Monthly Archives: January 2012

AAA’s Supreme Court brief on Obamacare – only one goof

AAA filed a ‘friend of the court’ brief on the challenges to the individual mandate in health care reform. Only one mistake that I saw, but first:

  • Officially, the academy had no comment on whether the individual mandate is constitutional:
    The Academy takes no position on the constitutionality of the individual-mandate provision, or on any of the other issues besides severability that are before the Court in the litigation concerning the Act.
  • However, as a matter of actuarial science, repealing the individual mandate alone would create a hot mess.:
    . . . [F]rom an actuarial perspective, a decision invalidating only the individual-mandate provision would impose an unsound regulatory regime on the American health-insurance market—a regime that Congress would not have intended.
  • The reason, as we all know, is adverse selection. If you charge all risks the same rate, the best risks will drop out. Lather, rinse, repeat. The brief explains this in patient detail.
  • So: If the Supremes toss out the individual mandate, actuarial principles would dictate they throw out guaranteed issue and community rating as well.
    In the event the Court concludes that the individual-mandate provision is unconstitutional, it should reverse the judgment of the Eleventh Circuit to the extent it upheld the guaranteed-issue and community-rating provisions as severable.

The mistake – that uninsured growth is fastest among young adults. It’s actually slowest among them.

First, what the academy told the Supreme Court:

Young adults between the ages of 19 and 29 represent the largest and fastest-growing segment of the population without health insurance, and they are uninsured at almost twice the rate of adults between the ages of 30 and 64. See Namrata Kotwani & Marion Danis, Expanding The Current Health Care Reform Debate: Making The Case For Socio-Economic Interventions For Low Income Young Adults, 12 J. Health Care L. & Pol’y 17, 27-28 (2009).

The academy is quoting a 2009 study, but the situation has changed since then, as cited by Kaiser Family Foundation’s December 2011 brief (pdf) looking at Census data:

One exception to recent trends in private coverage is coverage for young adults (ages 19-25). Between 2009 and 2010, this group had an increase in private coverage, while all other age groups experienced a decline in private coverage (see Figure ES-2). [I’ve included the chart below.] The improvement in coverage for those ages 19 to 25 is most likely due to the provision of the Affordable Care Act that allowed young adults to stay on their parents’ insurance coverage as of September 2010.

The chart summarizes:

I’m surprised the academy is not aware of current research on this topic.

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Math problems

As in, this story has math problems:

The National Chicken Council predicts Americans will eat more than 1.25 billion wings on February 5 as they watch the New York Giants battle it out against the New England Patriots.

That’s a lot of wings. Later on in the story we learn that 111 million people watched last year’s Big Game, so this year, let’s guess that 115 million will watch. And of those 115 million, according to the story, only 23% will eat wings. In other words, something like 27 million people will eat 1.25 billion wings.

Or 46 wings per person.

That’s 4,600 calories, using a conversion factor found here. (Typical adult consumes 2,500 calories a day, and Thanksgiving dinner runs between 2,000 and 4,000.)

Whattaya think?

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Statistics: Where the jobs are

Arcane statistical analysis, the business of making sense of our growing data mountains, has become high tech’s hottest calling.

That’s the New York Times. Further:

At North Carolina State, an advanced analytics program lasting 10 months has, since its founding in 2006, placed over 90 percent of its students annually. The average graduate’s starting salary for an entry-level job is $73,000. Its current class of 40 students had 185 applicants, and next year’s applications are already twice that. In 2009, Harvard awarded four undergraduate degrees in statistics. Two graduates went into finance, one to political polling and one became a substitute teacher. There were nine graduates in 2010, 13 last year. They headed into Google, biosciences and Wall Street, as well as Stanford’s literature department. Globally, LinkedIn recently found that from 2009 to 2011 the new jobs with titles related to “analytics” and “data science” grew by 53 percent.

Stanford’s Department of Statistics, both renowned and near so many Internet and bioscience companies, is at the center of the boom. It received 800 résumés for next year’s 60 graduate positions, twice the number of applications it had three years ago. Graduates head to business school at a starting salary of $150,000 or more, or to Facebook for about $130,000.

As most actuaries would agree: There’s money in the numbers.

(Via Flowing Data.)

The Week in a Minute, Jan. 27, 2012

  • In the next four years, 70% chance of magnitude 7 earthquake in Japan, Wall Street Journal reports.
  • Conning projects a 104 industry combined ratio for 2010 and an ROE around 5%. More 2012 projections here.
  • In a sort of earnings-season kickoff, Travelers’ net fell 31% from the year-ago quarter, hurt by lower investment income. Favorable development on prior-year losses is drying up, too. Even so, rates are higher, a circumstance analyzed again by actuary-cum-analyst Todd Bault.
  • Travelers won the latest round in a $420M reinsurance dispute dating back to 1948. Naturally, it involves asbestos.
  • Mississippi floods and widespread drought pushed crop insurance payments to a record $9.1B for 2011, the National Crop Insurance Services reported (pdf), with the tab pushing $10B by the time all accounts are settled. Previous record: $8.7B in 2008. In the past four years, crop insurance has paid claims exceeding $27B.
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2012 Projections Roundup

With the new year comes a lot of analysts telling us what will happen over the next 12 months. I’ve created a page to round them up. If anyone sees a report I missed, let me know in comments.

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CIAB: Rates up 2.8% in Q4

Workers comp rates up 7.5%. Commercial property up 5.7%.

Accompanying the press release is this handy chart:

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My fellow Americans . . .

