November 16, 2005 S T A T U S R E P O R T T O T H E C A S M E M B E R S H I P Long Range Planning...

November 16, 2005

S T A T U S R E P O R T T O T H E C A S M E M B E R S H I P

LongRange

Planning Committee

© 2004 KPMG LLP, the U.S. member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the U.S.A.

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The Road to 2014: the Centennial Goal / Long Range Planning Committee Report

Presenters:

Aaron Halpert, Chairman CAS Long Range Planning Committee

Larry Haefner, Member CAS Long Range Planning Committee

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2004 - 2005 LRPC Goals and Objectives

Focused heavily on helping CAS achieve Centennial Goal:1. Developed and performed an environmental scan (both inside and

outside the CAS) to evaluate whether alternative strategies were needed in order to reach the Centennial Goal (CG).

2. Presented list of “key risk factors”, identified in the environmental scan, to the CAS Board and facilitated discussion of them.

3. Reviewed the current set of SAM goals based upon information developed from the environmental scan, and recommended revisions and/or additions to the goals to ensure achievement of the CG.

4. Oversaw the work of the Centennial Goal Implementation Task Force to assure that the CAS Operational Planning embraces the themes expressed in the CG and supporting SAM goals.

5. Monitored activities of the CAS to evaluate progress toward achieving the SAM Goals.

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Completed Environmental Scans

Scans completed in January, 2005:

Inside the CAS

Other Actuarial and Insurance Organizations

Other Professions and Organizations

Scan results placed on CAS website and reported to the CAS Board.

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Scans - Inside the CAS

Evaluated 8 focus areas:

1. Volunteerism,

2. Internationalism,

3. Directions in which actuaries want to grow,

4. Demographic changes,

5. Changes in work responsibility,

6. Value of CAS membership,

7. Changing attendance at CAS meetings

8. Education

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Scans - Other Actuarial and Insurance Organizations

US Actuarial Organizations

Society of Actuaries American Academy of Actuaries Conference of Consulting Actuaries The Actuarial Foundation

International Actuarial Organizations Canadian Institute of Actuaries Institute / Faculty of Actuaries Institute of Actuaries of Australia

Other Insurance Organizations AICPCU (CPCU) RIMS (Risk and Insurance Management Society) AIMR (CFA Exams) PRMIA (Professional Risk Managers Int’l Assoc) SOFE (Society of Financial Engineers)

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Scans - Other Professions and Organizations

Financial

Rating

Regulatory

Academic Community

Legal Profession

Employers

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Scanning Process — Methodology

Data Analysis

Interviews with members/officers

Review of other organization’s website and/or strategic plans

MAP Surveys

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Scanning Process — Key Questions

CURRENT CHALLENGES: What is the biggest risk factor (e.g., adverse reserve development, microscopic focus, etc.) facing actuaries today?

LONG TERM CHALLENGES: What are the biggest challenges/risk factors facing actuaries over the next 10 years?

LONG TERM OPPORTUNITIES: What are the biggest opportunities that you feel the actuarial profession could capitalize on over the next 10 years?

WORKING WITH OTHER PROFESSIONS: What do you see developing in your field of practice that may have a significant impact on the way actuaries think, respond or work with you to achieve your field of practice goals?

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What did the SCANS tell us? – Inside the CAS

1. INTERNATIONALISM AND CAS MEMBER PERSPECTIVES:Internationalism and the global perspective of CAS members is a crucial consideration in identifying appropriate strategy for achieving the Centennial Goal. To this end, we conducted a survey of the Membership Advisory Panel to better understand CAS member perspectives on the globalization of the casualty actuarial profession.

2. ENHANCING CAS MEMBER RESPONSIBILTIES: While a significant (and perhaps growing) percentage of our membership is currently focused on ratemaking and reserving issues, actuaries are aspiring to enhance their responsibilities in corporate risk management, and senior level management. Business acumen and business communication skills are key barriers keeping actuaries from growing into these roles.

3. FELLOWSHIP EXAMINATIONS: While the number of casualty actuaries writing the higher examinations is flat or decreasing, the number of Fellows continues to grow at a faster pace than the SOA.

4. VOLUNTEERISM – DEMOGRAPHIC MONITORING: Levels of CAS members’ participation need to be monitored in light of demographic changes in the composition of the membership (e.g. number of retirees, number of members residing outside US, number of members serving other societies).

