Papers by Sholom Feldblum
Casualty Actuarial Society in 1987, a CPCU in 1986, an Associate of the Society of Actuaries in 1... more Casualty Actuarial Society in 1987, a CPCU in 1986, an Associate of the Society of Actuaries in 1986, and a member of the American Academy of Actuaries in 1989. In 1988, while working at the Allstate Research and Planning Center in California, he served as President of the Casually Actuaries of the Bay Area and as Vice President of Research of the Northern California Chapter of the Society of CPCU. In 1989, he served on the CAS Education and Testing Methods Task Force, and he is presently a member of the CAS Syllabus Committee. Previous papers and discussions of his have appeared in Best’s Review, the CPCU Journal. the Proceedings of the Casualty Acruarial Society, the Actuarial Digest, the CAS Forum, and the CAS Discussion Paper
Schedule P is a complex section of the Annual Statement, demanding much expertise to complete and... more Schedule P is a complex section of the Annual Statement, demanding much expertise to complete and to understand. The cross checks performed by the NAIC compare the Schedule P figures within its various parts, with other pages of the Annual Statement, and with Schedule P data from the preceding year. The NAIC uses Schedule P Summary data for three of the Insurance Regulatory Information System ("IRIS') tests, and it uses the detailed line of business data to determine the reserving risk and the written premium risk charges in the risk-based capital formula. Investment analysts and rating agencies use the schedule to measure the adequacy of a company's held reserves and thereby estimate its financial strength and expected market value. The IRS uses the schedule to determine loss reserve discounts, anticipated salvage and subrogation, and the discounts for anticipated salvage and subrogation. Actuaries and accountants need a thorough understanding of this Schedule, both ...
The target return on capital is the cost of capital for the insurance enterprise, or the return d... more The target return on capital is the cost of capital for the insurance enterprise, or the return demanded by suppliers of capital. This paper describes the major considerations in selecting the target return on capital. A financial pricing model determines the premium rate such that the insurer achieves a target return on capital. The pricing model may take either of two forms: 9 A net present value model discounts the projected equity flows at the cost of capital. 9 An I RR model compares the internal rate of return implied by the project's equity flows with the cost of capital. The structure of the pricing model and most of the pricing assumptions are based on the characteristics of the insurance environment and of the line of business. In contrast, the cost of capital is not easily quantified. It is often selected by the insurer's management, based on recommendations by the financial, actuarial, and underwriting departments. Profitability in the property-casualty insuran...
The minimum bias classification ratemaking procedure, introduced by Robert Bailey and LeRoy Simon... more The minimum bias classification ratemaking procedure, introduced by Robert Bailey and LeRoy Simon in 1960, determines rate relativities simultaneously for two or more classification dimensions. This paper summarizes the minimum bias procedure for the practicing actuary and provides the intuition for several bias functions: balance principle, least squares, Â-squared, and maximum likelihood. The exposition is structured around a series of illustrations using a two-dimensional private passenger automobile classification system: male/female and urban/rural.
Workers Compensation Reserve Uncertainty (Authors) Douglas M. Hodes is a Vice President and Corpo... more Workers Compensation Reserve Uncertainty (Authors) Douglas M. Hodes is a Vice President and Corporate Actuary with the Liberty Mutual Insurance Company in Boston, Massachusetts. He oversees the Corporate Actuarial and Corporate Research divisions of the company, and he is responsible for capital allocation, financial modeling, surplus adequacy monitoring, and reserving oversight functions. Liberty Mutual is the country's premier writer of workers' compensation insurance, and Mr. Hodes's oversight responsibilities encompass eight billion dollars of compensation reserves. Mr. Hodes is a graduate of Yale University (1970) and he completed the Advanced Management Program at Harvard University in 1988. He is a Fellow of the Society of Actuaries, a member of the American Academy of Actuaries, a member of the American Academy of Actuaries Life Insurance Risk-Based Capital Task Force, and a former member of the Actuarial Committee of the New York Guaranty Association. Before joi...
The advent of risk-based capital requirements and the potential expansion of the role of the Appo... more The advent of risk-based capital requirements and the potential expansion of the role of the Appointed Actuary demand expertise in evaluating the financial stability of insurance enterprises. Because of the growth of property/casualty loss reserves and the wide fluctuations in interest rates during the past two decades, assetliability management is of increasing importance for casualty actuaries. The American Academy of Actuaries task force on risk-based capital has provided the NAIC with a proposed “interest rate risk charge” for its risk-based capital formula. This paper reviews the theoretical development of an interest rate risk charge as well as its practical application for setting capital requirements. Interest rate risk is the potentially adverse effect of a shift in market interest rates on the net worth of the insurance enterprise. For statutory risk-based capital requirements, interest rate risk depends on (i) the relative payment patterns of assets and liabilities, (ii) ...
