Monthly Archives: April 2013

No insurance losses expected from Saturn hurricane

By Saturn hurricane, I mean a hurricane on the planet Saturn. Here are some details.

Saturn hurricane The eye, all by itself, would swallow up all of Superstorm Sandy – 1,250 miles across. Winds at the outer edge were blowing 330 mph – call it a Category 12. (I just extended the Saffir-Simpson scale linearly.)

Perhaps scariest of all – the storm sat at the planet’s north pole for more than five years.

Life in a trailer

This article (via Tyler Cowen) describes life in a senior citizen trailer park, where elderly persons cash out the values of their homes and move into a permanent trailer. Living is cheap, and the parks are quite a bit nicer than the stereotypical housing that begets the trailer trash stereotype.

The article pretends the phenomenon is new even while documenting that it has been around for decades. The parks seem viable in states like California and Florida – where climates are mild and even bad weather like hurricanes can be forecast a few days out. Not so good for Midwestern states, where every year wind and hail threaten to severely damage the property. The storms arrive with such suddenness that the occupants might not have time to escape.

My parents lived in one in the 1980s, in Zephyrhills, Fla. They liked it. It had a lively social scene, as the article portrays. When I visited – often (I lived in Miami) – they seemed happy there, as did most residents.

I always likened it to college life. You had a bunch of strangers from all over, thrown together because they happened to move into the same place at the same stage in their lives. They quickly realized their common social standing – most were middle-class Midwesterners in their mid-50s, living off defined-benefit pensions. (Won’t be seeing that sort anymore.) Freed from the social strictures of a hometown, they indulged a bit of age-adjusted rowdiness. If there was a dance at the clubhouse, for example, someone would spike the punch.

My parents moved out after about five years. As the article notes, the value of the home depreciates, which they did not like. Also, you own the home but rent the underlying property. The article mentions this, but probably should emphasize it, as my parents grew dissatisfied with that, too.

Maybe the new crop of seniors are used to seeing the value of their homes depreciate, so won’t have the objections my parents had.

They ended up in a single-family home in New Port Richey, also a senior community. They lived there a few years. Then they moved back to Illinois, where they had raised their kids. Moving “back home” for the final years is surprisingly common among snowbirds. My dad passed away in Illinois a decade ago. My mom, as some of you likely know, still lives there (92) and plans to remain.

P/C insurers posted $33.5B profit in ’12

The ISO/PCI results are out:

  • Net income after taxes grew to $33.5 billion in 2012 from $19.5 billion in 2011.
  • Return on average policyholders’ surplus climbed to 5.9 percent from 3.5 percent. That’s still below the industry’s long-term average.
  • The combined ratio improved to 103.2 percent for 2012 from 108.1 percent for 2011. (Just like I said.)  Sandy forced the industry to post a 110.4 in Q4, up from 103.3 in 2011.
  • Policyholders’ surplus grew $33.1 billion to a record $586.9 billion at year-end 2012 from $553.8 billion at year-end 2011 as a result of insurers’ $33.5 billion in net income after taxes.

Math tricks

Today’s New York Times has the obit of arithmetic wizard Shakuntala Devi:

 In 1977, at Southern Methodist University in Dallas, she extracted the 23rd root of a 201-digit number in 50 seconds, beating a Univac computer, which took 62 seconds.

In 1980, she correctly multiplied two 13-digit numbers in only 28 seconds at the Imperial College in London. The feat, which earned her a place in the 1982 edition of the Guinness Book of World Records, was even more remarkable because it included the time to recite the 26-digit solution.

(The numbers, selected at random by a computer, were 7,686,369,774,870 and 2,465,099,745,779. The answer was 18,947,668,177,995,426,462,773,730.)

For the record, it took me 20 seconds to read the answer aloud, counting the time I needed to determine the number is in the septillions.

Her mental legerdemain was sharpened by the fact that her father was a lion tamer, a fact thatI hope gives you incentive to read the entire Times obit.

To show off for Times journalists in 1977, she answered the following:


Answers below the fold.

Meanwhile, she wrote some books. For one of them, Amazon’s sneak peak shows, among other things, how to determine if a number is divisible by 7. I’ve been looking for that for years. Her method is a bit of brute force, but it works.

Continue reading

New ERM ASOPs kick in on May 1

New ERM standards for actuaries coming May 1. (ASOP’s 46 and 47, if you are keeping score.) Willis’ ERM guru, Dave Ingram, summarizes:

Broadly, the standards require that actuaries keep at least one eye on the big picture context at all times when doing ERM work.


The standards . . . discuss a number of specific considerations that actuaries should consider when doing economic capital modeling, stress testing, emerging risk evaluation, work on risk appetites, tolerances and limits, as well as risk mitigation.


The list of all ASOPs is here, with links to the new ERM standards at the bottom of the page.