Betting on the first cliche in tonight’s State of the Union.

My money is on “As I stand here today.”

Bosses like Steve Jobs

Finished Walter Isaacson’s Steve Jobs biography. It’s billed as a “warts and all” book, but honestly, the guy seems all warts to me – at least as a human being, which I think is how a man should be measured.

He comes off as a petulant, picky, obnoxious crybaby, and that’s when he’s not cussing out his employees. He treats his son lousy, and his daughters worse.

Yet I type this on a MacBook, and we have three other Apple products in our house, all masterpieces of design. (I pay a lot of attention to design. Like Jobs, my design sense was inspired by Braun housewares from the ’80s.)

This pattern – rotten person builds brilliant company – happens a lot in business bios. I don’t know if that’s a storytelling crutch biographers lean on or if it’s a requirement. The thinking: To get the job done right, the big boss has to step on a lot of toes. Jack Welch of GE was big on the ‘cruel to be kind’ philosophy.

More on unruly bosses here and here. Pretty tough world when Jerry Sandusky checks in at No. 18.

Do great bosses have to be jerks?

P.S.: A great story on market research near book’s end:

Some people say, “Give the customers what they want.” But that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, “If I’d asked customers what they wanted, they would have told me, ‘A faster horse!'”

Looking at 2011 CAS exams – Part One

Tough year for the CAS exams. Results were wacky:

The lines on the chart represent the percentage of students passing an exam in a typical year, between 35% and 45%. But this year pass rates were all over the place. Only 11% passed the advanced reserving/ERM course. More than 70% passed the introductory reserving exam.

This led the Exam Committee to publish an open letter in which it concludes all of the exams above are “‘outliers’ relative to historical results.”

Of the major CAS exams, only Part 9 – advanced finance – had a typical sitting, with 37% passing.¹

It’s a tough topic, not least because the organization overhauled its syllabus and renumbered the exams.²

The old reserving exam seems to be split in half. One half was attached to the introductory pricing exam and called Exam 5. The other half was attached to an ERM module and called Exam 7.

Meanwhile, some students had passed the old ratemaking exam but not the old reserving exam (and vice-versa). So the CAS put together transition exams – 5A for those who hadn’t passed the old pricing exam and 5B for those who hadn’t passed the old reserving exam.

Each exam contained half of the full Exam 5. Exam 5A contained the ratemaking questions from the full Exam 5. Exam 5B had Exam 5’s reserving questions. The partial Exam 5’s were two hours each, half the time alloted for the full exam.

But look up at the chart. More than 60% passed each partial exam, but only 27% passed the full exam.

Students on the wrong end of the pass mark cried foul. Some apparently alleged the Exam Committee manipulated pass marks to restrict the number of new fellows.³

The Exam Committee fired back:

. . . [S]uch assertions, even if made only in jest, are not only unfounded, but also offensive, as they call into question the integrity and professionalism of the members of the committee, all of whom are credentialed members of the society . . .

The reaction seems a bit harsh, though I haven’t seen the original accusations. The exams are hard and the process opaque – even though there’s far more openness now than, say, a decade ago. Students get frustrated and vent.

Unfortunately, the umbrage the committee took had two downsides. First, it set off a new round of bitterness, with comments like this:

it was worse than i imagined. especially the high and mighty “how DARE you question the integrity of the exam committee!!?” attitude. like a politician. that’s all i have to say. i better be careful because from the note it sounds like there’ll be consequences for saying the wrong thing now.

Second, it took focus off an interesting set of data on the exams, which I’ll look at in a future post.

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¹ I know, I know. The CAS focuses less on the overall pass rate and more on the effective pass rate – the percentage of people who passed after you exclude people who scored so low they probably weren’t even trying. But the open letter focused on the distribution of scores across the board, so I’m following suit. Anyhow, spring results are here, and fall results are here.

² Most people think about CAS exams by their number – Part 5, Part 6, Part 7, etc. That makes it a bit confusing to compare exams across years, since the new Exam 8 is comparable to the old Exam 9, the new Exam 6 is comparable to the old Exam 7, and so on. That’s why I, for the most part, will shun the exam numbers in favor of labeling each exam by its subject matter, as I’ve done in the chart above.

³ Can’t find the right thread on Actuarial Outpost – maybe someone can post it in comments.

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The Week in a Minute, Jan. 20, 2012

  • Estimates of insured losses from the wreck of the Costa Concordia run to $1 billion. PropertyCasualty360 gives a more sober roundup of insurance coverage. The New York Times describes how the ship’s ultimate parent, Carnival Cruise Lines, works to limit its liability, down to the contract you enter into when you buy a ticket, which “states that the line will pay no more in cases of death, personal injury and property loss than about $71,000 per passenger. It allows no recovery for mental anguish or psychological damages. It bars class-action suits.”
  • Coalition Against Insurance Fraud selected its 2011 Hall of Shame. Some web sites give this light treatment and put it into a slideshow, but I find nothing funny about stuff like this: “Dogged by debt, William Craig Miller burned down his fancy Scarsdale, Ariz. house for an insurance payday. Miller then executed two witnesses in their home. He also gunned down three kids in the home to keep them quiet. Some were shot at point plank, including a 10-year-old boy. Miller received the death penalty.”
  • Michel Lies replaces the retiring Stefan Lippe as Swiss Re Group’s CEO.
  • Reuters rounds up announced losses from the Thai floods.
  • CAS reports strong initial interest in the new CERA designation, which it just got authorized to issue.