Through 40 years of practice as a consulting actuary I have had the distinct honor to work with many different entrepreneurs and intrapreneurs.  An entrepreneur is defined as a person who organizes and operates a business, taking on greater than normal financial risks in order to do so.  An intrapreneur is defined as a manager within a company who promotes innovative product development and marketing.  I love working for both as their consulting actuary. As a consulting actuary I am naturally reactive, rather than proactive.  I want to be a member of my client’s team, stri ..read more

The solution to healthcare reform in the USA is for the federal government to provide every citizen the opportunity to enroll in a private healthcare program.  Then, through a program similar to the current Medicare Advantage program, the federal government would pay a fixed premium to the private healthcare plan on behalf of the citizens enrolled in that plan.  The private healthcare plan could then accept that premium as the total required amount to cover that citizen or offer additional benefits and coverage to that citizen at an additional premium.   The private healthcare ..read more

Technology is a wonderful thing for the insurance business. However, we tend to use technology to make our products and services more complicated.  Increasing complication creates more opportunity for basic errors.  Unfortunately, I’ve been seeing more and more basic errors with my clients recently. One of the challenges has been tracking policies in force.  If we start with the policies in force at the beginning of a period, add the policies issued during that period, and subtract the policies cancelled during the period, we should get the policies in force at the end of the pe ..read more

GAAP financial statements are a tool for communicating with investors.  Such financial statements can be published in annual reports, along with an opinion from an independent auditing firm.  While the statements are still the responsibility of management, an audit opinion stating that the statements comply with Generally Accepted Accounting Principles gives them substantial credibility.  Further, such statements are required in Form 10-K by the US Securities and Exchange Commission for publicly-traded companies. Sometimes the absolute level of GAAP earnings is not as important ..read more

What economic risks do you face in your life? What can happen to cause you to have a bad year?  Wouldn’t it be nice to put aside money in good years and have it available for bad years?  Wouldn’t it be even nicer if you could deduct the money you put aside in good years on your income taxes?  That’s exactly what you can do with a personal captive insurance company. I have been involved in the formation of over 150 captive insurance companies over the past 5 years.  These companies have covered such risks as: Reputational risk, Weather risks, Employee fidelity, Government a ..read more

The medical insurance industry is wrestling with one of the most basic issues it has faced in a long time, and it has nothing to do with the Affordable Care Act. The issue is reference-based pricing. Under reference-based pricing the insurance policy and/or certificate defines the allowable amount of charge under the insurance program to be a percentage of the allowable amount of charge under Medicare. While these numbers vary dramatically by geographic location, here is an illustrative example of reference-based pricing.  Assume, on average, that retail medical charges are 400% of those ..read more

New and rapidly growing life and health insurance companies are nearly always disappointed with their financial results. Even companies that end up being very successful are disappointed initially.  Two key points must always be remembered.  First, you must project what you expect to happen, and compare actual results with that expectation.  Second, every financial statement has a purpose, and when a financial statement is used for a purpose that it was not intended to serve, false impressions are created. Part of pricing work is to establish expectations for financial results ..read more

Companies or individuals who own captive insurance companies generally prepare three sets of financial statements: Statements complying with Generally Accepted Accounting Principles (GAAP), Statutory financial statements filed with state insurance departments, and Tax returns. Company liabilities, either current or future, can be transferred to a captive insurance company without changing the valuation of those liabilities on the GAAP financial statements.  However, once in the insurance company, the liabilities must be valued according to state insurance laws, which are intentionally c ..read more

Over the years I have been called on quite frequently to estimate the value of insurance organizations. Insurance companies need to be valued most often, but agencies, third-party administrators, managing general underwriters, and marketing organizations can be valued using the same basic principles.  I am generally asked to estimate the economic value of the organization, rather than the market value.  The economic value is generally equal to the financial statement equity value plus the present value of future earnings under a chosen set of assumptions.  Economic value calcula ..read more

Those who are involved in the group medical business, and more specifically the self-funded group medical business, know that small-group self-funding has become a hot topic over the last few years. The rating and underwriting restrictions on fully-insured medical plans covering small groups caused many companies to shift to self-funded plans.  The regulations for self-funded plans are significantly less burdensome and the absence of rate restrictions allows healthy groups to pay significantly less premium. The participants in this newly expanded small-group self-funded market have been l ..read more