Requirement of entering reinsurance areas?

[neofan]

As an entrant to the p/c area, I'm looking at eventually becoming a reinsurance actuary, and I'm aware that to be a good reinsurance actuary (at least my perception), one needs solid foundation of knowledge and expertise of primary actuarial work (posibbly both personal and commercial lines), as well as good understanding of underwriting and certain areas of laws.

At entry-level, I have ruled reinsurance area(s) out completely as in Midwest almost all carriers are consulting firms. My question is, what type of work actuarial work experiences will be good preparation(s)? I would think working at both personal and commercial lines will help, as well as some underwriting.

Last question, for reinsurance actuaries mostly, what areas of specialties are out there? (I've asked one member, there're personal lines, comm lines, and excess coverage, and any others?)

[bg23516]

I am an entry level student at a large P/C reinsurance firm. We also have our own life re as well, though they exist with a separate actuarial staff. To be honest, you don't necessarily have to start at a primary and move to the reinsurance side. Many people here have only worked reinsurance, and seem to have no problems.

We are organized by line of business. People are responsible for reserving different lines, such as Workers Comp, Auto, Property, GL, etc. It's a small department, considering that the primaries that have the same premium volume probably have actuarial staffs of 5-10 times this size.

Don't omit re's for your first job.

[Avi]

I also am at my first actuarial job (for 3 months now) and I work at a reinsurance company. When I went on the interview, I asked the person who would eventually be my boss for what advice he could give someone in my position, and he said Don't take this job - get a few years experience at a primary company and then switch. He nevertheless offered me the job and I took it. I haven't listened to another word of advice from him since :D

Seriously, although there are benefits to learning the ropes in a primary company (life seems to be much simpler) it's definitely doable to start immediately in reinsurance. I'm happy I decided to take this job.

Good Luck in whatever you choose!

[joeorez]

I'm sure many people begin their careers in reinsurance companies and do just fine.

However, it seems to me that since reinsurance companies insure insurance companies, it would make sense to be pretty knowledgeable in insurance first.

Some reinsurance work involves reviewing rate filings or reserve studies of insurance company actuaries. It helps if you have done that work first yourself.

Much of pricing work in reinsurance involves plugging data into models and pressing the button. The knowledgeable actuary knows when the model ought to be modified first. A few examples:

There is much less exposure to excess claims in Minnesota WC because of the WCRA, so don't just let the model crank away.

Just because you have a limits profile of umbrella policies, you can't assume that the policies provide contiguous coverage - umbrella is often written in discontiguous layers, called "ventilation".

Also, reinsurance companies are not known for their training programs and rotation programs the way insurance companies are.

I suggest you get some solid years of insurance training first. Say five years split among personal lines pricing, commercial lines pricing, and reserving.

Good luck!

[Elisha]

Would Excess/Umbrella pricing be similar to Re pricing? Just curious.

[joeorez]

Yes - regarding pricing for the tail of the loss distribution.

No - if excess/umbrella refers to pricing a single policy, while (treaty) reinsurance refers to pricing a portfolio of policies at once.

It has been said that (treaty) reinsurance involves underwriting the insurance company: Is this a better than average insurance company? This is a different question than: Is this a better than average insured?

[oldgirl]

I find large account pricing to be very similar to reinsurance pricing of excess coverage.

Depending on what reinsurance work you want to do, certain primary experience would be beneficial. Now, property and WC catastrophe pricing is hot so learning about cat. modeling on the primary end would help.

[neofan]

Well, I'm actually looking at least 5-7 years of primary actuarial exp (this is when I'll be done with FCAS hopefully), and no, I'll not go into Re now because:

1. As Joe mentioned, most Re do not have actuarial student programs, in MN, these companies are Benfield, Guy Carpenter, WCRA, and all of them are ACAS and FCAS.

2. Most Re(s) are in East Coast, Bermuda, and Switzerland, I'm not ready to move out of this area yet, at least mentally.

3. I'm looking at becoming an reinsurance actuary with goals of getting to managerial levels, to be on top, one must have solid foundation. Just like managers of any company, he/she must start from the bottom and know every aspect of the operation.

and who knows, if I like the comercial lines of primary insurance in a good company, I may stay in primary.

A quick ?? for Joe (joeorez), I know there're 3 main areas among reinsurance:

1. Commercial
2. Personal
3. Excess Coverage

From your post it looks like there're a lot more specialties if you work at very large companies (ie: Swiss Re), is my assumption right? Earlier you mention there're General Casualty, Professional Liab, and Property Cat, do these fall under commercial?

BTW, you're right that Re(s) don't have to worry about WC excess claims in MN, WCRA takes care of it :guitarwo:

[jerrytuttle]

I agree with Joe's point about getting a good background in primary insurance before moving on to reinsurance.

