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

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

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I felt the very same way, a few weeks earlier, when a freelancereporter from Canada called to pitch a story about a company calledPilot, a subsidiary of Aviva, which booted its CEO and otherexecutives after announcing the reserve charge. He kept using wordslike “scandal” and “shenanigans” in his voice mail pitch, as hetried to give me a scoop, apparently believing that I hadnt heard aword about the situation before.

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

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This wasnt even as big a story as a possible reserve problem atanother Canadian insurance organization–Fairfax FinancialHoldings–where an analysts report of a $5 billion shortfall (whichwas later revised) had sent the stock plummeting earlier thisyear.

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

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I could have then concluded that he was just a disgruntledreporter with a journalistic axe to grind. Theres probably nothingthat keeps a dedicated reporter more interested in a story thanhaving an obstacle thrown in their waybe it a request to diverttheir attention or simply having a phone receiver slammed down intheir ear.

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

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

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

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

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Yet the entire reserve boost for the Canadian auto insuranceindustry he was talking about was only $460 millionfar short ofanything that AIG, ACE, The Hartford or Travelers had put up overhere, individually. Besides, those U.S. company charges wererelated to more interesting risks like asbestos and D&O, notmundane stuff like auto insurance.

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

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

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Now I could see that these smaller reserve adjustment figureshad some significance. But there were still some naggingquestions.

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

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

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

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

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

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His call came into my office at the very same moment I waspacking my boxes to leave, frustrated by the fact that I couldntget management to see the truth about its reserving problem. Iworried about the other policyholders who might not have theirclaims paid if the situation deteriorated any further.

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

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It seems that every time I write a column for NU, Ibeat the same drum. I have to confess that during my first fewyears at NU, I used to feel uncomfortable about evenwriting on reserving issues–let alone preaching about them. I didntwant to promote the idea that reserves are the only thing thatactuaries worry about. (Believe me, I have plenty of opinions onother topics, which youll hear about in the months ahead.)

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These days, the opposite is no longer true. Actuaries are notthe only folks worrying about reserving issues. I was reminded ofthis fact recently when I attended a meeting of wholesale brokersin New York. The president of the group kicked off a session sayingthat he had recently become aware of the fact reserve deficiencieswas a “trend to watch.”

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Other speakers who followed him to the podium expressed theirdisbelief in a somewhat mocking tone that he hadnt stumbled uponthis notion before. But I can tell you (I have a good ear forsincerity) that this gentlemen was quite serious. Reserve headacheswere just not an issue he had needed to be aware of before, untilsome of his markets started to tumble because of them.

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More recently, the American Association of Managing GeneralAgents had an education session at its annual meeting, during whichan actuary told them something about how loss reserve analysisworks. Good for them!

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

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Journalistic hindsightlike all other forms, includingactuarialis 20-20. If the Pilot Insurance situation turns out to bea mushroom cloud over Canada–or Europe–then NU missed it.But I wont have missed my opportunity to pen one of mynot-so-subtle reminders that the small decisions we make every daydo matter. While small numbers dont make headlines, they can be bigproblems to those we promise to protect.

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Susanne Sclafane, a Fellow of the Casualty ActuarialSociety, is NU's managing editor. She can be reached at[email protected].


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


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