Losses – Page 2 – Actuarial News

CalPERS’ Refusal to Put Clearly Insolvent Long-Term Care Insurance Plan in Bankruptcy Increases Harm to Policyholders and Makes Board and Responsible Executives Liable

February 16, 2023February 16, 2023 Mary Pat Campbell

Link: https://www.nakedcapitalism.com/2023/02/calpers-refusal-to-put-clearly-insolvent-long-term-care-insurance-plan-in-bankruptcy-increases-harm-to-policyholders-and-makes-board-and-responsible-executives-liable.html

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The CalPERS long-term care fiasco continues, with the board and staff taking a course of action that increases harm to policyholders by continuing to bleed them rather than put the program in bankruptcy.

For those new to this train wreck, the public comment at the February 14 CalPERS board meeting by policy-holder and certified financial planner Lawrence Grossman provides an introduction. A key bit of background is that state legislation allowed CalPERS to jump on the long-term care insurance bandwagon in the 1990s. Most of these insurance plans have gotten into a world of hurt by underestimating the degree to which proper elder care would extend lifepsans of policy-holders and overestimating the lapse rate (lapsed policies mean the premiums paid by dropouts benefit the remaining policyholders). But CalPERS’ recklessness and incompetence were in a league of its own.

CalPERS not only considerably underpriced its policies compared to commercial competitors, but it made matters worse via giving CalPERS policyholders the options of lifetime benefits (as opposed to fixed dollar benefits) and inflation protection. Inflation protection would seem like an incredible promise for any long-term insurance scheme. Yet the policies were advertised as CalPERS policies, not those of a free-standing “CalPERS Long-Term Care Fund,” as in not backed by CalPERS or the state of California.

….

Four years later and things are going according to CalPERS’ abusive plan. Even though Judge Highberger clearly rejected CalPERS’ position that it can violate policy terms and raise premiums, CalPERS has continued to increase premiums because the court so far has issued only preliminary decisions. Note these increases are vastly in excess of those implemented by commercial carriers.

Author(s): Yves Smith

Publication Date: 15 Feb 2023

Publication Site: naked capitalism

Testimony Before the Subcommittee on Oversight and Investigations of the Financial Services Committee of the U.S. House of Representatives on “An Enduring Legacy: The Role of Financial Institutions in the Horrors of Slavery and the Need for Atonement, Part Two”

December 13, 2022December 13, 2022 Mary Pat Campbell

Link: https://financialservices.house.gov/uploadedfiles/hhrg-117-ba09-wstate-darityw-20221207.pdf

Testimony for this hearing: https://financialservices.house.gov/events/eventsingle.aspx?EventID=409969

Excerpt:

The collective amount required to close the disparity for approximately 40 million black American
descendants of persons enslaved in the United States will come to at least $14 trillion. This is a sum that
cannot be met reasonably by private donors or other levels of government. If generous donors created a
fund to eliminate the racial wealth gap by contributing $1 billion monthly, it would take a millennium to
reach $14 trillion. The combined budgets of all state and local governments used to meet all of their
obligations amount to less than $5 trillion.

Financial institutions were key supporters and beneficiaries of American slavery. The full scope of
creditor-debtor relationships interlocked with the slave plantation system has yet to be documented
adequately. For the record details are needed about which organizations were the financiers for the
New England textile industry, which bank or banks had Brooks Brothers, producers of “plantation wear”
for both the enslaved and the enslavers, as a client, and who were the lenders to the southern planters
themselves. This will require thick archival research that has yet to be undertaken.

It is now well established that a number of existing insurance companies participated significantly in
providing slaveowners with contracts to protect them for financial loss in the event of death or damage
of their human property, particularly their highly skilled property These include New York Life, known as
the Nautilus Insurance Company in the antebellum period, Aetna, Baltimore Life, Southern Mutual
Insurance Company, the Loews Corporation, and AIG.

Lloyd’s of London and RSA Insurance Group the point before the overseas slave trade was declared
illegal, insurance companies routinely protected voyages to procure captive Africans. British insurers
figured prominently, especially Lloyd’s of London and the RSA Insurance Group , in the form of one of its
ancestor business, London Assurance.

….

