Small Stories Can Have A Big Impact In my first few months as managing editor, Ive made some good calls about stories we should pursue for National Underwriter. But I bet one we ran earlier this month had some readers, and maybe some of the folks I report to, scratching their heads.

Some might have asked why in the world we devoted space in the June 2 edition to a report on the Canadian insurance market (see “Canadian P-C Insurers In Intensive Care?” on page 30). In particular, why should we care about a company in Ontario that boosted auto insurance reserves by a mere $140 million?

I felt the very same way, a few weeks earlier, when a freelance reporter from Canada called to pitch a story about a company called Pilot, a subsidiary of Aviva, which booted its CEO and other executives after announcing the reserve charge. He kept using words like “scandal” and “shenanigans” in his voice mail pitch, as he tried to give me a scoop, apparently believing that I hadnt heard a word about the situation before.

The story actually wasnt news to me. I had seen a press release via e-mail from Standard & Poors about the topic, noted the magnitude of the reserve charge, and quickly deleted the message. After all, we were busy reporting about $2 billion charges here. Why should this matter?

This wasnt even as big a story as a possible reserve problem at another Canadian insurance organization–Fairfax Financial Holdings–where an analysts report of a $5 billion shortfall (which was later revised) had sent the stock plummeting earlier this year.

When we finally spoke directly, I thanked my Canadian counterpart politely for advising me of the story, but told him it just didnt seem to be big enough news. He insisted that even if he didnt write the story for me, he felt he needed to apprise me of the details. He also revealed that he had hit a roadblock in trying to pursue the story (the details of which I wont go into).

I could have then concluded that he was just a disgruntled reporter with a journalistic axe to grind. Theres probably nothing that keeps a dedicated reporter more interested in a story than having an obstacle thrown in their waybe it a request to divert their attention or simply having a phone receiver slammed down in their ear.

But this particular reporters passion about the story moved me. The writer in question is a detail-oriented journalist with good instincts about where to take a story. So I kept thinking that there was a bigger picturea possibility for a mega-story here that NU should be pursuing.

Maybe I should be thinking about the possibility that mismanagement in one part of a much bigger operation is a symptom of a larger control problem for the parent company.

Alas, with no time and no space, I didnt assign the story to anyone on our U.S. staff. However, my Canadian freelancer did manage to talk me into publishing that June 2 overview. He came through with a thorough piece on the Canadian markets seen through the eyes of insurer and reinsurer CEOs, discussing economic woes, falling interest rates, worries about reinsurance recoverabilitya lot of the same matters that concern U.S. insurers.

In the article, he also managed to work in the fact that the “hotbed” of discussion was this Pilot situation, reporting on CEO reactions to this at some length. He quoted one CEO as saying: “Do we have, as an industry, our own SARS problem, being Severe Auto Reserve Syndrome?” Others suggested that the problem would soon mushroom throughout Canada (and the province of Ontario, specifically).

Yet the entire reserve boost for the Canadian auto insurance industry he was talking about was only $460 millionfar short of anything that AIG, ACE, The Hartford or Travelers had put up over here, individually. Besides, those U.S. company charges were related to more interesting risks like asbestos and D&O, not mundane stuff like auto insurance.

Okay. Put this into context for me, I pleaded.

The reporter quickly informed me that the $140 million boost at the one troubled company was 50 percent higher than 2001. As for the $460 million industrywide reserve boost, that was roughly double the adjustment made for the prior year. And the $10 billion auto market in Canada, he said, is half of all premiums written in Canada.

Now I could see that these smaller reserve adjustment figures had some significance. But there were still some nagging questions.

The day I was set to publish the story, I agonized over this on my train ride to work. Is this really worth the space, I wondered.

Then I had an epiphany–okay, more of a flashback. How far I had come from my days as an actuary, when a $30 million shortfall at a company that wrote about $150 million had caused me to pack my bags and seek new employment!

Those numbers may not be quite accurate, but they give an idea of the magnitude of the problem I was dealing with about nine years ago, when I took the short-lived position as a chief actuary at a small company, writing the same mundane line of business as Pilot Insurance.

That was back in the days when I was just a reader, not the managing editor of NU.

As my train approached the station that morning, I had a vivid memory of sitting in a small office of that company years ago (one that I occupied for all of two months) and getting one of the frequent misdirected phone calls I fielded from policyholders. This one, who hardly spoke a word of English, was having some problem reporting a claim.

His call came into my office at the very same moment I was packing my boxes to leave, frustrated by the fact that I couldnt get management to see the truth about its reserving problem. I worried about the other policyholders who might not have their claims paid if the situation deteriorated any further.

Back then, I could probably have better appreciated the fact that its not always the big stories that are important. The small ones, in fact, touch the lives of my readers and their clients every day. One hundred forty million dollars is indeed a big deal. It affects jobs, policyholders and agents; it causes disruptions.

It seems that every time I write a column for NU, I beat the same drum. I have to confess that during my first few years at NU, I used to feel uncomfortable about even writing on reserving issues–let alone preaching about them. I didnt want to promote the idea that reserves are the only thing that actuaries worry about. (Believe me, I have plenty of opinions on other topics, which youll hear about in the months ahead.)

These days, the opposite is no longer true. Actuaries are not the only folks worrying about reserving issues. I was reminded of this fact recently when I attended a meeting of wholesale brokers in New York. The president of the group kicked off a session saying that he had recently become aware of the fact reserve deficiencies was a “trend to watch.”

Other speakers who followed him to the podium expressed their disbelief in a somewhat mocking tone that he hadnt stumbled upon this notion before. But I can tell you (I have a good ear for sincerity) that this gentlemen was quite serious. Reserve headaches were just not an issue he had needed to be aware of before, until some of his markets started to tumble because of them.

More recently, the American Association of Managing General Agents had an education session at its annual meeting, during which an actuary told them something about how loss reserve analysis works. Good for them!

Finally, people outside of the actuarial world are paying attention to the fact that reserves matterin Canada, in the United Statesand that seemingly small numbers can cause big damage.

Journalistic hindsightlike all other forms, including actuarialis 20-20. If the Pilot Insurance situation turns out to be a mushroom cloud over Canada–or Europe–then NU missed it. But I wont have missed my opportunity to pen one of my not-so-subtle reminders that the small decisions we make every day do matter. While small numbers dont make headlines, they can be big problems to those we promise to protect.

Susanne Sclafane, a Fellow of the Casualty Actuarial Society, is NU's managing editor. She can be reached at ssclafane@nuco.com.

Reproduced from National Underwriter Edition, June 23, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.

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