CAGNY NOVEMBER 2002 MEETING
Federal Charters for P&C
Companies
Impact on
Property/Casualty
Actuaries
Outline of Discussion
Political Viewpoint
P&C Federal Charters Task Force
Impact of Federal Charters On Regulation
How The Academy Will Protect The Public
Interest In Effective Regulation
How The Academy Will Explain The
Casualty Actuarial Role
How Your Voice Can Be Heard
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POLITICAL VIEWPOINT
NAIC
Modernization Program
Deregulation of Commercial Rates
Interstate Compact
ACLI
ABIA
AIA
OTHERS
STATES 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 competition
National treatment available
Uniform requirements that do not vary by state
Timely implementation of products and prices
Level playing field with other financial services
such as banks
Uniform 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
CAS
P/C Practice Council
AAA
Financial Reporting
Council
SOA
Life Practice Council
Health Practice
Council
Pension Practice
Council
P/C Federal Charters
Task Force
Chair: Chuck Bryan,
FCAS, MAAA
Banking and Financial
Services Task
Force
Chair: Tim Tongson,
FSA, MAAA
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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 proposals
Communicating 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 eliminated
Solvency 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.
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CAGNY November Meeting
Speaker Contact Information:
Charles Bryan
President
CAB Consulting, LLC
600 South High Street
Columbus, Ohio
Phone 614-221-1919
Fax 614-221-2881
E-mail: chuckbryan66@hotmail.com