I think his point on the Minnesota WC WCRA is that you don't have to have spent five years doing primary WC to know about the WCRA, but it is one of those little details that somoene who has spent those five years is more likely to know than someone who hasn't.

Here's another example. Michigan's no-fault statute has unlimited PIP medical, with the excess above 250,000 reimbursed by the Michigan Cat Claims Association. It would be easy to say that the cost of 750,000 excess of 250,000 on PIP should be zero. But the reimbursement is only to Michigan insurers writing Michigan drivers. The auto insurer is not reimbursed for out of state drivers having accidents in Michigan. This makes a little more sense when you think about how that Association funds itself, which is something a primary actuary might worry about.

Jerry

[notreallyme]

I recommend the following skills:

Ability to interact with a variety of audiences. (I would consider reinsurance actuaries to be more like consultants and ability to explain your analysis to many different audiences is essential)

Get a financial backround. (Insurers ultimate question will be "So what's this do for us?") Also any finite product work is highly financial. i.e. Surplus relief, A.M. Best ratings, passing financial transfer etc.

Be able to model. I use course 4 as much or more than any of the other exams at my current position. Understand curve fitting and how it applies. In reinsurance you will be dealing with smaller amounts of data and often will need to improvise when a company is unable to provide data. Also understanding where curve fitting may succeed or fail helps -- but this probably comes more with experience.

Show the ability to think. This sounds silly but most of the work done does not fit exactly into a paper or text. Being able to come up with a solution and back your assumptions will gain credibility quickly.

Have confidence in your work. Do the work to the best of your ability and don't question it. Others rely on you to be the expert act like you are. (Because more than likely you are, you've seen the data and have spent more time on it than anyone else)

P.S.
Don't go in telling them that you want to be top management. It's a given you want to succeed; I don't need you to telling me you want my job.

Specialties or more areas: (Although you will surely work in more than one of these)
Work Comp
Marine
Surety
Professional Liability
D & O, E & O
Personal & Commercial (excess coverage, quota share, surplus share, Stop Loss, there's more but these are the main ones)
Catastrophe (I would say two here modeling EP curves and designing the structures -- which can vary tremendously)
Finite structures -- Funded ASL's etc. (used for surplus relief mainly - or at least in my experience)

[asamd]

Does health reinsurance exist? Should you have an FCAS, or will an FSA suffice? Are there international opportunities in health?

Thanks,

asamd

[joeorez]

Major medical and disability insurance is reinsured, both on US risks and on international risks.

Health insurance can be written by either a life insurance company or a p&c insurance company, and can be reinsured by a life or a p&c reinsurer.

I think health is more commonly written on the life side, and the SOA has more syllabus material than the CAS.

Although there are elements in common between health and p&c, as with anything, one should be careful working where one is not qualified. Workers compensation looks from a distance to be pretty similar to medical and disability insurance, but a major insurer insolvency is due in part to life insurers who reinsured workers compensation far cheaper than the p&c reinsurers would, perhaps because they didn't understand how WC was not similar.

[neofan]

but a major insurer insolvency is due in part to life insurers who reinsured workers compensation far cheaper than the p&c reinsurers would, perhaps because they didn't understand how WC was not similar.

Joe, which company(ies) became insolvent in this case, the primary carrier or the reinsurer? I think this would be an example of importance of some primary work experience.

Earlier you mention going through both personal and commerical, if I have a chance to get into primary commercial lines at entry-level, would 5-7 years of exp be sufficient? or should I get both personal and commercial? My perception is that personal lines are much easier to predict and model.

[Semprini]

but a major insurer insolvency is due in part to life insurers who reinsured workers compensation far cheaper than the p&c reinsurers would, perhaps because they didn't understand how WC was not similar.

Joe, which company(ies) became insolvent in this case, the primary carrier or the reinsurer? I think this would be an example of importance of some primary work experience.



i expect that joeorez is referring to the unicover debacle. you can read a bit about it here (http://development.crewtech.com/ICRB/indiana.nsf/DocsBYUNID/65354CA8BC9E7A60852568890072E0DB). or just google it.

Some observers said that due to the overcapacity in the market, members of the life insurance industry invested in a scheme they didn't investigate very fully. Life insurers thought they were reinsuring accident-health coverage, but the medical only coverage for workers compensation involves a totally different loss experience.

[joeorez]

The funny thing about those years was that p&c actuaries in workers compensation reinsurance were scratching their heads as to why they could not compete on price with the life reinsurers on wc. Did the life reinsures know more than us, or were they able to discount their reserves at higher interest rates?

A major primary insurer became insolvent, at least in part by buying too much reinsurance from life reinsurers that ultimately became uncollectible. Here is one link - there are many more.

http://www.fool.com/news/2000/rel000526.htm

But reinsurers as well reinsured some of these deals, and although reinsurers have had a tough time these last few years, I don't think any are out of business primarily because of this.

