1995 Proceedings of the Casualty Actuarial Society, Volume LXXXII
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VOLUME LXXX11 NUMBERS 156 AND 157 PROCEEDINGS OF THE Casualty Actuarial Society ORGANIZED 19 14 1995 VOLUME LXXX11 Number 156-May 1995 Number 157-November 1995 COPYRIGHT--l996 CASUALTY ACTUARIAL SOCIETY ALL RIGHTS RESERVED Lkmq of Congress Caralog No. HG995h C3 ISSN 0891-1980 FOREWORD Actuarial science originated in England in 1792 in the early days of life insurance. Because of the technical nature of the business, the first actuaries were mathematicians. Eventually, their numerical growth resulted in the formation of the Institute of Actuaries in England in l&18. Eight years later, in Scotland, the Faculty of Actuaries was formed. In the United States, the Actuarial Society of America was formed in 1%X9 and the American Institute of Actuaries in 1909. These lwo American organtiations merged in 1949 to become the Society of Actuaries. In the early years of the 20th Century in the United States, problems requiring actu- arial treatment were emerging in sickness, disability, and casualty insurance-particularly in workers compensation, which was introduced in 1911. The differences between the new problems and those of traditional life insurance led to the organization of the the Casualty Actuarial and Statistical Society of America in 1914. Dr. I. M. Rubinow, who was responsible for the Society’s formation, bccamc its first president. At the time of its Cormation, the Casualty Actuarial and Statistical Society of America had 97 charter mcmbcrs of the grade of Fellow. The Society adopted its present name, the Casualty Actuarial Society, on May 14, 1921. The purpose of the Society is to advance the body of knowledge of actuarial science in applications other than life insurance, to establish and maintain standards of qualification for membership, to promote and maintain high standards of conduct and competence for the mcmbcrs, and to increase the awareness of actuarial science. The Society’s activities in support of this purpose include communication with those affcctcd by insurance, pre- sentation and discussion of papers, attendance at seminars and workshops, collection of a library, research, and other means. Since the problems of workers compensation were the most urgent at the time of the Society’s formation, many of the Society’s original members played a leading part in dc- vcloping the scientific basis for that line of insurance. From the beginning, however, the Society has grown constantly, not only in membership, but also in range of interest and in scientific and related contributions to all lines of insurance other than life, including auto- mobile, liability other than automobile, Circ, homeowners, commercial multiple peril, and others. Thcsc contributions are found principally in original papers prepared by members of the Society and published annually in the Proceedings of fhe Casualty Acfuarial Soci- efy. The presidential addresses, also published in the Proceedings, have called attention to the most pressing actuarial problems, some of them still unsolved, that have [aced the industry over the years. The membership of the Society includes actuaries employed by insurance companies, industry advisory orga&ations, national brokers, accounting firms, educational institu- tions, state insurance departments, and the federal govcrnmcnt. It also includes inde- pendent consultants. The Society has two classes of members, Fellows and Associates. Both classes require successful completion of examinations, held in the spring and fall of each year in various cities of the United States, Canada, Bermuda, and selected overseas sites. In addition, Associateship requires completion of the CAS Course on Professionalism. The publications of the Society and their respective prices arc listed in the Society’s Yearbook. The Syllabus of Examinations outlines the course of study recommended for the examinations. Both the Yearbook, at a charge of $40 (U.S.), and the Syllabus of Ex- aminafions, without charge, may be obtained from the Casualty Actuarial Society, 1100 North Glcbc Road, Suite 600, Arlington, Virginia 22201. I JANUARY I, 1995 EXECUTIVE COUNCIL* ALLAN M. KAUFMAN . , , . President ALBERT J. BEER . President-Elect PAULBRAITHWAITE . Vice President-Administration JOHN J. KOLLAR . _ . Vice President-Admissions DAVID N. HAWING . Vice President-Continuing Education ALICE H. CANNON. Vice President-Pmgram.r and Communications MICHAEL J. MILLER . Vice President-Research and Development THE BOARD OF DIRECTORS ALLAN M. KAUFMAN . President ALBERT J. BEER . President-Elect Imtni~difltr Post Presirlentt IRENEK.BASS . ..I994 Ekttd Dirwtorst PHILLIP N. BEN-ZVI . 1995 CLAUDETTE CANTIN . 1995 BRIAN E. Scorn . 1995 SUSANT. SZKODA . I995 STWEN F. GOLDBERG . 1996 PATRICK J. GRANNAN . 1996 ANNE E. KELLEY . 1996 ROBERT S. MICCOLIS . I996 ROBERT F. CONGER . I997 JOHNM. PURPLE . 1997 RICHARDH. SNADER 1997 KEVIN B. THOMPSON 1997 * Term expires at the 199.5Annual Meeting. All membersof the Executive Council itre Officers. The Vice President-Administration also serves as Secretary and Treasurer. 