Monthly Archives: March 2012

The Week in a Minute, March 30, 2012

So March was in like a lion lamb, out like a veal cutlet drizzled in olive oil with a rosemary seasoning:

  • Insurance Insider (via SNL – firewalled) provides the latest in the Whither Rates? soap opera, with details on the renewal of Chubb Insurance’s purchase of cat cover. Chubb’s cover was loss free last year, so may be a decent measure of how hard the market is. Overall rate increase of 10%, with the rate on line of the highest layer (400M x 1.65B) up 17%, the ROL of the 350M x 1.3B up 15% and the bottom (xs 500M) layer up a meager 2%.
  • Swiss Re put the 2011 tab for cat losses at $116B, topped only by 2005, the year of Hurricanes Katrina, Rita and Wilma. The graphic above cribbed what I found shocking: The Thai floods are not only the worst freshwater floods of all time, insurance-wise; they’re four times bigger than anything before them.
  • And expect more bad weather in the future: The global warming experts at IPCC predict a lot of extreme weather over the next century: “In coastal areas of the United States, property damage from hurricanes and rising seas could increase by 20 percent by 2030, the report said. And in parts of Texas, the area vulnerable to storm surge could more than double by 2080.” And rising seas could make Mumbai (pop. 12 million) inhabitable.
  • Lloyd’s lost half a billion pounds last year (about $800M), but its CEO says that’s not so bad, given that about a third of claims came from natural disasters.

The private market can’t solve the nation’s health care problem.

Well, that’s a provocative headline. Is it true?

It’s today fashionable to think the Supreme Court will rule that the feds can’t force a person to buy health insurance (or broccoli – and I like broccoli). There are some interesting takeaways: Continue reading

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Hear ye, hear ye

I’ve written about Obamacare a lot in the past, so should note that the Supreme Court is hearing arguments over its fate.

If you’re really hung up about the issue, NPR (among others) is posting audio and transcripts of the arguments.

I’m not lawyer enough to follow the arguments, though I will note that it’s not hard to envision a conservative court embracing a conservative argument to overturn an unpopular law.

If you click through to the link to the roundup of recent polls, you’ll see that some parts of Obamacare are popular. Those are the parts that require coverage, like the ban on pre-existing conditions. The unpopular parts require consumers to actually pay for things, like the mandate to buy insurance. Of course, without a mandate to buy, you can’t ban pre-existing conditions.

One thing I have learned about the whole episode – regardless of the case’s outcome – is how poorly the general (non-insurance) public understands adverse selection.

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SOA’s international outreach

I’m a little slow noting this, but SOA President Bradley Smith blogged about the proposal to add a property-casualty track this week.

He asserts fairly clearly that the move is pointed at international concerns:

For us to meet the needs of our growing member and candidate base outside the U.S. and Canada, we must offer this educational option. After all, it’s our job to ensure that our education system is equipping actuaries with the skills to address the full spectrum of risk management issues.

It’s a good point. In the U.S. there aren’t many insurers with both life and p/c operations. (And one of the last – The Hartford – wants to split theirs.) But it’s a common business model in the rest of the world, as a glance through this list of the top 25 shows.

There’s some logic that an actuary in, say, Europe, might want both life and general insurance backgrounds. But despite the hubbub, I’ve seen nothing from either the CAS or the SOA that explicitly denies they are now in competition.

But Smith did post this:

Currently the SOA is the only actuarial education organization with a significant international presence that does not offer education in the full range of practice areas.

The word choice isn’t accidental. It also appears in this Q&A.

But I can think of an actuarial organization that doesn’t offer a credential for life or health practices, but according to this list does administer exams in 24 countries.

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The Week in a Minute, March 23, 2012

Stuff I meant to mention earlier:

  • SNL estimates (paywall, sorry)  the industry posted 108.2CR, up from 102.5 last year and the worst since 2001. Pulling out mortgage/financial guaranty doesn’t improve things much: 106.4 vs. 101 last year. Blame the weather.
  • M7.4 earthquake in Mexico; Eqecat estimates losses < $100M.
  • Colorado State’s venerable hurricane forecasters bring good news: They predict a light year for hurricanes – too early for numerical projections, but they project the number of storms to be less than the average of the last 30 years. Of course, there were only four storms in 1992, but one was named Andrew.
  • The Hartford, egged on by investor John Paulson, decides to exit the annuity business, sell its life/investment operations and concentrate on the property-casualty business. A couple of ex-regulators say: Not so fast.
  • The CAS will offer Exams 5 and 6 twice a year (2013 for Exam 5 and 2014 for Exam 6), and Exam 9 will become a four-hour test, with no increase in exam materials.

The Week in a Minute, March 16, 2012

  • Major insurers posted a 103.6CR last year, worse than 2010’s 97.5, Fitch reports. U.S. reinsurers didn’t do so hot, either, with 107 last year vs 95 a year earlier.
  • Solvency II had a tough week.
    • UK’s giant Prudential threatened to leave the EU because the rules would render its non EU business (88% of new writings) uncompetitive. Aegon made a similar threat a couple of years ago. Both insurers worry that the U.S. state-based regulatory scheme wouldn’t meet Solvency II’s standards, forcing both to hold more capital.
    • Late Thursday, ratings agency Fitch said, no worries – the EU will formally recognize the U.S. regulatory framework. But not before an EC spokesman noted the “old American system gave us AIG.”
    • The European insurance uber-regulator reaffirmed the need for the new regulatory plan.
    • Still, it didn’t help that a top Bank of England official worried aloud that for all its complexity, Solvency II won’t adequately regulate insurers. He suggested that insurers need to hold still more capital, but a banker would, wouldn’t he?
    • And British PM David Cameron got in his licks.
  • Towers Watson’s quarterly rate monitor, CLIPS, showed rates rising 3% in fourth quarter.
  • MarketScout introduced a personal lines rate monitor, which showed rates up 2% in February from a year earlier.
  • Almost exactly a year after the tragic Tohoku quake, aftershocks caused something under $100M damages, Eqecat reports.

