Ruark Consulting, LLC

Ruth Ann Woodley Presenting at NADP’s CONVERGE

Ruth Ann Woodley — Tue, 31 Aug 2010 05:14:38 +0000

I am very excited to be presenting two workshop sessions at the National Association of Dental Plans’ annual CONVERGE conference, in Seattle September 20 – 23, 2010. In “Drilling Out from the Recession: Has the Economy Had an Impact on Dental Claims?” on Tuesday the 21st at 10:30, I will discuss how utilization and cost patterns changed in 2008 and 2009 as the recession took hold. This topic has been of great interest to all dental carriers for the last two years, and I’ve found both noteworthy common patterns and interesting variations among companies’ experiences.

On Wednesday at 1:00 I will present “Measuring Your Network’s Value: Pulling the Pieces Together,” a look at some key benchmark metrics for dental PPOs. I will look at trends seen in RCL’s annual network study for the last few years and discuss what I believe to be their drivers, plus share some thoughts on how companies can adjust their network strategy for their own positioning.

For more information on the conference, visit www.nadp.org. I hope many of you will be attending, and that I’ll see you in my presentations. I’m hoping for some interesting discussions, so bring your thoughts and comments. And let me know if you will be in Seattle so we can be sure to catch up!

State of the Variable Annuity Reinsurance Market in 2010

Rich Tucker — Fri, 13 Aug 2010 17:47:17 +0000

“The reports of my death have been greatly exaggerated.” – Mark Twain

Reinsurance for variable annuity guarantees (VA GMxBs) has often been characterized as unavailable over the last few years. In fact, this is not the case. Reinsurance is available, but the terms required by reinsurers are often inconsistent with the pricing of direct writers. Success with VA reinsurance in 2010 requires an understanding of the critical reinsurance design points discussed below.

VA reinsurance design has historically been strongly influenced by the background of each specific reinsurer. Traditional life reinsurers were comfortable with policyholder behavior and mortality risk, but not capital markets risk. Reinsurers affiliated with investment banks had the opposite view – comfort with capital markets risk but not insurance risk. Time and experience have allowed these views to merge at some reinsurers. Programs with these reinsurers can now address both insurance and capital markets risks.

All reinsurers are currently employing some form of capital markets hedging strategy and evaluating assets and liabilities on a market consistent basis. This means that reinsurers will not speculate on how capital market conditions may change, funds must be highly correlated with “hedge-able” indices, and reinsurance pricing will be based on current market-implied conditions. Wide new business windows with uncertain volumes are incompatible with this risk management strategy. Instead, reinsurance can more readily be provided for inforce blocks or on a serial (e.g. monthly or quarterly) basis for new business.

Reinsurance pricing that varies with current market-implied conditions is fundamentally the same situation experienced by direct writers with their own capital markets hedging program. With this as a common baseline, reinsurance can provide direct writers with significant advantages over capital markets hedging programs.

Under adverse policyholder behavior experience, the cost for variable annuity guarantees can increase dramatically relative to best estimate assumptions. It is important for direct writers to understand and quantify this difference in order to appreciate the value of potentially shifting this risk to reinsurers.

A hedging program inherently creates an operational burden for the direct writer, and slippage is commonly reported in the industry. Reinsurance provides relief for both problems.

The accounting treatment of risk management strategies is typically an important aspect for the direct writer. Under US GAAP, liabilities with a significant mortality element, like GMDB, are not typically fair valued. However, assets employed in capital markets hedging are fair valued, resulting in balance sheet asymmetry with the potential for significant volatility in capital position. Reinsurance accounting can rectify this situation, and provide superior reserve and capital relief.

Finally, it is very important to recognize that several types of reinsurance structures exist. Perhaps the most common structure provides coverage for guarantee claims in exchange for annual asset-based reinsurance premiums. Yet alternate structures can provide coverage for selected tranches of risk, or with an emphasis on insurance risk or capital markets risk.

To summarize the current environment, healthy reinsurance programs will typically be predicated on the following key points:

Funds must be highly correlated with “hedge-able” indices, for which current capital markets conditions will form the basis for reinsurance pricing.
Reinsurance is more readily provided for inforce blocks or on a serial basis for new business.
Policyholder behavior needs to be recognized as a significant risk – reinsurance can potentially address this risk, hedging programs cannot.
Reinsurance relieves the direct writer of the operational burden and potential slippage associated with a hedging program.
Reinsurance can provide superior capital relief and stabilization.
Different reinsurance structures are available, keyed to the needs and desires of the direct writer.

Acknowledgement of these points is likely to result in a successful variable annuity reinsurance program for direct writers and reinsurers, in 2010 and beyond.

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Ruark Insurance Advisors, Inc. is a reinsurance intermediary specializing in annuity reinsurance, having placed over 40 transactions, covering a range of reinsurance structures, accounting for over $150 million of reinsurance premium annually. If you would like to learn more about these opportunities, please contact:

Rich Tucker
Vice President
(973) 783-3168
Rich@ruarkonline.com

Tim Paris
Vice President
(860) 866-7786
TimothyParis@ruarkonline.com

2009 Dental PPO Network Study Coming Soon

Ruth Ann Woodley — Wed, 19 May 2010 08:44:07 +0000

Work is well underway on the latest update to RCL’s annual Dental PPO Network Study, the only tool in the industry providing carriers with competitive benchmarks. The study measures in-network discounts, network utilization rates, and overall network savings from the combination of the two (effective discounts). When the study is complete, I will also publish an update on national discounts and trends in networks over the past few years, looking at such questions as whether networks are still growing while also increasing discounts, and whether plan designs continue to increase incentives for patients to use a network dentist.

The new version will be released in a few months. It will evaluate network data from 2009 and include some new participating companies. Meanwhile, a report on last year’s findings is available here. For more information, contact Ruth Ann or keep checking back here.

Book Review: Self Promotion for Introverts

Ruth Ann Woodley — Wed, 05 May 2010 07:21:32 +0000

I recently read the perfect book for a quiet actuary managing a consulting practice, and wrote a review published here by the SOA. The book is by Nancy Ancowitz, a business communication coach I have worked with over the past few years, and like all of her work it is insightful and useful. An introvert herself, Nancy has a great perspective on how we think and how we work with those chatty extroverts. Far from everyone I work with is an introvert -even the actuaries!. But since we’re half of the population some must be, and might find this useful. Take a look – and let me know what you think.

Rich Tucker attending Retirement Conference in Washington, DC.

Rich Tucker — Mon, 05 Apr 2010 15:52:09 +0000

Rich Tucker will be attending The Retirement Industry Conference on Monday and Tuesday, April 12 and 13 in Washington, DC. Let him know if you will also be there.