Casualty Actuaries in Reinsurance

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Casualty Actuaries in Reinsurance

• June 8, 1999
• Baltimore, Maryland
• Actuaries as Underwriters

David Spiegler, FCAS, MAAA Senior Vice
President American Re-Insurance Company Chief
Underwriting Officer American Re Financial
Products
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Who am I, and what am I doing here?- Admiral
Stockdale

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Actuaries as Underwriters

• Actuaries as Actuaries
• Actuaries as Non-Actuaries
• Actuaries as Underwriters

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Actuaries as Actuaries

• American Re Actuarial Demographics
• FCAS 21
• ACAS 16
• FSA 2
• ASA 2
• Other Credentialed 3
• Students 22
• Total 66

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Actuaries as Actuaries

• More Actuarial Demographics
• Reserving 10
• Pricing 41
• Consulting 4
• Total 55

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Actuaries as Actuaries

• More Actuarial Demographics
• Chief Pricing Actuary 1
• Traditional Markets 15
• Alternative Markets 15
• Financial Products 6
• Healthcare 2
• Research Development 2
• Total 41

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Actuaries as Actuaries

• More Actuarial Demographics
• Princeton 55
• Ramsey, NJ 2
• New York 1
• Chicago 1
• San Francisco 1
• Los Angeles 2
• Bermuda 1
• Australia 1
• Brussels 1
• Bogota 1
• Total 66

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Actuaries as Non-Actuaries

• Traditional Markets 2
• Alternative Markets 4
• Financial Products 1
• Healthcare 2
• Risk Management 2
• Total 11

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Actuaries as Non-Actuaries

• Member of the Board of Management
• Divisional President
• Divisional Chief Underwriting Officer
• Divisional Executive Management
• Senior Underwriters
• Junior Underwriters
• Financial Analysts

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Being an actuary is like staying at the
Hotel California You can check out any time
you like, but you can never leave- The Eagles

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Actuaries as UnderwritersUnderwriting
Encompasses

• Evaluation of exposures (qualitative and
  quantitative)
• Program structuring
• Assessing risk/reward tradeoff
• Negotiating contract terms/conditions
• Decision making (with accountability)
• Processing the business
• Monitoring

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Actuaries as UnderwritersActuarial
Strengths

• Quantitative evaluation of exposures
• Evaluation of program structure
• Assessing risk/reward tradeoff
• Monitoring results

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Actuarial StrengthsQuantification of risk

• Interpretation of model results
• Evaluation of independent actuarial reports
• Sensitivity of underlying assumptions
• Pricing for risk/meeting return targets
• What can go wrong?

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The age of the universe is 12 billion years,
younger than previously thought, NASA astronomers
said Hubble space telescope observations show.
But at least one prominent scientist contends it
is older.- The Wall Street Journal (5/26/99)

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An actuary, knowing that all models are at best
estimates, would only cover NASA for 4 billion
years part of 5 billion years excess of 15
billion years

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Actuaries as UnderwritersActuarial Gaps

• Qualitative evaluation of exposures
• Negotiating contract terms and conditions
• Decision making/Accountability
• Processing the business

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Actuaries as UnderwritersFinancial Products

• Types of Financial Products
• Traditional Finite Risk Covers
• Credit Insurance/Reinsurance
• Integrated Risk Covers
• Derivatives
• Securitized Products

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Example, 1 billion capital raising
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Example (continued)

• An SPC is formed, capitalized by 250 million in
  equity and a 750 million bond issuance
• A monoline guarantor wraps the entire 750
  million, giving the bond a AAA rating
• The monoline guarantor obtains reinsurance for
  the 250 million subordinated tranche
• Cheaper for the sponsor because the insurance
  premium is less than the spread between a wrapped
  and unwrapped bond.

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Actuaries as UnderwritersFinancial Products

• Additional Risks to Consider
• Interest Rates
• Foreign Exchange
• Commodity Prices
• Credit Risk

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Actuaries as Underwriters? Just
do it!- Nike- Mrs. Spiegler (circa 1970)