More on the SOA’s P/C track

With the Society of Actuaries planning to launch a casualty track, the CAS responds:

The CAS Board affirms that it is the intention of the CAS to remain independent while at the same time cooperating with other actuarial organizations to meet challenges to the profession.

There’s more at the link, noting that the CAS:

  • is “uniquely positioned to provide the most comprehensive and rigorous education in actuarial science and risk management for general insurance actuaries.”
  • has a singular focus on property/casualty insurance issues.
  • will maintain its singular focus on property/casualty insurance.

Meanwhile, the actuary blogging at Feed on my Links yawns:

These organizations already collborate on exams, so it’s not like the SOA is going to weaken the examination gates and let all the ‘rif-raff’ in. . . .

So it’s all about passing hard exams. Pedants will no doubt quibble about curriculum minutiae or “which one is harder”, but the bottom line is that nobody cares enough about this to spend the time wondering which designation to puruse. My prediction is that the SOA’s initiative will either merge with the ACAS or fizzle out.

I see a different path:

  • SOA offers a general insurance specialty track.
  • The new track gets recognized by international actuarial organizations, like the FSA. And why wouldn’t they recognize it? The mix of life/pension/health/property-casualty looks more like a European fellow than an FCAS does.
  • The SOA tries to get its track recognized for signing U.S. p/c opinions. There could be two paths:
    • It applies through the AAA’s Casualty Practice Council.
    • It seeks recognition from the CAS.
    • Either way, I think the SOA designation gets recognized. I doubt it would get turned down. If it did, the SOA can accuse either counterparty with restraint of trade. And look at the evidence it would have. The CAS recognizes, say, the FSA. And the FSA recognizes the casualty track of the SOA. What possible reason could the CAS have for not recognizing the SOA, except restraint of trade?
  • Once SOA actuaries can sign p/c opinions, the SOA is in a much stronger position to call for a merger.

Mind you, I’m not commenting on whether the SOA should do this. I just think it’s likely once the chain of events begins. And I think Wednesday’s announcement starts the chain.

The goal: merger with the SOA. The CAS rejected a recent offer, but this SOA release Wednesday reiterates that the society’s Consolidation Task Force “remains in place to continue its efforts as needed.”

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SOA declares war on CAS

Feel free to comment on how my headline exaggerates, but first read:

The Society of Actuaries (SOA) will begin offering an exam track in general (property-casualty) insurance in 2013, ensuring that the SOA is providing options covering all actuarial disciplines to earning the Fellow of the Society of Actuaries (FSA) designation.

The SOA Board of Directors at its March 2012 meeting approved the creation of the new track after determining that including general insurance education will help fulfill the strategic vision for the SOA as a leading global provider of actuarial education.

SOA press release here. Spirited discussion at the Actuarial Outpost. I’ll add these points, not knowing their relevance:

  1. The CAS looked pretty bad in applying for approval of its coursework for the enterprise risk management certification standard (CERA). Actuarial organizations worldwide applied for the designation. To my knowledge, only one had to modify its request – the CAS. I blogged about it here.
  2. The 2011 exam sittings did not show the CAS in a favorable light. More here.

The success of the SOA’s gambit lies, I think, in the actuarial opinion. Right now, by law, a property-casualty opinion on loss reserves must be certified by either a member of the CAS or

A member in good standing of the American Academy of Actuaries who has been approved as qualified for signing casualty loss reserve opinions by the Casualty Practice Council of the American Academy of Actuaries. (Source: 2011 practice note, p. 11.)

Without that standing, the SOA designation would be weak. What good is a designation, if it doesn’t confer any power? I would guess the SOA has either already struck a deal with the AAA that its general insurance track will fulfill this requirement or is confident it will be able to do so.

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Economic problems

This on Treasury’s pending sale of AIG stock, from the Washington Post, made me laugh:

The remaining federal commitment consists of the Treasury Department’s majority share of AIG stock. There’s good news on that front, too: On Wednesday, Treasury announced that it plans to sell $6 billion worth of its stake. Cleverly, Treasury sold about half of that amount back to AIG; this gave Treasury an alternative to merely dumping shares on the market and so boosted the price it could command on behalf of taxpayers. Wednesday’s sale reduced the taxpayers’ stake in AIG to $35.8 billion, at the current price of roughly $29 per share.

The implication, of course: AIG is willing to pay more for its stock than the open market. Either the Washington Post is being a bit dim or AIG directors better check their D&O cover.

The Week in a Minute, March 9, 2012

Busy – Pinewood Derby season.

  • Commercial rates up 2% in February, MarketScout reports. Fiduciary and Surety coverages were flat; workers comp and property were 3% higher.
  • The feds are selling $6B worth of AIG stock, cutting their stake to a mere 77%.
  • Last year’s big merger battle ends quietly, with Alleghany and Transatlantic finalizing their deal.
  • Insured losses from last week’s tornadoes put between $1B and $2B. Reuters talks about the long-term impact of the severe weather trends of the past couple of years.