During the course of approximately 100 white terrorist assaults on black communities from the Civil War
to the 1940s, black lives were taken and black owned property was seized or destroyed by the white
mobsters. Black property owners who lived through the massacres rarely received any form of
compensation, particularly from insurance companies with whom they held policies.

An estimated present value of $611 million dollars of black-owned property was lost during the 1921
Tulsa massacre. What can best be described as a “Negro clause” in the policies gave insurance
companies the basis for denying the massacre victims’ claims. The “…insurance companies fell back on
an exclusionary clause…that…said insurers wouldn’t be held liable for loss ‘caused directly or indirectly
by invasion, insurrection, riot, civil or commotion, or military or usurped power’” (Council 2021).

Author(s): William Darity Jr., the Samuel DuBois Cook Professor of Public Policy, African and African American Studies, Economics, and Business at Duke University

Publication Date: 7 Dec 2022

Publication Site: House of Representatives, Financial Services Committee

Insurers brace for hit from Florida’s costliest storm since 1992

October 2, 2022October 2, 2022 Mary Pat Campbell

Link: https://www.aol.com/insurers-brace-hit-floridas-costliest-120339135-182213253.html

Excerpt:

Insurers are bracing for a hit of between $28 billion and $47 billion from Hurricane Ian, in what could be the costliest Florida storm since Hurricane Andrew in 1992, according to U.S. property data and analytics company CoreLogic.
Wind losses for residential and commercial properties in Florida are expected to be between $22 billion and $32 billion, while insured storm surge losses are expected to be an additional $6 billion to $15 billion, according to CoreLogic.
“This is the costliest Florida storm since Hurricane Andrew made landfall in 1992 and a record number of homes and properties were lost,” said Tom Larsen, associate vice president, hazard & risk management, CoreLogic.

Author(s): Noor Zainab Hussain

Publication Date: 30 Sept 2022

Publication Site: Aol (Reuters)

Introduction to Credit Risk Exposure of Life Insurers

October 2, 2022October 2, 2022 Mary Pat Campbell

Link: https://www.soa.org/sections/joint-risk-mgmt/joint-risk-mgmt-newsletter/2022/september/rm-2022-09-fritz/

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Under the old regime, the impairment was the incurred credit losses, in determining which only past events and current conditions are used. Credit losses were booked after a credit event had taken place, thus the name “incurred.” ECL and CECL require the incorporation of forward-looking information in addition to the past/current info in the calculation of impairment. There will be an allowance for credit losses since initial recognition regardless of the creditworthiness of the investment asset. The allowance can be perceived as the reserve or capital for credit risks. In practice, the allowance could be zero if there are no expected default losses for the instrument, US Treasury bonds, US Agency MBS, just to name a few.
ECL under IFRS 9 is typically calculated as a probability weighted estimate of the present value of cash shortfalls over the expected life of the financial instrument. It Is an unbiased best estimate with all cash shortfalls taking into consideration the collaterals or other credit enhancement. Four typical parameters underlying its calculation are: Probability of default (PD), loss given default (LGD, i.e., 1-Recovery Rate), exposure at default (EAD) and discounting factor (DF). Prepayments, usage given default (UGD) and other parameters can also play a role in the calculations. In the general approach the loss allowance for a financial instrument is 12-month ECL regardless of credit risk at the reporting date, unless there has been a significant increase in credit risk since initial recognition: The PD is only considered for the next 12 months while the cash shortfalls are predicted over the full lifetime; as the creditworthiness deteriorates significantly, the loss allowance is increased to full lifetime ECL in Stage 2, which should always precede stage 3 (credit impairment). Even without change of stages, any credit condition changes should be flowing into the credit loss allowance via updates in some of the underlying parameters. Exhibit 1 has an illustrative comparison between ECL, CECL, and incurred loss model.
CECL is similar to ECL except FASBs doesn’t have so-called staging as IFRS 9, which requires that only 12-month ECL is calculated in stage 1 (in the general model). In other words, CECL requires a full lifetime ECL from Day 1. There are also other differences: IFRS 9 requires certain consideration of time value of money, multiple scenarios, etc., in measurement of ECL while US GAAP CECL doesn’t.
Under US GAAP, different from CECL, currently the impairment for AFS assets, while also recorded as an allowance (with a couple exceptions), is only needed for those whose fair value is less than the amortized cost. Once it is triggered, the credit losses are then measured as the excess of the amortized cost basis over the probability weighted estimate of the present value of cash flows expected to be collected. Only the fair value change related to credit is considered in the calculation of AFS impairment. The quantitative calculation behind the probability weighted best estimate is like CECL/ECL. Both can use discounted cash flow methods with parameters such as PD although one is calculating expected cash shortfalls directly in CECL and the other is calculating the expected collectible cash payments and then is used to back out the impairment.

