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                                                                                                                                                                                                                 Nottingham University Business School

CRIS                          Extra                                                                                                                           No.10 November 2005                                                                In this issue >                                                         Closed life funds: the facts
                                                                                                                                                                                                                                                                                                            How the closed life sector has grown
                                                                                                                                                                                                                                                                                                            A goldmine of insurance information
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                                                                                                                                                                                                                                                                                                                          The value of insurance         3
We are pleased to welcome Mark Billings, who has been appointed Lecturer       Gareth Thomas and Rishi Daggar, students at the Business School, joined
                                                                                                                                                                                                                                                                                                                 What do company treasurers do?
in Accounting and Risk. Mark was previously at Sheffield Hallam University.    us over the summer to carry out research on closed life funds. Gareth is now
                                                                               studying on our MA degree in Insurance Studies, Rishi is in his final                                                                                                                                                               Are you coherent about risk?          4
Professor Chwen-Chi Liu from the department of insurance at Feng Chia          undergraduate year.                                                                                                                                                                                                            General insurance research seminar
University in Taiwan visited the Centre for a 3-month period in the Summer                                                                                                                                                                                                                                                       Market consolidation    5
2005, during which time he undertook research into natural catastrophe         We are pleased to welcome two new CRIS Research Associates: David
                                                                                                                                                                                                                                                                                                                    Conditional fee arrangements         6
insurance markets and automobile insurance in Taiwan.                          Newton (Professor of Accounting and Finance) and Dr Ghulam Sorwar
                                                                                                                                                                                                                                                                                                                       Test cricket is now riskier!
                                                                               (Senior Lecturer in Finance) both at Nottingham University Business School.
                                                                                                                                                                                                                                                                                                            UK Insurance Economists’ Conference          7




                                                                                                                                                              CRIS
                                                                                                                                                                                                                                                                                                                    Why insure and also gamble?

                                                                               Baby Boom
Discussion
                                                                                                                                                                                                                                                                                                                                        CRISline Extra   8
                                                                                                                                                                                                                                                                                                                                 Doing some research?
                                                                               Congratulations to Jennifer Howis on the birth of new baby Mathew,                                                                                                                                                                                 An MBA Opportunity
                                                                               Tim Orton on the birth of daughter Katie, and to Aoife Hanley on the
                                                                               birth of baby Anna. Jennifer is currently on maternity leave.


Papers
                                                                                                                                                              Newsletter of the Centre for Risk and Insurance Studies



We have published four new
Discussion Papers this year.
                                                                               Doing some                                                                     Closed life funds: the facts
2005.IV
Risk Preferences and the Consumption of Luxuries
Steve Diacon
                                                                               research?                                                                      Closed funds are an increasingly important part of the UK
                                                                                                                                                              life market, their assets having rocketed from only £6
                                                                                                                                                              billion in 1994 to £139 billion at the end of 2004.
                                                                                                                                                                                                                                                                             25%

                                                                                                                                                                                                                                                                             20%
                                                                                                                                                                                                                                                                                                   Solvency ratios




                                                                                                                                                                                                                                                     Solvency ratio
2005.III                                                                        If you are carrying out research in the area of Risk or Insurance, you may                                                                                                                                                                                 Matches
                                                                                                                                                                                                                                                                             15%
                                                                                wish to use the resources available through the CRIS website.                 New research on closed life funds is the subject of a CRIS report that
An Analysis of the Evolution of Insurance in India
                                                                                                                                                              looked at every authorised life insurer in the UK over the past 10 years.                                      10%
Tapen Sinha
                                                                                Go to www.nottingham.ac.uk/business/cris8.html                                The research was carried out by Chris O’Brien and Stephen Diacon, and                                               5%                                                        Closers
2005.II                                                                                                                                                       funded by international investment bank ABN Amro.
                                                                                                                                                                                                                                                                                  0%
Framing Effects and Risk Perception: The Effect of Prior                        This provides links to over a hundred websites that contain, facts, figures