7 Term expires at Annual Meeting of year given. II 1995 PROCEEDINGS CONTENTS OF VOLUME LXXX11 Page ADDRESS TO NEW MEMBERS-MAY 15, 1995 David G. Hartman . I MINUTES OF THE MAY 1995 MEETING . 7 PAPERS PRESENTED AT THE NOVEMBER 1995 MEETING Balancing Transaction Costs and Risk Load in Risk Sharing Arrangements Clive L. Keatinge . .23 DISCUSSION OF PAPER PUBLISHED IN VOLUME LXXIV A Note on the Gap Between Target and Expected Underwriting Profit Margins Emilio C. Venezian (November 1987) Discussion by William R. Gillam . 56 DISCUSSION OF PAPER PUBLISHED IN VOLUME LXXX1 Unbiased Loss Development Factors Daniel M. Murphy (November 1994) Discussion by Daniel F. Gogol, Ph.D. 72 DKLSSION OF PAPER PUBLISHED IN VOLUME LXXVII Risk Loads for Insurers Sholom Feldblum (November 1990) Discussion by Stephen W. Philbrick (May 1991) Author’s Reply to Discussion (November 1993) Discussion by Todd R. Bault . .78 Author’s Reply to Discussion . , . 97 DISCUSSION OF PAPER PUBLISHED IN VOLUME LXX11 A Simulation Test of Prediction Errors of Loss Reserve Estimation Techniques James N. Stanard (May 1985) Discussion by Edward F. Peck . 104 111 1995 PROCEEDINGS CONTENTS OF VOLUME LXXX11 Page ADDRESS TO NEW MEMBF.RS-NOVI~M~~I:R 13, 1995 Michael A. Walters . 121 PRIXDENTIAI. ADDRESS-N• VEMIWR 13. 1995 Allan M. Kaufman 126 MINUTES OF THE NOVEMBER 1995 METING . 138 REPORT OF THE VICE PRESIDENT-ADMINISTRATION ........... 160 FIN.AN(.I.~L.REf’OKr ................................... 167 1995 EXA~JINA-IIONS-SUCCESSFUL C!,NI)IIWf:s ............. 168 OBITWRIIZS William J. Hazam ................................ .206 Laura J. Manley .................................. 209 Kenneth L. McIntosh .............................. 211 Robert W. Parlin ................................. ,212 James W. Thomas ............................... ,213 INDEX TO VOLUME LXXX11 ............................ 2 14 NOTICE Papers submitted to the Procwdbzgs of’ t/w Cmdty Actuarial Sockty are subject to review by the members of the Committee on Review of Papers and, where appropriate. additional individuals with expertise in the relevant topics. In order 10 qualify for publication, a paper must be relevant to casualty actuarial science. include original research ideas and/or techniques, or have special edu- cational value, and must not have been previously copyrighted or published or he concurrently considered for publication elsewhere. Specific instructions for preparation and submission of papers are included in the Ycarhod of the (‘a\ualty Actuarial Society. The Society is not responsible for statements of opinion cxprc\aed in the arti- clc\. criticisms, and discussions publijhcd in thc$c I’~oc,c,c,dir7,~.\. IV Volume LXXXII, Part 1 No. 156 PROCEEDINGS May 14,15,16,17,1995 ADDRESS TO NEW MEMBERS-MAY 15, 1995 DAVID G. HARTMAN Isn’t it appropriate that we are here today in the shadow of Gateway Arch as you new Fellows and new Associates are at the gateway of the rest of your career! What I would like to do today is talk to you in three areas: First, compliment you, with both an cci” and an “e”; second, share with you some of the experiences of my contemporaries; and third, chullen~e you. ComplimentlComplement First of all, the compliment. Congratulations to you on a job well done! To Fellows, for making it all the way through the ex- ams; to Associates, for making it at least 70% of the way through. We appreciate very much the stick-to-itiveness that you have demonstrated and the sacrifice that this has meant. Keep at it. Compliments also to spouses who have been so supportive of you as you have taken the exams, as well as to friends, co-workers, and others who have been supportive of you in attaining this par- ticular milestone. You have now entered a profession. 1 2 ADDRESS TO NEW MEMBERS There are four hallmarks to a profession. First, a profession has a core of basic knowledge unique to that profession. Sec- ond, a professional continues his or her education. Both of these functions are performed in the actuarial profession by the Casu- alty Actuarial Society or, for our life, pension and health coun- terparts, the Society of Actuaries. To complement that, with an “e,” is the American Academy of Actuaries, primarily perform- ing two other key parts of professionalism. The third hallmark of a profession is that there are standards. One standard would be a Code of Conduct; others would be the Standards of Prac- tice as promulgated by the Actuarial Standards Board (ASB). The fourth hallmark is discipline, which is performed by the Ac- tuarial Board for Counseling and Discipline (ABCD). They like to emphasize that counseling is the key part of their function. I urge you to complement your CAS membership by becoming a member of the Academy, if you have not already done so. Con tempera ries Moving on to the area of contemporaries, I thought it would be interesting for you to let me share with you the paths taken by the six of us who became Fellows together at the May 1972 meeting. Unfortunately, one of those, Edward R. Murray, died in 1984. I’d like to give you a thumbnail sketch of the other five of us and hopefully have some of our experiences stimu- late thoughts about your own career.