Actuaries in the crosshairs

A more diligent blogger than I would have posted about the Society of Actuaries study that predicted a 32% increase in claims costs on individual health policies, thanks to Obamacare. But I never found time to read the report, so I really had nothing to add.

Today, the pushback comes from Politico and Kaiser Health News and a funnyman-turned-Senator:

“Most actuaries in this country — what percentage are employed by insurance companies?” Sen. Al Franken, a Minnesota Democrat, asked an actuary last week at a hearing of the Committee on Health, Education, Labor and Pensions.

The upshot – actuaries work for insurance companies, or consult for insurers, so they can’t be trusted. Moreover,

… Actuaries are self-regulated, which some say makes them unaccountable.

Their associations set conduct standards and investigate malpractice in confidential proceedings. During the previous two decades the Actuarial Board for Counseling and Discipline, which works with the Society of Actuaries, has recommended public disciplinary measures for fewer than two people a year, according to its annual report.

Yet actuaries play many public roles. By calculating the adequacy of employer pension contributions they affect the retirement of millions. And they’ll act as virtual referees for important aspects of implementing the health act.

“I have a great deal of respect for actuaries,” said Timothy Jost, a law professor at Washington and Lee University and health law expert. “But I do think they often end up in … situations where the interests of the public and of their employers might be in conflict.”

Now, I still haven’t read the SOA study, so I still can’t comment on it. I suspect its estimate is too high, but without reading it, I’m not going to impugn the study or its authors.

That’s where I differ from Franken, et al. Maybe they’ve read the study, maybe they haven’t. But they aren’t criticizing the study. They are criticizing the messengers. Theirs is a classic ad hominem attack and should be condemned.


Actuaries aren’t economists

I love to tell the story of Milton Friedman’s brush with actuarial science, as he does above. (Shorter Milton: The exams were too hard.)

Today we get the cautionary tale of two economists who bollixed the AVERAGE formula in Excel. That and a couple other dubious adjustments led them to publish a paper that, while incorrect, was highly influential. (See also here. Authors’ response given here.)

I’ve reproduced the error below, taken from a Salon article:

economistsThe average should have been cells L30 to L49.

By coincidence, I recently made a similar error in a pricing model. My formula was supposed to sum the numbers in a column but failed to capture all of them.

I was corrected by a sharp peer reviewer. Why weren’t these guys?

Prior Line Development: It’s all A&E

Pawing through 2012 financials, I noticed that the development on claims older than 10 years grew by $2.3B. Interesting given the total development on prior was $12.3B favorable. I guessed asbestos and environmental reserves drove the old years, so I put together this chart:

prior vs A&E 2012The chart is a little busy. The blue columns are total development on claims 10 years and older, by calendar year. The red dots are asbestos losses. The green line signifies all non-A&E losses on claims 10 years and older.

(From here on, I’m calling development on claims 10 years and older prior line development, because that’s the line it is taken from in Schedule P, Part 2. Please don’t confuse prior line development with prior year development, the latter being development on all prior year claims, not just the oldest.)

All amounts are billions of dollars. I forgot to label the y-axis – sorry.

First, notice to the far right: For the past two years, prior line development has been close to zero, once you exclude A&E claims.  (I’m assuming all A&E claims are more than 10 years old. ISO’s GL policy excluded A&E around 1986, so this is a pretty safe assumption for every year in the table, except maybe the earliest one or two.)

Next, notice that in every year except 2001, the red dots are almost always above the green line. That means almost every year, A&E losses are more than half all prior-line losses. Toting up all years, A&E is 78% of the prior line total.

A&E emergence has slowed in recent years, averaging $2.4B across the past seven years back to ’96, vs. $3.9B for the seven years before that. Even with that, A&E drags on the industry combined ratio by about six-tenths of a percentage point.

It’s a hit: April 15, 2013

No. 1 story is based on this release, which I worked on for the CAS Ratemaking and Product Management seminar. A careful read of the Insurance Journal article shows the editors there recast the story somewhat – emphasizing the impact of split rating (neutral overall, but most insureds will realize a slight decrease).

its a hit 4 15 13That’s cool with me – it’s the editors’ job to tailor a piece to their audience.

2012 Combined Ratio: 103.2

Haven’t seen the 2012 C.R. published yet, but maybe I missed it.

So here’s a chart I put together:

2012 C.R.This chart includes all the insurers that SNL Financial has captured through April 13. That means it includes mortgage insurers, which adds a couple of points in recent years. This year, eyeballing Q3 data, it looks like mortgage insurers add a couple of tenths to the industry total.

These numbers also include policyholder dividends, worth about 0.5 percentage points last year.

The AY C.R. was 105.9%, implying favorable development on prior of $12.2B, of which $3.4B occurred in Q4.