Workers' Compensation Insurance
Wiley StatsRef: Statistics Reference Online, 2014
Although some of the earliest workers' compensation systems were in Europe, many countries no... more Although some of the earliest workers' compensation systems were in Europe, many countries now have included recompense for worker injury into social welfare programs. Currently the largest system for which employers purchase private insurance for this matter is in the United States, and this will be the focus of this article. Each state has its own system, so some differences among these will be addressed. State workers' compensation systems developed in the early twentieth century to replace negligence liability for workplace accidents and illnesses. The development of workers' compensation rates by class and state sparked the emergence of the Casualty Actuarial Society (CAS) in 1914.
Proceedings of the Casualty Actuarial Society, 2006
Source of earnings analysis has long been a staple of life insurance policy pricing and profitabi... more Source of earnings analysis has long been a staple of life insurance policy pricing and profitability monitoring. It has grown in importance with the advent of universal life insurance and of similar contracts with non-guaranteed benefits or charges. SFAS 97 now mandates the use of source of earnings analysis for GAAP reporting of universal life-type contracts. Source of earnings analysis is equally applicable to several lines of property-casualty insurance, such as workers' compensation and personal automobile insurance. An accident of history has restricted it to life insurance. Source of earnings analysis was first developed for allocating policyholder dividends on participating life insurance policies, and it has since been expanded to other policy forms as well. Casualty actuaries have developed their own ratemaking traditions. Casualty actuaries and life actuaries grow up in separate societies with little interaction, and source of earnings analysis has never been extended to the casualty lines of business. This paper shows the uses of source of earnings analysis for understanding the factors affecting policy profitability. Source of earnings analysis is not a specific ratemaking "method," like the loss ratio method or the pure premium method. Rather, source of earnings analysis is a reporting structure that reveals the sources of gain and loss on a block of business, highlighting errors in the pricing parameters as well as the sensitivity of profit and loss to various pricing factors, and enabling more accurate selection of new parameters and factors. This paper develops source of earnings exhibits for casualty insurance, using private passenger automobile insurance policies and retrospectively rated workers' compensation policies as examples. The uncertainty in many casualty insurance pricing factors, such as loss development factors and loss trend factors, make source of earnings analysis particularly important for casualty products. The paper shows how to use the source of earnings exhibits to better analyze the factors driving insurance results. In particular, the paper divides the variance caused by each earnings factor into an estimation error component, which is within the purvey of the pricing actuary, and a random error component, which results from random fluctuations in loss occurrences, inflation rates, or interest rates. Some sources of gain or loss, such as persistency patterns and investment earnings, are not always included in casualty ratemaking procedures. A complete source of
Proceedings of the Casualty Actuarial Society, 1996
Asset share pricing models are used extensively in life and health insurance premium determinatio... more Asset share pricing models are used extensively in life and health insurance premium determination. In contrast, property/casualty ratemaking procedures consider only a single period of coverage. This is true for both traditional methods, such as loss ratio and pure premium ratemaking, and financial pricing models, such as discounted cash flow or internal rate of return models. This paper provides a full discussion of property/casualty insurance asset share pricing procedures. Section 1 compares life insurance to casualty insurance pricing. It notes why asset share pricing is so important for the former, and how it applies to the latter as well. Section 2 describes the considerations essential for an asset share pricing model. Premiums, claim frequency, claim severity, expenses, and persistency rates must be examined by 7 See, for instance, Feldblum [70]: " : : : average loss costs vary over the life of a policy. For example, many young unmarried men are carefree drivers, less concerned with safety than with presenting a courageous image. Once they have married, begun careers, and borne children, they feel more responsibility, both individual and financial, for their familiesand their driving habits improve accordingly. When their children become adolescents and start driving the family cars, auto insurance loss costs climb rapidly. But when the children leave home and the insured retires, the automobiles may be unused except for shopping trips and weekend vacations; automobile accidents become rare. Finally, when the driver enters his or her 70s, physiological health deteriorates and reactions are slowed. If the insured continues to drive, accident frequency increases." Similarly, Whitehead [167, p. 312] writes: "Changes in inherent risk over time-the typical 'lifecycle' of an insured with respect of individual private passenger automobile insurance is for the level of inherent risk to decline as the age of the insured and his level of driving experience and competence increases (at least until a relatively advanced age)." 8 Minor exceptions exist. For instance, a substandard rated policyholder may be rerated after several years upon submission of evidence of insurability (Woodman [171]). Reentry term insurance allows reclassification at the end of each select period (Galt [84]; Jacobs [106]).