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                                                                                                                                                                                                                                                                                                                           t+2


                                                                                                                                                                                                                                                                                                                                    t+3
Performance Presentation Format on Investment Fund Choice                       and papers of risk/insurance research. Many of the sites are international    Closed funds, i.e. in run-off and not seeking new business, have some
                                                                                                                                                                                                                                                                                                   Year (t = closure)
Steve Diacon and John Hasseldine                                                in nature.
                                                                                                                                                                 In this issue >
                                                                                                                                                              different characteristics compared to open funds. Closed firms tend to be
                                                                                                                                                              smaller, financially weaker, and have a higher proportion of their liabilities                                                 Lapse/surrender rates
2005.I                                                                                                                                                        that are with-profits. They also tend to have relatively high lapse/surrender
                                                                                If you would like to suggest any other links for us to include, or if you                                                                                                                         8%
Cycles in insurance underwriting profits: dynamic panel data results




                                                                                                                                                                                                                                                           Lapse/surrender rate
                                                                                spot any broken links, please contact timothy.orton@nottingham.ac.uk          rates: 2004 the lapse/surrender rate on annual premium business was
Paul Fenn and Dev Vencappa                                                                                                                                    8.70% for closed firms, compared to 6.23% firms open to new business.                                               6%
                                                                                                                                                                                                                                                                                                                                           Matches
Our annual survey of the solvency of the top 20 with-profit life insurers       If you would like to consider commissioning research from CRIS, please
                                                                                                                                                                                                                                                                                  4%
was issued in May, and analysed the results from the new ‘realistic balance     contact Chris O’Brien, Christopher.obrien@nottingham.ac.uk,                   What happens after a firm closes? We analysed 24 cases where the firm
sheets’. It is available on our website.                                        0115 846 6519.                                                                closed to new business, and remained in operation for at least 3 years                                              2%                                                        Closers
                                                                                                                                                              (“closers”). We compared these with similar sized firms that did not close
                                                                                                                                                              (“matches”).                                                                                                        0%




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                                                                                                                                                                                                                                                                                                                                    t+3
 The staff of the Centre are:
 Christopher O’Brien                   Mark Billings
                                                                                An MBA Opportunity                                                            We found that while the closers had lower solvency ratios than the
                                                                                                                                                              matches, the relative solvency of the closers did improve after closure, as
                                                                                                                                                                                                                                                                                                   Year (t = closure)

                                                                                The MBA in Risk and Insurance Management is a                                 shown by the chart, where t is the year of closure. This was associated with
 Centre Director                       Lecturer in Accounting and Risk
                                                                                                                                                              some increase, for with-profit funds, in the proportion of non-linked assets
 Professor Stephen Diacon              Aoife Hanley
                                       Lecturer in Managerial Economics
                                                                                unique course, designed specifically for managers
                                                                                working in insurance.
                                                                                                                                                              invested in equities (although this proportion was still relatively low).
                                                                                                                                                                                                                                               How the closed life
 Professor Kevin Dowd
 Professor of Financial
 Risk Management
                                       Dev Vencappa
                                       Teaching Fellow in Industrial
                                                                                The course can be taken either full-time over a year or part-time over
                                                                                up to 4 years.
                                                                                                                                                              However, lapses/surrenders were noticeably higher in the year after
                                                                                                                                                              closure, as shown in the chart, as were maintenance expense ratios.
                                                                                                                                                                                                                                               sector has grown
                                                                                                                                                                                                                                               There were 54 life insurers closed to new business at the end of 2004.
                                       Economics                                For further information, contact                                              This analysis of the consequences of closure cannot include those firms          Turn to page 2 for further details.
 Professor Leigh Drake
 Professor of Financial Economics      Tim Orton                                Chris O’Brien, 0115 846 6519                                                  that have only recently closed, which includes many of the large with-

