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June 30, 2005
Tillinghast Study on Older Age Mortality
The Tillinghast business of Towers Perrin today announced findings of the life insurance industry's most comprehensive study of mortality experience data at older ages -- The Tillinghast Older Age Mortality Study (TOAMS), was conducted in the fall of 2004 and included data from 38 life insurance companies.
The demand for life insurance at older issue ages has outpaced overall demand for life insurance in the U.S. The U.S. MIB Life Index showed a 10% growth in life insurance sales for ages 60 and older during 2003 over the prior year. Despite a more modest gain in 2004 (0.5%), growth for Q1 2005 was 3.2% for older ages, while sales declined for all other ages. Life insurance mortality studies have typically been based on data extrapolated from younger ages, rather than on "experience" data. Tillinghast's study sought to address the need for more actual data at the older ages to provide insurers with new insights on the coverage they provide to this growing demographic.
"As demand for life insurance at older ages grows, there is clearly a need in the marketplace to better understand older age mortality and how underwriting can influence mortality experience," said Al Klein, Senior Consultant. "The extensive data analysis from this study can serve as an impetus for insurers to develop more innovative approaches to addressing underwriting and expanding their product offerings for older individuals."
Among the main findings from the study:
A Better Picture of Cause-of-Death Patterns: Cancer was the leading cause of death by face amount (33% for males and 37% for females), and cancer deaths were higher in the first few policy durations than in subsequent durations. Accidental and violent deaths were greater by face amount than by policy count and were also higher in the first few policy durations. "These results point to the challenges that insurance underwriters have in screening for things like cancer," said Mike Taht, Principal. "These data patterns can give insurers a better picture of the trends."
Discrepancies in Mortality Patterns: The study found that older age mortality experience was inconsistent by gender at the later durations when compared with the 2001 Valuation Basic Table (VBT) -- the most recently published mortality table. For instance, TOAMS showed a 14 percentage-point difference between male nonsmoker and male smoker mortality, and a much larger (23 percentage-point) difference between female nonsmoker and female smoker mortality. "Though many studies have indicated a decrease in mortality in the U.S., this is not uniformly the case, especially among women -- the study indicated mortality rates are higher in some areas than they were 20 years ago," said Mr. Klein. "Also, smoking seems to have more of an impact on female mortality than male mortality, for which there could be several possible explanations," Mr. Klein said.
Second Home for Life Policies
Life settlements -- the secondary market for life insurance policies -- has grown substantially in recent years. According to A.M. Best data, more than $14 trillion of life insurance is in force in the United States, and some are projecting that the potential life settlement market could top $100 billion as the value of life insurance covering seniors is expected to reach $492 billion.
"The life settlements industry is booming, in part due to differences in mortality expectations between primary and secondary markets," said Mr. Taht. "This study shines a light on how to address some of those differences."
About the Tillinghast Older Age Mortality Study
TOAMS is the largest study of older-age mortality in the U.S. life insurance industry ever completed. It includes 51 million policy years and $3.355 trillion face amount of exposure during the years 2000 to 2002. Over 50% of the exposures in the study were associated with issue ages 50 and older. There were over one million deaths and $18 billion of death claims included in the study. The study was performed on an issue age and duration basis, using a 25-year select period, consistent with the Society of Actuaries 2001 Valuation Basic Table. To purchase a copy of the study, you can download the order form at http://www.towersperrin.com/tillinghast/r/olderagemortality.htm. If you have questions about the study, contact Al Klein at al.klein@towersperrin.com or (312)609-9153.
Posted by Tom Troceen at 04:08 AM
June 28, 2005
Actuarial Science Techniques used by Leading Banks for Operational Risk Measurement and Management
An actuarial approach to managing operational risk is superior to the approach outlined by the Committee for Sponsoring Organizations of the Treadway Commission's (COSO) Enterprise-wide Risk Management (ERM) framework, attendees of the Casualty Actuarial Society (CAS) Spring Meeting were told. Leading banks, such as Citibank, Bank of America and Deutsche Bank, were cited as examples of companies now using actuarial science techniques to quantify operational risk capital for use in their economic capital models.