Author(s): Jing Fritz

Publication Date: September 2022

Publication Site: Risk Management newsletter, SOA

NHTSA Releases Initial Data on Safety Performance of Advanced Vehicle Technologies

June 17, 2022June 17, 2022 Mary Pat Campbell

Link: https://www.nhtsa.gov/press-releases/initial-data-release-advanced-vehicle-technologies

Report for Level 2 ADAS: https://www.nhtsa.gov/sites/nhtsa.gov/files/2022-06/ADAS-L2-SGO-Report-June-2022.pdf

Report for Levels 3-5: https://www.nhtsa.gov/sites/nhtsa.gov/files/2022-06/ADS-SGO-Report-June-2022.pdf

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Today, as part of the U.S. Department of Transportation’s efforts to increase roadway safety and encourage innovation, the National Highway Traffic Safety Administration published the initial round of data it has collected through its Standing General Order issued last year and initial accompanying reports summarizing this data.
The SAE Level 2 advanced driver assistance systems summary report is available here, while the SAE Levels 3-5 automated driving systems summary report is available here. Going forward, NHTSA will release data updates monthly.
These data reflect a set of crashes that automakers and operators reported to NHTSA from the time the Standing General Order was issued last June. While not comprehensive, the data are important and provide NHTSA with immediate information about crashes that occur with vehicles that have various levels of automated systems deployed at least 30 seconds before the crash occurred.
“The data released today are part of our commitment to transparency, accountability and public safety,” said Dr. Steven Cliff, NHTSA’s Administrator. “New vehicle technologies have the potential to help prevent crashes, reduce crash severity and save lives, and the Department is interested in fostering technologies that are proven to do so; collecting this data is an important step in that effort. As we gather more data, NHTSA will be able to better identify any emerging risks or trends and learn more about how these technologies are performing in the real world.”

Publication Date: 15 June 2022

Publication Site: NHTSA

MetLife’s Earnings Surge, but Covid-19 Limits Insurer’s Latest Results

May 21, 2022May 21, 2022 Mary Pat Campbell

Link: https://www.wsj.com/articles/metlifes-earnings-surge-but-covid-19-limits-insurers-latest-results-11643844316

Excerpt:

High levels of Covid-19 deaths hurt fourth-quarter results in MetLife Inc.’s business of providing employer-sponsored life insurance as the Delta variant persisted in the U.S., but the outsize payouts were more than offset by unusually strong investment gains.
The New York company’s net income soared to $1.18 billion, compared with a year-earlier period that had been hurt by mark-to-market losses on financial hedges that aim to protect against falling interest rates. MetLife’s adjusted earnings, which analysts track as a measure of recurring profitability, were flat at $1.84 billion.
Another household-name insurer, Allstate Corp., reported a 70% drop in net income to $790 million, and a 50% decline in adjusted net income to $796 million, primarily driven by worsened car-insurance underwriting income. Accident volume increased on more-crowded roads, and inflation pushed repair costs higher.
Catastrophe costs were also higher. U.S. property insurers ended the year with two high-profile catastrophes: deadly tornadoes in and around Kentucky, and devastating wildfire between Denver and Boulder, Colo.

Author(s): Leslie Scism

Publication Date: 2 Feb 2022

Publication Site: WSJ

2022: A Great Opportunity for the Disability Insurance Market

May 21, 2022May 21, 2022 Mary Pat Campbell

Link: https://www.genre.com/knowledge/blog/2022-a-great-opportunity-for-the-disability-insurance-market-en.html

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Second, one of the key drivers of these stable and low benefit ratios has been steady-to-declining rates of claims incidence. In a recent paper published by the SOA and co‑authored by Gen Re’s Jay Barriss, Individual Disability incidence rates were shown to have steadily improved over the 2005 to 2015 period, relative to the latest Individual Disability Valuation Table (IDIVT) incidence rate expectations.¹⁰ The favorable incidence rate trends have likely continued into at least into 2020 as Gen Re analysis on our reinsured blocks of disability business show continuing-to-stable incidence trends since 2015.