[joeorez]

Earlier you mention going through both personal and commerical, if I have a chance to get into primary commercial lines at entry-level, would 5-7 years of exp be sufficient? or should I get both personal and commercial? My perception is that personal lines are much easier to predict and model.

I like having both personal and commercial experience, only because you never know what direction your career is going to take you. What happens if in ten years there is a chief actuary position in a small company you like that is half personal lines and half commercial?

Personal and commercial are quite different. Personal lines involve more rate filing and regulatory work. But they are also in the front lines of emerging actuarial technology in multi-dimensional classification relativities, data mining, credit scoring, etc. In commercial lines the manual rate is far less important because there are numerous rating vehicles for the underwriter to charge more or less than it. Commercial lines and their higher limits lend themselves to the actuarial work on loss distributions and the related functions (increased limits factors, excess loss factors, etc.) Of course the above is a generality - exceptions abound.

Having said that, I should say commercial lines experience is more valuable in reinsurance than personal lines experience.

I am going to throw something else out I have not seen discussed. Home office primary company underwriters typically visit their branches to do internal audits of a sample of policies. I don't know how often the pricing actuaries get to go on these audits, but it is a real eye-opener to take a look at a few policies (our product) and see the business on a micro rather than on a macro level. I encourage primary pricing actuaries to go on an audit once in a while.

[neofan]

Good god, looks like they're passing on the losses like hot potatoes and someone has to get it eventually. Among p/c reinsurers, is it common to reinsure reinsurers? (double-tier coverage) :wall:

I have also noticed certain Re(s) have 2 main categories, namely TREATY and FACULTATIVE, what's the difference between the 2? Looks like more fall under Treaty.

[bg23516]

Many reinsurers take out further reinsurance, generall called retrocessions. Much of this occurs through the reinsurance brokering market, where a company will say that of a contract, it wants to cede away some percentage of a contract or layer. It will often put this on the market and sell away a portion.

Treaty reinsurance is fairly easy to explain. Lets say you that you are a large p/c personal lines company, and you write a large amount of standard 100/300 auto policies. Your customers buying the same limits are likely all very similar, especially as the law of large numbers starts to kick in. However, you are worried about large losses that periodically may pop up. You may buy treaty reinsurance against your entire book of auto business to smooth out results and to take some of the heat away in the event of large losses. Note that a treaty can cover more than one line of business, I've just used one here.

Facultative reinsurance (often used intechangably with indivual risk reinsurance) is what it sounds like. Usually for a small book of business or single risk, it is often written with higher limits than treaties. It's more specialized than treaty, and usually has a very different underwriting style.

I'm sure others will say more, but there's an intro.

[jerrytuttle]

I would say it like this: Treaty reinsures a portfolio of contracts in a single reinsurance contract. Every policy meeting the conditions of the reinsurance contract is automatically reinsured. Facultative reinsures a single policy; the next policy is not reinsured unless there is another facultative contract.

Among other things, fac is used for business that does not meet the requirements of the treaty. For example, the treaty may provide 25 million limits of coverage. For the few policies above 25, individual facultative deals are struck for the excess.

Like everything, the above is a broad simplification. Then to confuse things more, there is also a hybrid category called fac automatic which blends elements of both treaty and fac.

There are much more actuarial opportunities in treaty than in fac.

By the way, the CPCU people put out the Associate in Reinsurance courses. The CAS used to use chapters of their textbooks on the syllabus - I'm not sure if we do any more. You may want to contact the CPCU people about the ARe, even just to look at the books.

http://www.aicpcu.org/

Jerry

[neofan]

Many thanks for the input, now it's getting clearer. I've noticed that most of the Re(s) have the following 4 types of coverages: Excess of Loss, Pro Rata, Aggregate Excess of Loss, and Clash/Contingency.

What's the difference between excess of loss and aggregate excess of loss? What/how does clash/contingency cover?

[bg23516]

Hey Vince, where are you doing all your reading?

Whoever suggested the ARe books from AICPCU was on the ball... Excellent intro reading, and if you want, you can take the ARe exams (in the off months from exams).. from what I hear, they are a million times easier than the actuarial exams, and may make you stand out in the future.

[Maine-iac]

I'll chime in in agreement. The ARe books are good intros. They are on the Exam 6 syllabus. "Reinsurance Practices" and "Principles of Reinsurance".

Traditional excess reinsurance pays on a given risk after claims have exceeded a moderately high retention. e.g. policy has a $1M limit, the reinsurer will pay up to $500,000 in excess of the first $500,000 in claims.

Aggregate excess (stop loss) reimburses the primary when its total loss ratio on a book exceeeds some predetermined limit. (Sounds great, but this is usually very expensive.)