Ali Samad-Khan, President of OpRisk Advisory LLC, said that while the COSO framework helps organizations address certain obvious control issues, it has significant weaknesses. And these weaknesses render it inappropriate for use in operational risk management. He claims that the risk assessment methodology embedded within the COSO ERM framework is conceptually flawed because it produces false positives and false negatives. By acting on such information, managers may inadvertently invest in programs designed to improve controls in areas where they are already over-controlled while ignoring areas of major control weakness.
COSO was created in 1985 to sponsor the National Commission on Fraudulent Financial Reporting. Other functions were to study the causal factors that lead to fraudulent financial reporting and to develop recommendations for public companies and their independent auditors, the SEC and other regulators, and for educational institutions. Samad-Khan presented research and details supporting his recent article "Why COSO is Flawed," published in Operational Risk magazine (www.operationalriskonline.com).
He told the audience that there are two fundamentally different world views driving the differences in the way banks approach operational risk management. "Those who follow the traditional audit-driven view typically believe that operational risks are in the processes," said Samad-Khan. Under this approach organizations begin by identifying the full spectrum of risk within each process, and then assess these risks "before and after controls" to identify potential problem areas. They then accept those risks that are either not material or are adequately controlled, and develop actions plans for those that need to be mitigated. "People who subscribe to this point of view often believe that the modeling of operational risk is not useful for managing operational risk or are at least highly skeptical of any tangible benefits," he said.
The loss data-driven view holds that "operational risks manifest themselves across the entire spectrum of businesses," said Samad-Khan. The first step is defining the universe of operational risk using mutually exclusive and exhaustive risk categories. Practitioners would then use internal and external historic loss data to populate a risk matrix "letting data dictate where risk really exists," he explained. The raw historical data can then be objectively transformed into frequency and severity distributions. The end product is a set of aggregate loss distributions, which reflect the firm's true exposure to all operational risk types. By combining an actuarial approach with a methodology that measures the quality of the corresponding internal control environment for each risk type, Samad-Khan said, practitioners can directly compare risk values and control scores. Armed with such information, managers can subsequently optimize the risk-control relationship in the context of cost benefit analysis. In addition, legitimate risk values and control scores can be monitored as they change over time - which is an important Sarbanes-Oxley requirement.
Samad-Khan believes these two opposing views stem from confusion and misconception surrounding certain key concepts. "The differences relate to a few basic questions, such as: What is risk? And what is operational risk?" said Samad-Khan. Mark Verheyen, Vice President of ReAdvisory, a service of Carvill, addressed operational risk in the context of a property/casualty insurance company. He began by illustrating operational risk's impact on p/c companies, citing the failure of HIH Insurance in Australia due to under-reserving, under-pricing, lack of internal controls, rapid expansion into unfamiliar markets, mismanagement, and abuse of reinsurance. "It was the largest failure in Australian history," Verheyen said. While these causes could be classified in traditional insurance company risk categories such as underwriting risk, Verheyen noted that they all fall under the umbrella of operational risk. "Operational risk is not separate and distinct from the more traditional risk categories," he said. "Rather, it overlaps these categories."
Verheyen contended that operational risk was arguably the largest single threat to an insurer's solvency. "Operational risk isn't a distinct class of risk that insurers are required to hold capital for," he added, "although many sources of operational risk are implicitly included in the regulatory capital models". He explained that proactive communication and the monitoring of key risk indicators, such as production, internal controls, staffing, claims, and outside data sources can encourage changes in behavior in the underwriting cycle that will help p/c insurance companies manage operational risk.
The session was moderated by Donald Mango, director of research and development for GE Insurance Solutions. Mango concluded the session by explaining to the attendees that the combined messages of the two speakers made clear that actuaries will play a big role in operational risk analytics, within the insurance industry and beyond.