 Professor Paul Fenn
 Norwich Union Professor of
                                       Research Support Officer
                                       Kerry Lambert                            Feedback, and requests for further information on any of the topics in
                                                                                                                                                              profits firms acquired by “closed funds consolidators”, in particular
                                                                                                                                                              Resolution and Pearl Group Ltd.                                                  Conference time
                                                                                Crisline, should be sent to Christopher.obrien@nottingham.ac.uk, or                                                                                            Our annual London Seminar, where we present results from our general
 Insurance Studies                     Centre Secretary                                                                                                       * Closed life funds: causes, consequences and issues, downloadable from
                                                                                to kerry.lambert@nottingham.ac.uk, phone 0115 846 6607                                                                                                         insurance research, takes place at the ABI offices on December 8.
                                                                                                                                                              www.nottingham.ac.uk/business/cris                                               See pages 4/5 for further information.


               Centre for Risk and Insurance Studies       Telephone: 0115 846 6607
               Nottingham University Business School       Fax: 0115 846 6684
               Jubilee Campus, Wollaton Road
               Nottingham NG8 1BB                          www.nottingham.ac.uk/business/cris/                                                                              Enhancing the understanding of risk and insurance
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CRIS                                                                                                                                                                                                                                                 Newsletter of the Centre for Risk and Insurance Studies




 How the                                                                          160
                                                                                  140
                                                                                                           Assets of closed life firms


                                                                                                                                                                        The value
 closed life                                                                      120
                                                                                  100




                                                                     £ Billions
 sector has                                                                        80

                                                                                   60
                                                                                                                                                                        If insurance didn’t exist, it would be created!

 grown
                                                                                   40

                                                                                   20                                                                                   A conference in June, organised by the Association of British Insurers,
                                                                                                                                                                        included a presentation by Stephen Diacon and Chris O’Brien on their
                                                                                    0                                                                                   report, ‘The Economic Value of General Insurance’.
 In 1995-2004 there were 67 closures of UK                                              1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
                                                                                                                                                                        This was an opportunity to highlight to the industry’s stakeholders, th
 life insurance firms. Why did they close?
                                                                                                                                                                        range of functions that the general insurance industry provides – and
                                                                                                                                                                        is not always well-understood.
 In 1994 there were 49 firms that were closed to new business, i.e. in run-              A number of firms have specialised in buying closed life insurers.
 off. Over 1995-2004 there were 67 further cases of firms closing to new                 The two leading “closed fund consolidators”, Resolution plc and Pearl          Insurance provides security for policyholders, by transferring risks that
 business. However, 44 such firms no longer continued in business, usually               Group Limited, owned 12 and 7 closed firms, with £39 billion and £28           insurers can bear more effectively than can individuals. The risk transf
 transferring their liabilities to another insurer, while there were also 18             billion assets respectively.                                                   function of insurers also generates positive external effects for the res
 cases of firms re-opening. This meant that, at the end of 2004, there were                                                                                             the economy. By providing individuals and businesses with the means
 54 closed firms.                                                                        Why do firms close? We found that firms which close, compared to               ensure their security against financial loss, the insurance industry
                                                                                         those which don’t, have the following characteristics 2 years before           contributes to reducing the burden that would otherwise be placed on
 In contrast, the number of firms that were open, fell from 197 to 134.                  they close:                                                                    state welfare system.

 However, while the number of closed firms only increased from 49 to 54,                 • proprietary (as opposed to mutual);                                          Insurers can use risk based pricing, which gives policyholders an incen
 their assets rose from £6 billion to £139 billion. So we have seen some                 • lower solvency;                                                              to reduce risk. They also need to have mechanisms to counter adverse
 large firms closing, notably Equitable Life.                                            • higher costs; and                                                            selection. However, empirical research continues to uncover evidence
                                                                                         • lower levels of new business.                                                selection effects: for example, in the North American workmen’s
 The pace of closures quickened over the 10-year period of the analysis. In                                                                                             compensation market, an increase in coverage leads to a worsening of                                                                      vice on risk
 1995-99 there were 27 closures; in 2000-04 there were 40. With-profits                  Given that the life market remains fragmented, further closures and            accident costs.                                                                   management. Insurance surveyors make recommendations as part of the
 firms closing also became more important, numbering 10 in the first five                consolidation are on the cards.                                                                                                                                  contract renewal process. This is also a role carried out at societal level
 years, 23 in the second.                                                                                                                                               Insurance supports tort liability law: without insurance, the operation of        where, for example, the ABI has taken the lead in encouraging the
                                                                                                                                                                        tort law based on third party liability would be impossible.                      strengthening of national flood defences.