Clash cover is similar to traditional excess, but has very high retentions that would normally not be met by an event involving a single insured. Say you have a book of auto liability that have a $1M limit. You can get a clash cover than pays $1M excess $1M retention per occurrence.

With a single insured involved, his limits would usually max out before this coverage would ever pay. But, if one multi-car accident (one occurrence) involved several of your insureds, this cover could kick in. Or if an occurence involving one insured had extremely high litigation costs, which under the primary contract are often paid outside the policy limits (this can happen with product liability, for example) the clash cover might kick in to pay the LAE.

[notreallyme]

Old

[neofan]

Well I think I get this thread off hand, I'll look into the books and exam. BTW, how important are CPCU exams/designation? Is it rather political (a formality) or really helpful in a company?

[Elisha]

Well I think I get this thread off hand, I'll look into the books and exam. BTW, how important are CPCU exams/designation? Is it rather political (a formality) or really helpful in a company?

I'd say both.

[jerrytuttle]

I am a CPCU and ARe, I have reviewed some of their textbooks as a formal reviewer, and I have graded one set of their exams, so I think I can comment on this.

Yes, they are a million times easier than actuarial exams. I think of one CPCU exam as roughly equivalent to one college course, plus the fact that they neatly outline the material for you and give very consistent exams from sitting to sitting. A raw score of 70% is usually passing.

My personal interpretation of the CPCU exam philosophy is: "Society is best served by having many people study, learn and pass this material, so let's try to get lots of people to do this and let's make it as easy as we can." It's different than the CAS philosophy, but I see nothing wrong with this philosophy.

CPCUs have a full-time educator in charge of the textbook and exam for each course, and that person is available for questions.

CPCU students spend much more time on policy forms than the actuarial syllabus does. There's a full course in management, another full course in business law, and about half a course in basic GAAP accounting - all areas that the CAS doesn't cover.

I am of the school that it doesn't hurt to know something about the policy form that you are pricing or reserving for.

Will an actuary get ahead in his or her company faster by taking the CPCU exams - no. But they give you a little bit broader education. They also give you a tiny "in" with the underwriters - I am a member of their club, as well as the actuarial club. I have been at client meetings with clients who don't know what the actuarial credentials mean, but it hasn't hurt that both our business cards say CPCU.

An interesting side benefit of the CPCUs is the following: I now have access to something like 30,000 insurance professionals. If I want to talk to a Texas agent about whether it is more time-consuming to handle an assigned risk application than a voluntary one, I can call the CPCU staff, get some names, and I when I blindly call some agents and tell them I am a fellow CPCU, I have a good chance of getting some discussion. I don't have this kind of access just from the CAS.

As an organization, for the people who have passed all the exams, the CPCUs do a few things much better than the CAS does. One thing is for all CPCU committees to meet simultaneously in the same hotel, so committee A can discuss something with committee B if there is a need to do so.

Our CAS executive director comes to us from the CPCU staff - it would be interesting to hear her comparisons.

Jerry

[neofan]

Again, many thanks for your insightful input. I think another importance of doing some primary works before Re(s) is, since the Re(s)' customers are primary carriers, it's essential to understand what your customers need first.

Another side notes, how are the Re(s) doing lately? I knew Munich Re has lost a lot of money last yr and one company (I'll not say it) sold the Re(s) dept and concentrated on commercial primaries.

[bg23516]

Most established re's are reserve deficient.

Soft Market + Poor Underwriting + Asbestos/Toxic Tort + Med Mal + Worker's Comp Problems + WTC = deficient reserves.

(I just wanted to do that.. It felt like a presentation slide.)

Most of the biggies have taken huge reserve charges. With them has come lower S&P and AM Best ratings. Most of the big companies are no longer top rated. Everyday it seems like there are more and more ratings drops on the reinsurance side (American & ERC recently).

As you said, some are going into runoff... Trenwick is in trouble now, GE is trying to get rid of ERC, Munich had to pour a huge amount of money into AmRe, St. Paul Re is in runoff (I believe)...

On the plus side, there have been huge rate increases. And many companies are trying to become more disciplined on the underwriting side, so that new business is looking good.

[jerrytuttle]

Just to clarify the note about St. Paul Re:

St. Paul Companies spun off its reinsurance company in an initial public offering into a new stand-alone company, Platinum Re, last month. Platinum Re has a billion dollars of capital, no liabilities prior to 1/1/2002, and is actively writing business. The prior liabilities remain with St. Paul Re.

Jerry Tuttle
Platinum Re

[Morrison]

What are some of the new reinsurers that have been established post 9-11. I know about Axis, have their been any others? Are any of them publicly traded yet?

[Martin Frankel]

What are some of the new reinsurers that have been established post 9-11. I know about Axis, have their been any others? Are any of them publicly traded yet?

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