Author(s): Mike Krohn

Publication Date: 3 May 2022

Publication Site: Gen Re

COVID-19 Is Increasing Individual Life Claims, Too: Analysis

February 15, 2022February 15, 2022 Mary Pat Campbell

Link:https://www.thinkadvisor.com/2022/02/14/covid-19-is-increasing-individual-life-claims-too-analysis/

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The increase in the number of individual life claims was lower than for group life claims in some quarters but higher in others.
The analysts emphasize that the numbers are incomplete and subject to change.
Early results show that the number of claims was higher in the fall than in the summer both for individual life and group life.

Author(s): Allison Bell

Publication Date: 14 Feb 2022

Publication Site: Think Advisor

Wealth and Insurance Choices: Evidence from US Households

July 19, 2021July 19, 2021 Mary Pat Campbell

Link: http://public.kenan-flagler.unc.edu/faculty/kuhnenc/RESEARCH/gropper_kuhnen.pdf

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Theoretically, wealthier people should buy less insurance, and should self-insure through saving instead, as insurance entails monitoring costs. Here, we use administrative data for 63,000 individuals and, contrary to theory, find that the wealthier have better life and property insurance coverage. Wealth-related differences in background risk, legal risk, liquidity constraints, financial literacy, and pricing explain only a small
fraction of the positive wealth-insurance correlation. This puzzling correlation persists in individual fixed-effects models estimated using 2,500,000 person-month observations. The fact that the less wealthy have less coverage, though intuitively they benefit more from insurance, might increase financial health disparities among households.

Author(s): Michael Gropper, Camelia M. Kuhnen

Publication Date: 16 July 2021

Publication Site: University of North Carolina

Net Interest: Lemonade

May 28, 2021May 28, 2021 Mary Pat Campbell

Link: https://www.netinterest.co/p/my-adventures-in-cryptoland

Excerpt:

Insurance is a peculiar business because customers don’t really want it, hence the adage, “insurance is sold, not bought.” As much as she’s a customer, she’s also a counterparty: what’s good for her (a claim) is not good for the company. There’s a zero-sum dynamic to the relationship, which means that the classic Amazon flywheel around customer experience and lower pricing doesn’t work.
This concept got Lemonade tied up in knots this week. In a series of tweets, the company told of how its platform is getting better at “delighting customers”. One way it does this is, “when a user files a claim, they record a video on their phone and explain what happened. Our AI carefully analyses these videos for signs of fraud. It can pick up non-verbal cues that traditional insurers can’t, since they don’t use a digital claims process.”
It seems a strange way to “delight” customers by allowing AI to auto-reject their claims based on how their face looks or their accent sounds. The company realized its (PR) error, deleted the tweets and issued a denial. But this is what happens when your customers and your shareholders start mixing in an industry that doesn’t lend itself very well to that.

Author(s): Marc Rubinstein

Publication Date: 28 May 2021

Publication Site: Net Interest at substack

Remembering Allan McDonald: He Refused To Approve Challenger Launch, Exposed Cover-Up

March 10, 2021March 10, 2021 Mary Pat Campbell

Link: https://www.npr.org/2021/03/07/974534021/remembering-allan-mcdonald-he-refused-to-approve-challenger-launch-exposed-cover

Excerpt:

On Jan. 27, 1986, Allan McDonald stood on the cusp of history.
McDonald directed the booster rocket project at NASA contractor Morton Thiokol. He was responsible for the two massive rockets, filled with explosive fuel, that lifted space shuttles skyward. He was at the Kennedy Space Center in Florida for the launch of the Challenger “to approve or disapprove a launch if something came up,” he told me in 2016, 30 years after Challenger exploded.
His job was to sign and submit an official form. Sign the form, he believed, and he’d risk the lives of the seven astronautsset to board the spacecraft the next morning. Refuse to sign, and he’d risk his job, his career and the good life he’d built for his wife and four children.
“And I made the smartest decision I ever made in my lifetime,” McDonald told me. “I refused to sign it. I just thought we were taking risks we shouldn’t be taking.”

Author(s): Howard Berkes

Publication Date: 7 March 2021

Publication Site: NPR