                                                                                                                                                                        In addition, insurance has an investment function: insurers are among             The report can be downloaded from
 A Goldmine of Insurance Information                                                                                                                                    the major investors in the economy.                                               www.nottingham.ac.uk/business/cris or from www.abi.org.uk


 CRIS has an extensive library of material for research purposes.                              How we do our research in CRIS? The answer for several research
                                                                                               projects lies in our collection of UK insurance companies' report and
                                                                                               accounts from the early 1990’s. Large or small, the accounts are here!

                                                                                               This vast resource is managed by Tim Orton, assisted by Kerry
                                                                                               Lambert. The collection includes the regulatory returns to the
                                                                                                                                                                        What do company
                                                                                                                                                                        treasurers do?
                                                                                               Financial Services Authority (previously the DTI and Treasury) of
                                                                                               many firms as well.                                                                                                                                                         A new paper examines the development
                                                                                               Some of our projects use data items from reports and accounts and
                                                                                                                                                                                                                                                                           of the Association of Corporate Treasurers
                                                                                               FSA Returns, where the data is available in electronic form from
                                                                                               Standard and Poor’s, with whom we liaise closely. Their SynThesys        A paper by Mark Billings, with Paul Cowdell            The role of treasurer is an important one,             The ACT itself developed in response to the
                                                                                               (life and non-life) databases are valuable research tools.               (Sheffield Hallam University) examines the             particularly in large and internationally active       changing business environment and the
                                                                                                                                                                        evolution of this profession and the parallel          businesses and has developed considerably in           needs of treasurers. Although a high
                                                                                               However, we also find that the reports and accounts and FSA Returns      development of’ the UK professional body, The          recent decades, although many of the                   proportion of treasurers have professional
                                                                                               contain important information in their narrative sections. Is the firm   Association of Corporate Treasurers (ACT), now         treasurer’s main concerns differ surprisingly          accountancy qualifications and many others
                                                                                               mutual or proprietary? Open or closed? What are its corporate            26 years old, in relation to other professions         little from those of 30 years ago. One of these        have banking backgrounds, other
                                                                                               governance and risk management arrangements – these can only be          which are concerned with finance and business          is risk management (including insurance and            professional bodies and qualifications appear
                                                                                               answered by looking at the full documents in detail.                     risk management. The internationalisation of           other risk financing techniques), considered           to have struggled to provide a sufficiently
                                                                                                                                                                        business, the increasing sophistication of             one of the ‘pillars’ of treasury. However, the         specific education and training for the
                                                                                               The reports and accounts are also resources we use in our teaching.      financial markets and changes in the political         role will evolve further as innovation in financial    demanding role of the corporate treasurer in
                                                                                               What are companies’ objectives? What is their strategy? We examine       and economic environment have been the most            instruments and financial markets continues.           today’s complex business world.
                                                                                               these documents with students, to help shed light on developments        significant factors in driving the development of
                                                                                               in the market and how firms are reacting to the challenges they face.    the profession.
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     Are you coherent                                                                                                                                       Market Consolidation
     about risk?
                                                                                                                                                            Consolidation is one of the strong trends in European insurance markets, a new report illustrates.
                                                                                 The measure of risk most commonly
