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The Actuary and the Risk Manager

The Actuary and the Risk Manager. Gary E. Bird Director of Risk Management Phelps Dodge Corporation. Introducing Actuarial Science to PDC. The 1990 Reserve Analysis (eye opener!) Mid-year cost allocation adjustment Need $6 million/$10 million in reserves Bring in the actuary

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The Actuary and the Risk Manager

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  1. The Actuary and the Risk Manager Gary E. Bird Director of Risk Management Phelps Dodge Corporation

  2. Introducing Actuarial Science to PDC • The 1990 Reserve Analysis (eye opener!) • Mid-year cost allocation adjustment • Need $6 million/$10 million in reserves • Bring in the actuary • Study all open claims (over 1000) • Three months of study and analysis • Result: $6 million/$10 million

  3. Private Sector use of Actuaries • Fortune 500 • large self-insured retention • Self-insured workers’ compensation • Casualty risks - loss development • Workers’ compensation/employers’ liability • General liability • Products liability • Auto liability • Not property losses, business interruption

  4. Private Sector - Who Needs Reserve Position? • External Interests • Insurers - comfort with excess premium • State regulators - self-insured workers’ compensation • Captive regulators - solvency • Auditors - opinion on annual reports

  5. Private Sector - Who Needs Reserve Position? • Internal Interests • Corporate accounting • Year-end reporting/SEC reporting • Monthly internal accounting • Risk Management • Budget/Allocation • Business units • Efficient use of working capital

  6. Private Sector Uses and Applications • Regulators • Captive: Solvency measurements • Self-insurance: Security • Auditors - “test” reserves • Corporate functions • Finance/Treasury: preserve $ for re-investment • Accounting: reconciliation/SEC reporting

  7. Private Sector-Timing of Actuarial Work • Management - ”good” numbers for budget • Accounting - year end closing • Auditors - annual reports • Captive - statutory reporting deadlines • Insurers - prior to renewal

  8. Private Sector - Risk Manager Knows! • General liability loss projections (U.S.) • $2,000,000 per occurrence retention • Industry standard factors • Payroll - $400,000,000 • Sales - $4,000,000,000 • Production • 1,800,000,000 lb. CU • 1,000,000,000 lb. Carbon Black

  9. Phelps Dodge Litigation History

  10. Private Sector - Risk Manager Knows! • Texas Workers’ Compensation • History - $2,000,000 per year • Actuary - $2,000,000 per year • RM - $900,000 per year • Actual - less than $600,000 per year • Difference - Non-subscriber, administrator, great benefits and a waiver

  11. Private Sector - Risk Manager Knows! • S.W. State - workers’ compensation • Actuary says $2,500,000 per year • RM says less than $1,800,000 per year • Who is running OHS • Plants seeking recognition • Assigned WC coordinator/nurse • Plant closures, job placement support

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