Monthly Archives: May 2010

Ireland: The actuarial future of Obamacare

The state-owned insurer, VHI, is on the market, reports (reg. req.). The story is interesting in its own right, but the government’s struggle to mix private and public health insurance schemes has a lot of the elements that we in the U.S. grappled with in the abstract as Obamacare passed. And our government will soon enough face what the Irish face today.

In Ireland, the state provides a minimal package – hospitalization, maternity and infant care, outpatient services – which half the population thinks is just fine. However there can be problems with waits, so the other half of the population gets private insurance.

VHI is the largest private insurer, run by the government. It’s not subject to the solvency laws that other private insurers are, as the state’s financial backing stands in for surplus. It will need €300 million pumped into it before it’s healthy enough to stand on its own. But there are other headaches, too.

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Solvency II non-life underwriting factors

Guy Carpenter pulls together Solvency II factors from the QIS5 draft. There’s nothing terribly new here, as the draft was released in mid-April, but Guy Carpenter pulls together the history of premium and reserve factors in a nice table. As GC notes, QIS5 factors are higher than the previous QIS but lower than CEIOPS’ final advice:

There’s also a new risk factor, lapse risk – but it doesn’t appear likely to play too large a role in p/c company models.

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Aon’s rate review and preview

Aon published its review (reg. req.) of the 2009 commercial and large account markets and a preview of 2010. As an actuary, I always focus on the rate section of these papers, and Aon has had to find a lot of ways to say rates declined last year and will do so again this year.

Here’s Aon’s tables for rate change in property, casualty and D&O:

Down . . .

. . . down . . .

. . . down.

The forecast isn’t much rosier. Aon predicts property rates will decline between 5% and 15% with declines on the same scale throughout the casualty world, except for lead umbrella liability, where some tiny increases may occur.

Aon points to five reasons for the soft market:

  • Mutuals – which have smaller incentive for profits than a stock company – are one-fourth of the P&C market. Being less profit-hungry implies they will more readily accept lower rates.
  • Reinsurance revenues are down. To keep lost renewals from driving them down further, reinsurers are decreasing rates. The primary companies pass along the lower rate to the insureds.
  • Some insurers are building market share today so they have a fistful of renewals when the next hard market occurs.
  • Financial assistance to impaired companies have kept them in the market. (I guess we’re looking at you, AIG.)
  • Prior year development has been surprisingly benign. Another chart:

Reserve releases driving the soft market

You can see unfavorable development peaked in 2002, while there are indications that favorable development peaked in 2008.

Aon’s report also goes into detail on changes in limits, retentions and attachment points and spends time on some smaller coverages – EPLI, fidelity and kidnap/ransom. Be sure to take a look (reg. req.). (via Insurance Journal)


At Quinn: 2,000% rate hike needed

The headline’s not a typo, kids. Irish Times reports that Grant Thornton actuaries looked at rates at the failed insurer Quinn Insurance’s commercial business and found them, er, inadequate.

Quinn Insurance would have to increase its UK commercial premiums by up to 2,000pc to make the business viable, the stricken insurer’s administrators have admitted.

To invert the math a little bit, that’s like saying Quinn sold a dollar’s worth of insurance for a little under five cents. Standard disclaimer: No actual actuaries were used in the making of the original rate.

In an unrelated announcement, the Finnish company Sampo denies it’s in the running for Quinn Insurance, the big Irish p/c company that regulators took over in April. Usually Sampo doesn’t comment on market rumors, but this time it made an exception.

Meanwhile, Liberty Mutual – which has acknowledged its interest – puts on the pressure. CEO Ted Kelly tells Ireland’s Financial Regulator:

The longer a company stays in administration, the more damaged the goods become.

Update: The  Financial Regulator also wants to look at Quinn Life’s investment in a Ukrainian property fund that makes up 6% of its asset base. From the Irish Independent:

The fund was invested in a property in the Ukraine and was “taken up mainly by employees and close associates of the Quinn Group”.

It is the company’s only fund that is not managed by independent custodians.