                                                                                                                                                            Paul Klumpes (now at Imperial College), Stephen Diacon, Paul             The chapter concludes that greater sophistication in risk management will
                                                                                 reported by banks is not coherent - why is this?                           Fenn, Chris O’Brien and Canan Yildirim have prepared ‘European           be needed to facilitate further financial innovation, consolidation and
                                                                                                                                                            Insurance Markets: Recent Trends and Future Regulatory                   development of the insurance sector in Europe.
     Measuring risk in a business is not easy because risk has several           One alternative is the expected shortfall (ES), being the average of       Developments”, which is to be published as a chapter in a new
     dimensions. However, two recent articles by Kevin Dowd in Financial         the (say) 5% worst outcomes, and ES is a coherent risk measure.            book “International Insurance Markets: Between Global Dynamics           For more details about this book (available early 2006) please contact
     Engineering News show that there can be pitfalls if the measure of                                                                                     and Local Contingencies”, edited by Professors Bertrand Vernard          Heather Calvert, Huebner Foundation, The Wharton School, USA:
     risk used is not coherent.                                                  ES places equal weight on all tail (i.e. the worst) losses. Indeed, the    and David Cummins from the Wharton School at the University of           hcalvert@wharton.upenn.edu
                                                                                 key to coherence is that a risk measure must give higher losses at least   Pennsylvania.
     For a risk measure to be coherent, it has to satisfy four conditions, the   the same weight as lower losses.
     so-called axioms of coherence (the theory of coherent risk measures                                                                                    Our chapter gives an overview of European life and non-life                                      Number of insurance companies
     was originally developed by Artzner, Delbaen, Eber and Heath in the         We can now see why VaR is not a coherent measure: it gives a large         insurance markets, showing the UK to be the largest market in
     mid-1990s). The main condition is subadditivity. To explain this, start     weight to a loss equal to the VaR itself but no weight whatsoever to       Europe for life business, Germany the largest for non-life (in 2003                    Belgium                 Ireland                   Sweden
     with two portfolios, A and B. Let “r” be a measure of risk, and let the     any larger losses, which apparently we don’t care about!                   and measured by premiums).                                                             Denmark                 Italy                     Switzerland
     measured risk of each position be r(A) and r(B). Then put the                                                                                                                                                                                 France                  Netherlands               UK
     portfolios together, and measure the risk of the combined position.         However, while ES is coherent, it may not be an ideal risk measure if      Looking at the 11 markets shown in the chart, the number of
                                                                                                                                                            insurance companies fell by 11% from 4703 to 4189 over 1992 –                          Germany                 Spain
     This will be r(A+B). For r to be a coherent measure, we require that        people are risk-averse (which might ordinarily be the case). In other
     r(A+B)<= r(A) + r(B). In other words, the value of the risk measure         words, we could design a risk measure that gives increasing weights as     2003. However, Ireland proved an exception to the trend, with             5000
     should not increase when we put the two portfolios together.                losses become larger.                                                      more than a doubling of the companies operating in this market. In
                                                                                                                                                            contrast, the number of companies in Belgium fell by 32%.                 4000
     The main risk measure reported by banks is Value at Risk (VaR), which       This takes us into the realm of a new type of risk measure, spectral
     is used by some insurance companies, too. To calculate VaR we               risk measures, which place higher weight on larger losses.                 We then review the individual national markets, looking in                3000
     estimate future possible outcomes, and VaR is the (say) 95% worst                                                                                      particular at business trends, consolidation, investment
     loss. However, this is not consistent with subadditivity and hence not      We can then see the potential for an individual who is very risk-averse    performance and financial strength.                                       2000
     a coherent risk measure, for reasons we shall see shortly.                  to want a risk measure that is different (i.e. with different weights)
                                                                                                                                                            The European sector is affected by changes in solvency and               1000
                                                                                 compared with an individual with a lower degree of risk aversion.
     What we want is a risk measure that retains the benefits of VaR,            Perhaps this explains why the search for the “ideal” risk measure is so    accounting rules. We are seeing a move to market-based valuations
                                                                                                                                                                                                                                         0
     providing a common, aggregative, holistic risk measure with                 difficult: there is no unique answer.                                      and it is expected that Solvency II will focus more on linking capital
                                                                                                                                                            requirements with the risks to which insurers are exposed.                            1992              1997              2002              2003
     probabilistic content, but which is also coherent, which VaR is not.