The Casualty Actuarial Society is an organization dedicated to the advancement of the body of knowledge of actuarial science applied to property, casualty and similar risk exposures. The primary goal of the Casualty Actuarial Society is to provide education and research to help its members become leading experts in the evaluation of hazard risk and the integration of hazard risk with strategic, financial and operational risk.
Posted by Tom Troceen at 03:53 AM
June 24, 2005
Endurance Announces New Chief Actuary, Michael E. Angelina
Endurance Specialty Holdings Ltd., a global provider of property and casualty insurance and reinsurance, announced this week that Michael E. Angelina has joined Endurance as its new Chief Actuary. Mr. Angelina has over 20 years of professional experience as a practicing actuary, most recently as a Principal and head of the Philadelphia office of the consulting actuarial firm Tillinghast Towers Perrin.
Kenneth J. LeStrange, Chairman, President and Chief Executive Officer, commented, "We expect Mike's strong intellect and actuarial skills will be a valuable addition to our management team. His knowledge will assist Endurance in maintaining its preeminent industry position in the assessment of underwriting risk. In addition, this will now permit David Cash to focus his efforts on his role as President of Endurance Specialty Insurance Ltd., after having built on behalf of Endurance industry leading risk technology and a highly respected team of actuaries."
Mr. Angelina is an Associate of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. Mr. Angelina graduated from Drexel University with a B.S. in Mathematics, and began his actuarial career with CIGNA in the workers compensation and actuarial research units. Mr. Angelina then joined Tillinghast in 1988 where he participated in the development of Tillinghast's excess of loss pricing system and its Global Loss Distributions initiative, as well as numerous client assignments, with a focus on reinsurance companies. Mr. Angelina worked for one year for Reliance Reinsurance Corp. as a Vice President and Actuary prior to returning to Tillinghast in 2000. Mr. Angelina is the co-author of Tillinghast's industry-wide asbestos actuarial study and participated in the development of the 2003 FAIR Act (proposed Federal asbestos legislation).
Posted by Tom Troceen at 02:25 PM
Tillinghast to Launch Commercial Lines Insurance Price Monitoring Survey
Informational Webcast on July 6 for Interested Survey Participants
The Tillinghast business of Towers Perrin today announced plans to launch its Commercial Lines Insurance Price Monitoring Survey (CLIPS). Tillinghast initiated the survey to meet the insurance industry's need for better historical benchmark information regarding pricing and loss costs -- the only survey that will marry these two pieces of information across multiple commercial lines of insurance.
An informational Webcast will be held on Wednesday, July 6, 2005, at 2:00 p.m. EST for insurance companies that write primary commercial lines of coverage in the United States and that have an interest in participating in the survey. The Webcast will discuss in more detail why the survey is being conducted, what it will look like and the benefit for participants.
"CLIPS data will provide companies with a consistent and current benchmark for setting loss reserves, an area where there has been some loss of confidence," said Jeanne Hollister, P/C Insurance Practice Leader for North America. "The survey will also provide companies with a more accurate measure of historical price changes on an ongoing basis. The initial response to this survey concept has been very positive. We believe it will prove to be a valuable tool for companies and will facilitate greater financial transparency in the P/C insurance industry."
The survey will be piloted during the third quarter of 2005, and then conducted on a quarterly basis with participating companies.
For more information or to sign up for the Webcast, please contact Alejandra Nolibos, Survey Leader at 404-365-1701 or alejandra.nolibos@towersperrin.com.
Posted by Tom Troceen at 02:25 PM
AIG Just got a little bigger
AIG General Insurance License in Vietnam Announced by Vietnam's Prime Minister Phan Van Khai
American International Group, Inc. (AIG) has announced that its subsidiary, American International Underwriters Insurance Company (AIUI), has been notified that it will receive a license from the government of Vietnam to operate a wholly owned general insurance company in Vietnam. Vietnam's Prime Minister, Phan Van Khai, announced the license yesterday at the Asia Society in New York City. This would be the first general insurance license granted by Vietnam to a U.S.-based insurance organization.