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What did the SCANS tell us? – Other Actuarial and Insurance Organizations

1 COMPETITION ON GLOBAL ISSUES: On the GLOBAL part of our Centennial Goal side of the Centennial Goal, the CAS is encountering only modest competition from other actuarial organizations. The lack of international focus among our own membership is the greater risk to achieving this part of the Centennial Goal.

2. COMPETITION ON RISK MANAGEMENT: Other organizations may pose a much greater threat to our achievement of the RISK INTEGRATION portion of the Centennial Goal. Significant strides towards developing expertise in the area of risk integration have been undertaken by other organizations (e.g. SOA, CFA, etc.)

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What did the SCANS tell us? – Other Professions

1. NEED FOR NEW SAM’S: The current SAM Goals do not seem sufficiently comprehensive to address some of the strengths/weaknesses, risks or opportunities noted by constituents outside of the actuarial profession.

2. VIEW OF THE FINANCIAL COMMUNITY: In the context of the actuarial profession’s desire to be seen the preeminent source in educating actuaries and conducting research in casualty actuarial science, professionals in the financial community seemed to think the profession was losing ground to other financial professionals in areas including convergence (e.g., advanced capital management techniques, enterprise risk management,…) and in areas of structured finance (an area well-suited to applied mathematics).

3. LEADING EDGE IN MODELING: Professionals outside of the CAS expect actuaries to be on the leading edge of harnessing ever-expanding computing power to fuel advancement in actuarial science to the betterment of risk management broadly. Actuarial involvement in the recent advances in application of technology to personal automobile ratemaking (advanced pricing techniques, data mining, etc.) may not be widely understood.

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What did the SCANS tell us? – Other Professions

4. ACTUARIAL CREDIBILITY: The credibility of the actuarial profession has been damaged by the poor performance of insurance companies during the last soft cycle. This view was shared by many constituents outside of our profession (rating agencies, regulators, and the financial community). In the absence of a coordinated effort to address and communicate changes within the actuarial profession (implemented post-soft market), we face the risk of becoming increasingly irrelevant in the eyes of many users of insurance company financial statements.

5. THE ACADEMIC COMMUNITY: A sampling of the academic community points to concern that the actuarial profession may not be quantitatively prepared to contend with sophisticated risks (enterprise risk management) or that individuals with other educations (e.g., MBAs, CFAs) will be perceived as better suited to contend with these challenges.

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Next Steps After Reporting Scan Findings

1.Develop recommended strategies for mitigating risks identified in the six areas.

2.Recommend additional SAM Goals as necessary.

3.Review progress to date on current SAM Goals, and identify areas of concern.

4.Prepare a report to the CAS Board for consideration at the November meeting.

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Key Risk Factors Uncovered in Six Areas

From the scans, the LRPC identified the following key risk factors:

Competition on Risk Management

Internationalism

Marketing Actuarial Skills

Quantification Skills

Volunteerism

Actuarial Credibility

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Addressing the Key Risk Areas – Six LRPC Subgroups Formed

Competition on Risk Management – Bob Wolf, Chair

Key Focus Area:Recent failures of insurance companies and other financial institutions have generated new demand for successful management of risk-bearing organizations. Other professional groups are seeking recognition in risk management and rapidly moving into this area and drawing significant attention. Indeed CAS members are not generally perceived as among the most capable managers of risk and risk-bearing entities.

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Competition on Risk Management – Bob Wolf, Chair

Recommendations:• Membership Buy-In

Enhance internal communication on the Centennial Goal and the tie to Enterprise Risk Management.

• Resources Increase CAS participation in the Joint SOA-CAS Risk Management

Section, the IAA Task Force on Risk Management, and the AAA ERM Task Force.

Create a new ERM credential and public policy strategies on ERM.

• Leadership Develop an international journal of ERM as a CAS/ERMII sponsored

research initiative.

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Internationalism – Roger Hayne, Chair

Key Focus Area:One key aspect of the Centennial Goal is for the CAS to be globally recognized as the pre-eminent resource in educating casualty actuaries. However, the CAS is primarily focused on North America, both on the part of our membership in general and our image to the rest of the world. There is a general lack of interest by our members of the profession outside of North America.

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Internationalism – Roger Hayne, Chair

Recommendation:•Build active working-level partnerships with existing actuarial organizations that have a distinct general insurance (non-life, property & casualty) practice, including joint task forces or committees and would at least involve cross-membership in each other’s committees.

