What Are We Debating About? Richard A Derrig PH.D. President, OPAL Consulting LLP Visiting Scholar, Wharton School, University of Pennsylvania • CAS Ratemaking Seminar Philadelphia, PA • • March 11, 2004 RCM-2 Richard Derrig Top Ten Issues “The future issues will be much like the past issues” 1. COST OF CAPITAL (DCF, CAPM, BY-LINE) 2. ROLE OF DEBT IN THE CAPITAL STRUCTURE (BONDED) 3. ROLE OF REINSURANCE IN PRICING THE PRIMARY PRODUCT (CAPITAL) 4. MARKET ESTIMATES APPLIED TO BOOK VALUES (CAPM x SURPLUS) 5. FRICTIONAL COSTS OF HOLDING CAPITAL (TAXES, INSOLVENCY) 6. INTEREST RATES AND ASSET RETURNS (INVESTMENT INCOME) 7. LOADING FOR RISK (RISK ADJUSTMENT, RISK PREMIUM) 8. CATASTROPHES (TERRORISM, NATURAL DISASTERS) 9. ACCOUNTING (FAIR VALUE, ANY VALUE, ACC.YEAR) 10. FIRM SIZE (HIGHER RETURNS)