actuaries: first, the possibility of absorbing subjective information and second, the wider range of models available in the Bayesian framework.
In order to help in this "convincing" process this paper includes an overview of Bayesian statistics in actuarial science and cites many published papers based on this theory with insurance applications. An approach with as few formulae as possible will be used to make it easier to follow for all actuaries, independently of their involvement in statistics.