The license would permit AIG to operate a general insurance company throughout Vietnam. The name of the company will be AIG General Insurance (Vietnam) Company Limited (AIG Vietnam), which will market property-casualty insurance products to both individuals and businesses. AIG Vietnam will be headquartered in Hanoi. AIG Vietnam expects to begin operations as soon as all regulatory approvals are in place, which are anticipated by the end of the year.
Posted by Tom Troceen at 02:24 PM
June 15, 2005
Actuaries Fare Better Than Cowboys When Weighing Some of the Best and Worst Jobs, Says CareerJournal.com
Many children dream of one day being a cowboy or a cowgirl. Few, if any, want to be an actuary. Little do they know.
The editors at CareerJournal.com, The Wall Street Journal's executive career guide, recently asked themselves a pair of questions: What are some of the best jobs out there, and what are some of the worst? And not in terms of glamour -- or just in terms of salary -- but in terms of things such as job security, emotional stress and basic physical safety.
When people are working full time -- perhaps in a job that they don't particularly enjoy -- it's easy to imagine that the proverbial "grass may be greener" for those in other careers. But unless they are peppered with questions, it's difficult to find out what their work is really like. How stressful is the work, what's the work environment like and is there room for growth?
CareerJournal.com editors conferred with Les Krantz, a nonfiction publisher and researcher based in Lake Geneva, Wisc. -- for some help. Mr. Krantz has researched good jobs -- and bad ones -- using data from sources such as the Bureau of Labor Statistics and judging by some of his own hunches.
Mr. Krantz uses six main factors to judge a job: income, stress, physical demands, outlook, security and work environment. Sometimes, data behind the factors is old, and sometimes it's tough to come by -- thus, the hunches. Along the way, Mr. Krantz makes some assumptions about those factors' importance for workers -- assumptions that some might disagree with. One assumption, for example, is that it's better to work indoors in an air-conditioned office than to work outside. Another assumption is that it's better to be in a noncompetitive environment. Yet another is that it's important to earn more money.
The upshot: Some secure, well-paying office jobs, such as an actuary, landed high. Some physically demanding, high-risk jobs, such as cowboy, brought up the rear. Based on these factors, listed below are some of the other best and worst jobs that Mr. Krantz came up with.
BEST
- Accountant
- Actuary
- Bank Officer
- Biologist
- Computer systems analyst
- Financial planner
- Parole officer
- Software engineer
- Statistician
- Web site manager
WORST
- Construction worker (Laborer)
- Cowboy
- Dancer
- Fisherman
- Garbage collector
- Ironworker
- Lumberjack
- Roofer
- Seaman
- Welder
"Are these the best and worst jobs for everyone? Of course not. Was there as much art as science at play in coming up with these jobs? Of course," says Tony Lee, publisher, CareerJournal.com. "But they made us rethink just what it means to have a good job. We hope they do the same for jobseekers."
For more information, visit http://www.CareerJournal.com.
Posted by Tom Troceen at 05:19 PM
Towers Perrin Outlines Detailed Recommendations for Pension Funding Reform
Towers Perrin, a global professional services firm, today released further recommendations to reform the current regulatory and legislative framework for funding private employer-sponsored pension plans.
This latest set of recommendations comes as Congress considers important changes in U.S. pension law, including the reform proposal offered by the Bush administration earlier this year and Rep. John Boehner's Pension Protection Act introduced during the week of June 6th. Many pension plan sponsors have concerns about the potential costs associated with the Administration's reform proposal, as well as about more volatile contributions and higher Pension Benefit Guarantee Corporation (PBCG) premiums. Rep Boehner's bill represents a step forward from the Administration's proposal, but does not fully address all of the concerns plan sponsors have.