Quinn Life said it was “confident that it will be resolved to the satisfaction of the regulator and will have no implications for the company’s policyholders”.


May 28: Elsewhere among actuaries

The first summer holiday. As my 8-year-old would say, “time to chillax.”

  • Standard and Poor’s is creating standards to review economic capital models. It is seeking comments and suggestions. It is making it as hard as possible to link to the underlying paperwork. So do as National Underwriter suggests: “The article is also available on S&P’s website,, under Ratings Resources, by clicking on Ratings Criteria and then Requests for Comment.” Good luck.
  • But S&P is confident that insurance losses from the oil spill will only sap earnings, not surplus. The press release is here (reg. req.), but S&P’s web site is opaque, so naturally the link to the actual report is dead for me. Maybe you’ll be luckier.
  • Delaware newspaper wants to see rate-change filings, but the state DoI says no.
  • Scotland’s Faculty of Actuaries, England’s Institute of Actuaries vote to merge.
  • I’m in New Jersey, so I naturally have a chip on my shoulder about the pejorative “Jersey driver!” – mainly because New York drivers are worse – here’s proof! Take the GMAC Insurance quiz here – I got 19 out of 20. And here’s a neat interactive graphic that lets you sort through results so you can see that New Jersey drivers are in the top 10 in four of the six categories of driving competence but in the bottom 10 in two.
  • I’m not big on puzzles, but I know many actuaries are. First I’ll note that puzzlemaster Martin Gardner has passed away. Next …….. well, I’ll steal the intro from

“I have two children. One is a boy born on a Tuesday. What is the probability I have two boys?

“The first thing you think is “What has Tuesday got to do with it?” Well, it has everything to do with it.”

The answer concludes this article. Enjoy.

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It’s hurricane season

Katrina, a well-organized storm

If you work for a U.S. property (re)insurer, your CEO is probably spending the next three months staring at images like this one or, let’s hope, one more benign. Reinsurance Girl gives a good roundup of the start of the season, including forecasts of the number and intensity of storms and a link to NOAA’s hurricane web site.


New Mexico actuarial blues

New Mexico insurance regulators stumbled into the actuarial spotlight this week via this story about a Blue Cross Blue Shield rate filing. BCBS wanted to increase rates on its individual health plans by 24.6%. But an independent actuary reviewed the filing and found very little supporting documentation.

The whole situation has become a bit of a dustup, to say the least.

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Obamacare: Who pays?

Kevin Drum at Mother Jones passes along a study by Kaiser Family Foundation that shows that states need not worry that Obamacare will stick them with a huge Medicaid bill:

Bottom line: the federal government is paying more than 95% of the cost of the Medicaid expansion that’s included in the healthcare reform bill. In some states the federal share is even higher. Total state spending on Medicaid will go up only 1.4%, a grand total of about $4 billion per year to cover more than 11 million people. What’s more, it might be even better than that: as Holahan says, states might find that in the end they come out in the black on overall healthcare costs since their spending on care for the uninsured will go down.

The Kansas study I linked to yesterday tells a similar story, as the chart shows. Kansas’s spending goes up a little ($2.2 million), employer spending comes down a lot, and the big burden falls on the federal government.

This isn’t to say that the coverage is free, because obviously the federal government is raising taxes to cover the cost. But it does say that some states are pressing the panic button a bit soon.

Kaiser’s study has state-by-state results and can be found here.

Relax, boys, it's on the house (almost).


Quote of the day

Well, I’m always a little annoyed with bloggers who post a quote of the day even when they don’t post one every single day. But I won’t let that stop me:

Originally designed as a kind of safety-­net,  . . . [Medicaid and CHIP] will soon become the largest single source of mandatory health coverage, and the largest single payer for health care services in the United States.

This from the executive summary of a report that actuarial firm schramm-raleigh sent to the Kansas Health Policy Authority board. The board wanted to know the impact of health care reform on the state of Kansas.

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Whither rates?

MGA survey: Charter bus (-10% to -20%), ambulance rates (single digit declines) falling from a year ago. National Underwriter summarizes here, and you can get a copy of the report by registering here.