     General Insurance Research Seminar
     Our 5th London Seminar takes place at ABI’s offices                         There are three presentations as follows:
     on Thursday December 8th.
     Our annual research seminar in London is a now well-established event,      ‘Information asymmetries in the market                                      ‘General Insurance,                                                       Is there a ‘compensation culture’ in the UK?
     and this year we are presenting some of our general insurance research.
                                                                                 for general reinsurance‘                                                   the economy and IPT’                                                       Trends in liability claim frequency
     The half-day seminar takes place at the offices of the ABI, 51 Gresham      Michael Adams and Stephen Diacon                                           Adam Blake                                                                 1976 – 2002.
     Street, London, EC2V 7HQ. It is on 8th December, and takes place in         The paper tests for information asymmetries (specifically moral hazard     We examine interactions between the general insurance industry and         Paul Fenn & Dev Vencappa
     the afternoon, preceded by a buffet lunch.                                  and adverse selection) in the UK general reinsurance market.               the economy as a whole. What resources does the industry use and           A working party of the actuarial profession maintains that there is a
                                                                                 First, we examine the link between the primary insurers’ gross claims      which sectors of the economy does it sell to? We then see the direct       compensation culture, but a report by the Better Regulation Task Force
     The cost is £50 and you can register by completing the application form
                                                                                 and the quantity of reinsurance purchased, and apply tests to              and indirect value that the industry creates.                              argues against this. We look at the evidence by exploring trends in liability
     at www.nottingham.ac.uk/business/cris/
     Alternatively email Niki Crofts at niki.crofts@abi.org.uk                   determine whether this link is due to adverse selection or moral hazard.   The interactions are explored further by using a new model of the          claims in the UK since 1976. To the extent that the trends can be explained
                                                                                 Second, we investigate evidence for claims-contingent pricing in the       economy, which we use to consider what would be the economic               by reference to known developments in the economic and socio-legal
                                                                                 market for reinsurance by exploring the relation between the price of      impact of a change in insurance premium tax.                               environment, some of the mystery can be removed from the debate.
                                                                                 reinsurance purchases and the primary insurers’ gross and reinsured                                                                                   Of course, the question of what constitutes a “compensation culture”
                                                                                 claims experience.                                                                                                                                    remains, but at least it can be addressed from a more informed perspective.




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     Conditional fee arrangements:                                                                                                                                                 UK Insurance Economists' Conference
     new report                                                                         For recently opened cases, CFAs now account for over 90% of
                                                                                        personal injury cases in the study. One possible reason for this high
                                                                                                                                                                                   The 27th Annual Insurance Economists’
                                                                                                                                                                                   Conference was held at Nottingham
                                                                                                                                                                                                                                                  The papers from the conference are now available, price £50. If you would like a copy,
                                                                                                                                                                                                                                                  please contact Kerry Lambert, Tel: 0115 846 6607 Fax: 015 846 6684
                                                                                                                                                                                                                                                  email:kerry.lambert@nottingham.ac.uk.
     A new research report* for the Department for                                      figure is the introduction of collective conditional fee agreements,                       University Business School on 13 and 14
                                                                                        which allow bulk purchases of legal services to agree a success fee                        April 2005. It was an opportunity for                          Regulating Insurance Companies: Theory and Practice
     Constitutional Affairs investigates the legal services                             across high volumes of claims. The study found that 78% of CFA
                                                                                                                                                                                   academics, practitioners, and others                           Philip Booth (Cass Business School, City University) & Alan Morrison (University of Oxford)
     market, an issue of particular importance to insurers                              claims involved no significant dispute over liability, and in 90% there
     paying compensation claims.                                                        was no significant dispute about causation. These figures are about                        interested in the insurance industry to hear                   The 'Operating Financial Review' and UK Corporate Reporting
                                                                                        the same as when winning claimants paid the risk premium.                                  and discuss the latest research.                               Alasdair Marshall (Glasgow Caledonian University)
     The pursuit of compensation for personal injury has always been a risky            However, the research did find that CFA cases (although not
     activity: there is always a possibility of a claimant losing, and bearing heavy    collective CFAs) had significantly higher total legal costs than those                                                                                    The Value of Risk Reporting
     legal costs. In the past, either the government has assumed this risk via legal    cases funded by before-the-event insurance. This presumably results                                                                                       Margaret Woods, Kevin Dowd (University of Nottingham) & Chris Humphrey
     aid, and the cost of losing cases was borne by the taxpayer; or private clients
     have assumed this risk through payment on an hourly fees basis.
                                                                                        from the success fee and the cost of after-the-event insurance.                            2006 Conference                                                (University of Manchester)


