CAGNY NOVEMBER 2002 MEETING

Federal Charters for P&C CompaniesImpact on

Property/Casualty Actuaries

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Outline of Discussion

Political ViewpointP&C Federal Charters Task ForceImpact of Federal Charters On

RegulationHow The Academy Will Protect The

Public Interest In Effective RegulationHow The Academy Will Explain The

Casualty Actuarial RoleHow Your Voice Can Be Heard

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POLITICAL VIEWPOINT

NAIC Modernization Program Deregulation of Commercial Rates Interstate Compact

ACLIABIAAIAOTHERSSTATES RIGHTS VS. DEREGULATION

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ARGUMENTS FOR OPTIONAL FEDERAL CHARTERS

Redundant licensing Higher compliance costs in rate and form filings Need for complex corporate structures to satisfy

state requirements Delayed implementation of new products Subsidation a common part of rate regulation Redundant regulatory costs due to regulatory

structures in 50 states Restrictions lead to self insurance and alternative

markets Reduced and slowed product innovation

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AIA PROPOSED PRINCIPLES FOR FEDERAL REGULATION

Market based approach using competitionNational treatment availableUniform requirements that do not vary by

stateTimely implementation of products and

pricesLevel playing field with other financial

services such as banksUniform technology requirements

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ARGUMENTS FOR STATE REGULATION

State regulation is already in place/ federal regulation may have equal disadvantages when implemented

NAIC Modernization is well underway and will solve most of the current problems

State regulation takes advantage of the federal system and allows different types of regulation to coexist and for the best regulation to emerge

For insurance covering liabilities, the liability system and associated rules and precedent is state based and state regulation of this type of insurance is the best fit

State regulation is closer to the people who buy insurance and problems get solved faster

A federal regulatory system will require a new bureaucracy and will not ultimately replace state regulation

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Federal Charters

AAA SOACAS

P/C Federal Charters Task Force

Chair: Chuck Bryan, FCAS, MAAA

Banking and Financial Services Task

ForceChair: Tim Tongson,

FSA, MAAA

Financial Reporting CouncilP/C Practice Council Life Practice Council

Health Practice Council

Pension Practice Council

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P&C Federal Charters Task Force

Members include Chuck Bryan, John Pedrick, Mavis Walters, Jim Rech, Rich Hoffman, and Rade Musulin and Greg Vass(Academy Staff)

This task force has three objectives:Coordinating with other Academy task forces and

committees on appropriate responses to the proposalsCommunicating the major features of the proposals to

casualty actuaries and soliciting their viewpoints on these issues so that there is a strong awareness of these issues in our profession

Developing position papers in critical areas that communicate to policy-makers the role casualty actuaries should play in the Federal Regulatory Structure

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Federal Charters Task Force

The charter we are using is the following: “The P&C Federal Charters Task Force will inform casualty actuaries of

the issues in this area, solicit views from casualty actuaries on these issues, and develop a viewpoint and position on the principal legislative proposals with respect to how such proposals would affect the role of casualty actuaries in P&C risk transfer mechanisms such as insurance companies, self-insurance plans, and similar mechanisms.

This Work Group anticipates that its efforts will form part of a larger Academy effort and so its audience will include the casualty actuarial profession, other Academy committees and work groups and

regulatory and legislative decision makers.”

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MAJOR EFFECT OF FEDERAL REGULATION ON CASUALTY ACTUARIES

Traditional rate regulation will be eliminatedSolvency focus and the need for methods

and techniques to support solvency will be even stronger than today

Many of the technical skills that actuaries have offered to companies will no longer be as valuable under a Federal regulatory structure

Actuarial Skills will be in demand but will be challenged by other disciplines.

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Position Papers

The task force has developed eight position papers to focus thought on key issues where casualty actuaries have a unique expertise

These position papers have been forwarded to the AAA Committee charged with coordinating the involved disciplines (casualty, life, and health) and writing a monograph

Members will have an opportunity to comment on these positions

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Eight Position Papers

Staffing of Federal Regulatory Structure The agency should have a chief casualty actuary.

Rate Standards No need for rate standards

Loss Reserve Opinion: KEEP IT RBC and Related Solvency Measures: KEEP THEM Cash Flow Testing: DEVELOP AND MAKE TOOL AVAILABLE Role of Statistical Agents

Recognize need in the legislation Permit advisory rates

Basis of Accounting No actuarial need for statutory Coordinate with accountants

Definition of Insurance For Regulatory Purposes

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Next Steps And How You Fit In

We expect the federal charter legislation to be actively considered in 2003

Our work has been forwarded to the Coordinating Group

The P&C Task Force will actively participate in the writing of a monograph and position papers that will be used in how the Academy responds to and testifies on legislation

You can be heard by conveying your thoughts to me or to any committee member or to Greg Vass who is the Academy staff supporting us.

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ACADEMY WEB SITE ON FEDERAL CHARTERS

The website contains the major pieces of federal legislation and related material.

It contains the position papers and the minutes of the teleconferences so you can see how the task force reached consensus on the position papers.

The web site address is available from Greg Vass of the Academy staff at 202-223-8196.

CAGNY November Meeting

Speaker Contact Information:Charles Bryan

PresidentCAB Consulting, LLC

600 South High StreetColumbus, Ohio

Phone 614-221-1919Fax 614-221-2881

E-mail: chuckbryan66@hotmail.com