North American Actuarial Journal, 1999
The Financial Modeling of Property-Casualty Insurance Companies (Authors) DouglasM. Hades is a Vi... more The Financial Modeling of Property-Casualty Insurance Companies (Authors) DouglasM. Hades is a Vice President and Corporate Actuary with the Liberty Mutual Insurance Company in Boston, Massachusetts. He oversees the Corporate Actuarial and Corporate Research divisions of the company, and he is responsible for capital allocation, financial modeling, surplus adequacy monitoring, and reserving oversight functions. Mr. Hodes is a graduate of Yale University (1970) and he completed the Advanced Management Program at Harvard University in 1988. He is a Fellow of the Society of Actuaries, a member of the American Academy of Actuaries, a member of the American Academy of Actuaries Life Insurance Risk-Based Capital Task Force, and a former member of the Actuarial Committee of the New York Guaranty Association. Before joining Liberty Mutual, Mr. Hodes was a Vice President in Corporate Actuarial at the Metropolitan Life Insurance Company, where his responsibilities included the development of a life insurance financial model. Mr. Hodes is the author of "Interest Rate Risk and Capital Requirements for Property-Casualty Insurance Companies" (with Mr. Sholom Feldblum) and of 'Workers' Compensation Reserve Uncertainty" (with Dr. Gary Blumsohn and Mr. Feldblum). These papers apply actuarial and financial techniques to quantify risks associated with interest rate movements and with unexpected reserve developments. In addition, Mr. Hodes is a frequent speaker at actuarial conventions on such topics as dynamic financial analysis and risk-based capital.
Regulation and the Casualty Actuary
The Journal of Risk and Insurance, 1998
Regulation and the Casualty Actuary, edited by Sholom Feldblum and Gregory Krohm (National Associ... more Regulation and the Casualty Actuary, edited by Sholom Feldblum and Gregory Krohm (National Association of Insurance Commissioners, 1996). Reviewer: Terri M. Vaugham, Iowa Department of Commerce Regulation and the Casualty Actuary is a collection of 20 readings from the Journal of Insurance Regulation. The papers are organized into five groups: Principles and the Politics of Ratemaking; Actuarial Pricing and Insurance Markets; Personal Automobile Ratemaking, Residual Markets, and Fraud; Pricing and Financial Regulation; and Predicting Troubled Insurers. For a work nominally addressed to actuaries, the volume is remarkably free of mathematics and statistics. Even the most critical actuarial issues are explained in everyday language or with simple models. Many of the papers are normative and strive to offer suggestions for improving public policy and regulatory behavior. Throughout Regulation and the Casualty Actuary is an undercurrent of tension between the goals of regulators and the actuarial profession. Regulators seek to protect the insurance buying public from the failure of the marketplace to deliver indemnification as promised and at a fair price. The actuary seeks to rationally guide the insurer through the uncertainty and randomness of risk financing. At their best, each group is motivated by the highest standards of conduct, but their suspicions and misapprehensions of each other run deep. This book goes a long way toward bridging the gap of understanding between the two groups. The greatest policy friction described in the readings involves rate setting. Here titanic political will collides with market and financial imperatives. "Rate suppression" is reviled among insurers. Its mirror twin-rate gouging-is abhorrent to consumer protectionists. Several of the articles deal with the motives for and fallout from trying to regulate rates. The articles by Orin Kramer, Robert Klein, and Robert Hunter make a particularly interesting point-counterpoint exchange. Anyone long involved in the property-liability insurance industry cannot read these three articles without the impulse to take sides and cheer for his or her partisan point of view. The introductions to these pieces, however, try to defuse the hostility with a reasoned explanation of these points of view. A handful of the selections will be of particular interest to actuaries and financial examiners. Sholom Feldblum's magnum opus on Completing and Using Schedule P is required reading for those completing "yellow blanks" but unlikely casual reading for the rest of us. …
Insurance: Mathematics and Economics, 1993
variancejournal.org
The tax shields from debt financing reduce the cost of operations for firms with low cost of bank... more The tax shields from debt financing reduce the cost of operations for firms with low cost of bankruptcy. State regulation prevents insurers from using long-term debt as statutory surplus, to ensure sufficient equity capital to meet policyholder obligations. Constraints on regulatory capital force policyholders to fund high tax costs on insurers and reduce the market forces that support solvency. Banks' risk-based capital (RBC) standards show how long-term subordinated debt can be used as secondary capital. Revisions in state regulation of capital structure may decrease premiums and give incentives to bondholders to monitor reserve adequacy. Moving to the banking RBC model benefits all parties: policyholders pay lower premiums, insurers have access to wider capital markets, and regulators gain market allies to ensure solvency.
Uploads
Papers by Sholom Feldblum