     When conditional fee arrangements (CFAs) began in 1995, the risk of losing
                                                                                        The report also notes the recent emergence of CFAs for clinical
                                                                                        negligence claims, especially in high-value low-risk cases.
                                                                                                                                                                                   Call for papers                                                National Fire Costs and Fire Risk Management
                                                                                                                                                                                                                                                  Tony Paish (World Fire Statistics Centre)
     cases was passed to claimant solicitors, who required a premium to cover the                                                                                                  The 2006 conference will be held at Nottingham
     risk of losing cases. At first, this premium was paid by winning claimants via     *The funding of personal litigation, comparisons over time and                             University Business School on 29th and 30th March 2006.        Genetic Testing in the Republic of Ireland
     negotiated success fees. Since then, CFAs have changed, with the claimant          across jurisdictions, by Paul Fenn, Alistair Grey, Neil Rickman and                                                                                       Louise Morris (University of Limerick)
     solicitor’s own cost risk premium now paid by the losing defendant.                Yasmeen Mansur.                                                                            If you would like to present a paper to the 2006
                                                                                                                                                                                   conference, on any aspect of insurance, risk or financial      Individual Mortality Perceptions, Insurance and Pensions
                                                                                                                                                                                   services, we would be delighted to hear from you!              Chris O'Brien, Paul Fenn, Stephen Diacon (University of Nottingham)

                                                                                                             Chart 1 - England and Australia 1999-2004                             Please let us have a one-page outline of your proposed
                                                                                                                                                                                                                                                  Pensions for Low Income Households: A Case of Market Failure?

     Test cricket is                                                                                        3.0%

                                                                                                            2.5%
                                                                                                                                                                                   paper and forward to
                                                                                                                                                                                   Stephen.diacon@nottingham.ac.uk
                                                                                                                                                                                   by 14.00, Friday 2 December 2005.
                                                                                                                                                                                                                                                  Laurie Edmans (AEGON UK)

                                                                                                                                                                                                                                                  Personal Injury Claims and the PIAB in the Republic of Ireland
                                                                                          Prob. dismissal




                                                                                                            2.0%


     now riskier!
                                                                                                                                                                       Australia                                                                  Brian Greenford (University of Limerick)
                                                                                                                                                                                   We plan to make a decision on the papers for the
                                                                                                            1.5%
                                                                                                                                                                                   conference by Thursday 15th December 2005.
                                                                                                            1.0%                                                                                                                                  The Impact of the Woolf Reforms on Litigation Outcomes
                                                                                                                                                                       England
                                                                                                            0.5%
                                                                                                                                                                                                                                                  Paul Fenn, Dev Vencappa (University of Nottingham) & Neil Rickman (University of Surrey)
     As the Ashes series re-ignited interest in cricket, we find
                                                                                                            0.0%
     new results on cricket risk.                                                                                  0   30        60   90      120    150   180   210

     What is the risk that a batsman will be out next ball? We might suggest that                                                          Balls faced
     the likelihood of being dismissed is highest at the start of an innings; as the
     batsman becomes accustomed to conditions then the likelihood goes down,
     but it then goes up as fatigue sets in.
                                                                                                            3.0%
                                                                                                                        Chart 2 - Ashes series 2005                                Why insure and
                                                                                                                                                                                   also gamble?
     CRIS researcher Gareth Thomas constructed a database of over 36,000                                    2.5%
     individual innings in Test matches, and Paul Fenn and Chris O’Brien have                                                                                                                                                                                               Why do people who gamble
                                                                                          Prob. dismissal