"Towers Perrin's proposal is designed to strike a balance between the need to improve pension plan funding levels and plan sponsors' need to keep costs and volatility within acceptable levels," said Steven Kerstein, Managing Director of the firm's HR Services retirement consulting practice. "These recommendations aim to preserve the nation's voluntary pension system by achieving a workable balance for all key stakeholders -- plan participants, company shareholders, government entities and plan sponsors. Workable funding reform legislation that all stakeholders can live with is critical to preserving a system that contributes to the lifetime financial security of millions of working Americans."
Key Recommendations
A team of Towers Perrin actuaries tested the firm's recommendations under a wide range of capital market scenarios and compared them with the Administration's proposal. The Towers Perrin proposals succeeded in substantially improving pension plan funded status while eliminating much of the additional contribution volatility that would be created by the administration's proposal. Specifically, Towers Perrin recommends:
-- Implementing a long-term funding target of 100% for all plan sponsors -- up from the 90% funding target under current rules.
-- Replacing the multiple liability measures under current rules with a single, market-based measure of plan solvency. Liability would be calculated based on the present value of benefits accrued, discounted using an interest rate based on high-quality corporate bond indexes published by established financial services firms.
-- Setting the minimum annual contribution requirement at the value of benefits earned during the current year plus a portion of any unfunded liability. Companies could also choose to fund in excess of minimum requirements.
-- Introducing new smoothing techniques and amortization requirements to help shield plan sponsors from dramatic swings in funding requirements caused by market volatility. Unlike current funding rules, these new smoothing techniques would be based on the market values of assets and liabilities described above to encourage plan sponsors to hedge against the risk of unfunded liabilities that can arise if there is a mismatch between assets and liabilities.
-- Basing PBGC premiums on the new solvency-based liability measure. Plans with funding levels below 70% could not improve benefits without contributing amounts that were at least equal to the value of the additional benefits being earned.
-- Encouraging plan sponsors to build up plan reserves by permitting tax-deductible contributions in amounts that would allow funding up to 130% of the solvency liability.
-- Allowing employers to use plan surpluses in excess of a certain threshold (e.g., 120% of solvency liability) for retiree heath care or other benefit purposes.
White Paper Provides Proposal Details and Analysis
More details about Towers Perrin's proposed legislative framework for pension funding, including an analysis of how the proposal would affect the funded status of a typical large company pension plan, can be found in a new Towers Perrin white paper (A Towers Perrin Proposal for Pension Funding Reform: Part II). This paper is the second in a series of three white papers the firm will publish in order to provide detailed recommendations on pension funding requirements, PBGC premiums and financial reporting requirements, and necessary steps for terminating plans, among other issues. The final paper in the series will be published in the coming months.
Posted by Tom Troceen at 05:19 PM
Actuaries Say Changing Retirement Age Would Improve Social Security Solvency
Ron Gebhardtsbauer, the senior pension fellow of the American Academy of Actuaries, today told Congress that an additional raising of the normal retirement age would reduce the Social Security solvency shortfall by approximately 36 percent. Representing the U.S. actuarial profession before the U.S. House Ways and Means Subcommittee on Social Security, Gebhardtsbauer said retirement age already is being raised by an act of Congress passed in the 1983 amendments.
"Social Security's normal retirement age recently increased from 65 to 66. Gradually raising it further by 1 month every 2 years would reduce Social Security's shortfall by about one-third. While that reduces the increase in annual benefits, it doesn't have to reduce total lifetime benefits, because each generation is living longer and therefore receiving benefits for more years, " Gebhardtsbauer said. He explained that the 1983 amendments reduced the impact of changing the normal retirement age to 66 by phasing it in gradually over six years so there would be little noticeable effect and it only affected people under age 45 at enactment. Thus, it had no impact for 17 years.
"Not only are Americans living longer, but we also are healthier at older ages and fewer jobs are physically demanding. People are also interested in staying active both mentally and physically, and jobs help to promote that," Gebhardtsbauer said. In comparison, he said price indexation can reduce benefits four times faster and it reduces disability benefit amounts too, whereas raising the normal retirement age does not. Both ideas affect early retirees. Workers could still retire at age 62 and receive Social Security benefits, but the benefits would be smaller.