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Marketing Actuarial Skills – Kevin Bingham, Chair

Key Focus Area:Achieving the Centennial goal requires the CAS to be recognized and acknowledged as the pre-eminent resource for educating casualty actuaries in the traditional areas as well as the newly emerging area involving risk integration. To achieve this, we must gain broad recognition for the skills and capabilities of our members. Casualty actuaries are not recognized within areas outside of insurance. Within the insurance space, we are not given sufficient credit for what we do well. Our website does not attract visitors from outside the profession.

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Marketing Actuarial Skills – Kevin Bingham, Chair

Recommendations:• Present ways to improve the CAS message within the AAA/SOA Image Campaign.

• Develop a marketing campaign to enhance the image of the CAS.

• Create a staff actuary position working for the CAS to speak at non-actuarial meetings to highlight the ways that the actuary provide value.

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Quantification Skills – Larry Haefner, Chair

Key Focus Area:Over the past fifteen years, a number of significant analysis tools have been developed by professionals who were not CAS members. These developments have led to the perception by some academicians and some insurance professionals that the CAS members have not continued to enhance and improve their collective modeling skills.

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Quantification Skills – Larry Haefner, Chair

Recommendations:• Develop a wider audience for developments in quantification methods produced by CAS members by

sponsoring research by CAS members to be presented in other (refereed) journals; and

including more research by non-CAS members in CAS publications

• Build awareness of developments in quantification techniques produced by other professional groups by

reviewing journals/papers from other groups identified by LRPC as having similar type skills to us; and

creating additional partnerships similar to the recent one on Enterprise Risk Management.

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Volunteerism – Stan Khury, Chair

Key Focus Area:The lifeblood of the CAS has been the willingness and ability of CAS members to volunteer considerable time and effort in support of various activities of the CAS. During a time of increasing scrutiny of the performance of CAS members and increasing opportunities to expand the reach of casualty actuaries, it is critical for the CAS to maintain (and even increase) the levels of volunteerism. However, a number of factors are emerging which may make it more difficult to maintain, let alone increase, levels of volunteerism.

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Volunteerism – Stan Khury, Chair

Recommendations:• Review and evaluate the issue of volunteerism in the life

of the CAS from a strategic perspective with emphasis on the following elements: Annual cost of the CAS paying for all volunteers’ travel expenses Possible employer resistance to granting time for CAS activities Competing successfully with other life priorities Identify and evaluate ways to better recruit members for senior

leadership positions (Board, VP’s, and PE).

• Examine the 50% volunteer rate to determine its feasibility.

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Actuarial Credibility – Aaron Halpert, Chair

Key Focus Area:Recent negative articles and reports concerning the performance of the casualty actuarial profession unfavorably impact our ability to achieve the CAS Centennial Goal. The statements last January by Standard and Poor’s, in particular, created the need for a quick response by the CAS. More efforts, however, are needed to maintain the reputation of our membership.

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Actuarial Credibility – Aaron Halpert, Chair

Recommendations:• Develop goals to monitor improvement in our reputation:

The difference between the actuary’s best estimate and the recorded reserve for a sample of the insurance industry should approach zero.

Changes in the actuary’s best estimate of reserves over time should be randomly distributed around zero.

Changes in legislation/regulation that would require management to record the Appointed Actuary’s best estimate.

Salaries for Casualty Actuaries should rise at a greater rate than comparable professions

The number of casualty actuaries employed by rating agencies should quadruple in the next five years.

The pipeline of applicants for actuarial positions (examinations) would grow more significantly than in the last five years.

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Results of November Board Discussion

1.The Board accepted the report of the LRPC.

2.The Board charged the EC to develop an action plan for each recommendation and present to the Board.

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Monitor CAS Progress on Achieving the SAM Goals –SAM Goal Metrics

1.CAS staff has provided ongoing progress reports to the LRPC.

2.On many SAM goals initial progress relative to October, 2003 benchmarks seems encouraging.

3.Focused efforts are underway to enhance the CAS website in support of SAM goal #7.

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Future Work of the LRPC

•Review the Centennial Goal to determine if any modifications are necessary.

“International” wording

Role of the actuary in risk integration

•Review the SAM Goals to determine if any modifications are necessary.

•Review progress towards achievement of the SAM goals to determine if any modifications in strategy are necessary.

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THANKS FOR YOUR ATTENTION TODAY

November 16, 2005 S T A T U S R E P O R T T O T H E C A S M E M B E R S H I P Long Range Planning...

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