                                                                                                            2.0%                                                       Australia
     been analysing this.                                                                                                                                                                                                                                                   (e.g. on the lottery) also take out insurance?
                                                                                                            1.5%
     Chart 1 shows the probability of being dismissed on the next ball, in the first                        1.0%                                                       England
     10 balls of a batsman’s innings, then in balls 11-20 and so on. This uses data                         0.5%
                                                                                                                                                                                   The luxury lifestyles adopted by nouveau riche individuals who acquire      Fourth, there are ideas such as Prospect Theory, which suggests that
     from all test matches in 1999 to 2004 played by England and Australia, and                                                                                                    large windfalls perhaps through lottery wins may provide a clue to why      people who have made a loss may be more inclined to take risks: they may
                                                                                                            0.0%
     we restrict the analysis to the top 6 in the batting order. We indeed see that                                                                                                some people both insure and gamble. This issue is discussed by Stephen      see the lottery as offering an opportunity to recover from social or
                                                                                                                   0        20        40        60         80    100
     the likelihood of being out is relatively high at the outset and, overall, the                                                                                                Diacon in CRIS Discussion Paper 2005-IV ‘Risk Preferences and the           economic adversity.
     superiority of the Aussies is clear.                                                                                                  Balls faced                             Consumption of Luxuries.’
                                                                                                                                                                                                                                                               Stephen Diacon’s paper looks more closely at the relationship between
     However, the picture is rather different in Chart 2, which relates just to the                                                                                                Four ideas have been put forward in the past to explain why people          income, consumption and risk.
                                                                                                                       Chart 3 - Boycott and Hayden
     Ashes series of 2005. The risk of being dismissed is markedly higher than in                                                                                                  both insure and gamble.
                                                                                                            2.0%
     1999-2004 (although associated with a fast scoring rate) and we can see,                                                                                                                                                                                  Although consumers may be risk-averse at low-to-middle income levels,
     over a significant range, England’s superiority.                                                                                                                              One is that while people may be risk-averse generally, they may also be     the opportunity to buy high priced luxury goods may mean that individuals
                                                                                                            1.5%                                                                   risk lovers at certain income levels which means they enjoy gambling.       become risk-loving at (possibly very) high income levels. Low stake/ high-
                                                                                          Prob. dismissal




     However our analysis shows interesting differences between individual                                                                                             Hayden                                                                                  payoff gambling is a result of the opportunity for the lucky winner to spend
     batsmen: see Chart 3. Take Michael Hayden, the Australian opener: we see                               1.0%                                                                   Second, individuals who are otherwise risk-averse may obtain pleasure       a high proportion of income on luxuries and dispense with necessities.
     the pattern of high risk at the outset, then reduced and finally increased risk.                                                                                              from the activity of gambling rather than just risk-taking.
                                                                                                            0.5%                                                       Boycott                                                                                 The study suggests that the research into the reason why apparently risk-
     Alternatively, look at Geoffrey Boycott. Not only is the probability of his                                                                                                   Third, poorer individuals cannot buy, say one–tenth of a new Aston          averse people enter into (‘unfair’) gambles should perhaps start by asking
     being dismissed much lower, but he does not appear to show an increased                                0.0%                                                                   Martin sports car, so they may therefore seek to win large sums             what they would do with the winnings. Those people who would choose to
     tendency to get out when he has been batting for some time.                                                   0   30        60   90      120    150   180   210               of money.                                                                   live a luxury life if they could, are likely to be the ones who would gamble
                                                                                                                                           Balls faced                                                                                                         to get the chance.
 6                                                                                                                                                                                                                                                                                                                                              7

				
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Description: Suggest Some Topics Where Mba Students Can Do Projects on General Insurance document sample