To avoid inadequate early retirement benefits, some proposals gradually increase the earliest eligibility age from 62 to 65. While this only reduces Social Security's shortfall by an additional 10 percent, it can have a big impact on when people retire, since a person's retirement date is very much a financial decision. Gebhardtsbauer said this points out the importance of having an employer-sponsored pension system to provide supplemental benefits until Social Security is available. "Proposals on tax reform, lifetime savings accounts, or annuity taxation substantially change employer incentives to offer pension plans, so care should be taken to not kill them. Pension plans help us to not rely on Social Security for all our retirement needs," he said.
The American Academy of Actuaries is the nonpartisan public policy organization for the U.S. actuarial profession. The Academy provides independent analysis to elected officials and regulators, maintains professional standards for all actuaries, and communicates the value of actuarial work to the media and public.
Posted by Tom Troceen at 05:13 PM
June 13, 2005
Pension Actuaries Encouraged by Reform Bill
The Pension Practice Council of the American Academy of Actuaries is encouraged by the introduction of new legislation to reform the private pension system. The Pension Protection Act of 2005, a bill introduced by U.S. Rep. John Boehner (R-OH), chairman of the House Education and the Workforce Committee, House Ways and Means Committee Chairman William M. Thomas (R-CA), and Rep. Sam Johnson (R-TX), chairman of the Employer-Employee Relations Subcommittee and others, was filed this week
to change the pension laws.
"The bill is responsive in addressing some of our concerns with the administration proposal by increasing flexibility to achieve the long-term goals of pension solvency," said Kenneth A. Kent, vice president of the council. "The Academy looks forward to the legislative hearings and we are encouraged that with this effort subsequent improved pension funding rules would provide a sound framework for maintaining the defined benefit system as a fundamental component of our nation's retirement security," Kent said.
The Academy has been calling for pension reform for some time and has testified on Capitol Hill in the last several months about the subject. In February, the Academy Pension Practice Council produced an issue analysis, Pension Funding Reform for Single Employer Plans. To view the analysis, visit http://www.actuary.org/pdf/pension/funding_single.pdf
The American Academy of Actuaries is the nonpartisan public policy organization for the U.S. actuarial profession. The Academy provides independent analysis to elected officials and regulators, maintains professional standards for all actuaries, and communicates the value of actuarial work to the media and public.
SOURCE American Academy of Actuaries
Web Site: http://www.actuary.org
Posted by Tom Troceen at 01:33 AM
June 06, 2005
Once an actuary always an actuary?
New York Life Promotes Scott L. Berlin to Senior Vice President
June 6, 2005 -- New York Life Insurance Company announced today that Scott L. Berlin was promoted to senior vice president in charge of the company's Individual Life Department. In this capacity, Mr. Berlin is responsible for the development, sales, marketing, and financial performance of a full line of retail and corporate life insurance products designed to meet the needs of a broad range of consumers.
Mr. Berlin joined New York Life in 1990 as an actuarial student. He became an actuary in 1996 in the Individual Life Department, was promoted to corporate vice president in 2002 and most recently served as vice president responsible for advanced market products.
Mr. Berlin is a member of the American Academy of Actuaries and a fellow of the Society of Actuaries. He graduated from the University of Michigan in 1990 with a B.A. in Mathematics. He resides in Syosset, New York, with his wife and three children. He also volunteers as a youth soccer coach in Long Island.
New York Life Insurance Company, a Fortune 100 company founded in 1845, is the largest mutual life insurance company in the United States and one of the largest life insurers in the world. Headquartered in New York City, New York Life's family of companies offers life insurance, annuities and long-term care insurance. New York Life Investment Management LLC provides institutional asset management and retirement plan services. Other New York Life affiliates provide an array of securities products and services, as well as institutional and retail mutual funds.
Posted by Tom Troceen at 04:33 PM