PROFESSIONALISM IN RATEMAKING: DO I REALLY WANT TO DO THAT?

1. PROFESSIONALISM IN RATEMAKING:DO I REALLY WANT TO DO THAT? Moderator: Jeff Kucera Miller, Herbers, Lehmann, & Associates, Inc./Paratus Panelists: Richard J. Currie American Re-Insurance Co. Roger A. Schultz Allstate Insurance Co CAS Ratemaking Seminar, March 2002, Tampa, FL.

2. Committee on ProfessionalismEducation Mission Statement It is the mission of the Committee on Professionalism Education to provide the CAS and appropriate CIA membership with the professionalism education needed to meet applicable qualification standards and membership requirements as well as satisfy the professionalism education needs of the existing membership. In this capacity, we will endeavor to conduct the Casualty Actuarial Society Course on Professionalism so that potential new members satisfy the applicable membership requirements as well as understand the ramifications of acceptance into a professional actuarial organization. In addition, we will work with the American Academy of Actuaries and Canadian Institute of Actuaries in the development of professionalism standards that impact and apply to casualty actuaries. We will support these professionalism standards through creation and sponsorshipof appropriate educational opportunities for the membership.

3. Committee on ProfessionalismEducation Major Objectives • Conduct courses in at least four locations in 2002 • Chicago • Toronto • Atlanta • Las Vegas • Support the Casualty Actuarial Society, the Canadian Institute of Actuaries and the American Academy of Actuaries. • Add to the library of case studies.

4. Committee on ProfessionalismEducation Major Objectives (cont’d) • Seek out potential new methods of presentation/course topics and incorporate them into the content of the Course on Professionalism. • Design and implement a committee organization structure that will allow it to efficiently and effectively deliver services that meet the needs of both the potential new members and the existing members.

5. Course on ProfessionalismAgenda • 3 Case Studies • Reserving • Qualifications • Ratemaking • Snappers • Actuarial Malpractice Study • “Billion Dollar Bubble”

6. Course on ProfessionalismAgenda • Panel Presentation • CAS Organization • Standards & Statements • Code of Conduct • Qualification Standards • CAS Election Process • Guest Speakers

7. Committee on ProfessionalismEducation SNAPPERS (Audience Participation Requested)

8. SNAPPER#1 You are preparing a private passenger auto rate filing for the State of Alwaysright. Your normal rate-making procedure, that you are very confident in, results in an indication of 7.8%. Your management wants you to implement this 7.8% increase. You know that Alwaysright will not allow your typical profit provision, and using the methodology supported by the State, your indication would only be 2.9%. What do you do?

9. SNAPPER #2 As the Department of Insurance Actuary, you just reviewed the rate filing for Rinky-Dink Insurance Company. The filing was prepared by the Big Shot Consultant Firm. It is apparent that there are several mathematical and procedural errors in the filing which will lead to you disapprove it. Do you have any further obligations?

10. SNAPPER #3 You are doing the final review of a rate filing for the state of Penciltucky when you discover an error that not only was made in this filing, but also the prior filing which was approved by the Insurance Department and implemented. Your prior indication was 7%, and you implemented the entire indication. Had this error been found the corrected indication would have been 4.5%. What do you do?

11. SNAPPER #4 You are the actuary for a reinsurance company trying to set an excess auto reinsurance rate for a small domestic company that does not have credible data. You also reinsure a larger company, which writes basically the same business in the same state, and who has supplied you with ample data that could be used to set the rates for the smaller company. Do you use the data, as a collateral source, to develop rates for the smaller company?

12. SNAPPER #4a You are the actuary for a reinsurance company trying to set auto extended warranty quota-share reinsurance terms for Bumper-to-Bumper Insurance Company that does not have credible data. You also reinsure another company, which writes basically the same business in the same state, and who has supplied you with ample data and classification methodologies that could be used to set the rates for the smaller company. Do you use the data, as a collateral source, to help them develop their rates?

13. SNAPPER #4b You are the actuary for a reinsurance company that is working through an intermediary trying to write the excess reinsurance cover for Little Known Insurance Company. The client data in the submission is not complete or fully credible, and company officials have not been helpful. A month after the deal falls through, a group of disgruntled former executives for Little Known form a new company to write the same business and approach your reinsurance company through a different intermediary. The actuarial data this time is also incomplete, but your company’s account executive suggests (and you agree) that the two submissions complement each other. He wants you to use both in your ratemaking work for this new opportunity. How do you respond?

14. SNAPPER #5 Your recent rate filing in the State of Nonchalance went to hearing. During the hearing, the Department’s Actuary made several misrepresentations of the data and suggested several alternatives that are in conflict with the Statement of Principle on Ratemaking. What do you do?