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Leveraging Your Actuary for Strategic Business Success at Ace Hardware

Explore how Ace Hardware utilized actuarial expertise as a strategic business partner to enhance risk management, financial strategies, and broker relationships, leading to optimized business outcomes. Learn from industry experts on transforming actuarial services from mere number-crunching to impactful business insights.

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Leveraging Your Actuary for Strategic Business Success at Ace Hardware

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  1. Using your Actuary as a Strategic Business Partner Presented by Bill Montanez, Jim Shoop, and Jeff Doffing

  2. Overview • Ace Hardware Overview • Risk Management Perspective • “Make sure the numbers are low.” vs. “What are the numbers telling you about our business?” • Broker Perspective • “I just need your loss pick.” vs. “How can we best optimize our client’s total cost of risk?” • What is the Actuary’s Perspective? • Move from “Make fun of your actuary” to “Have fun with your actuary!” • Q&A

  3. Ace Hardware Overview • Ace Hardware Corporation (Ace) • Headquartered in Oak Brook, Illinois, Ace Hardware Corp. is the largest retailer-owned hardware cooperative in the industry. • Ace Insurance Agency • 4,600 Retailer owned & operated stores • New Age Insurance Ltd. (NAIL) • Wholly owned captive insurance company of Ace (Class 3) • Direct insurer of Ace’s corporate property & casualty exposures • Reinsurer of retailer property & casualty exposures (3rd party business)

  4. Captive Reserve Analysis & Reserving Philosophy Vendor – Yes Partner - ? Partner -Yes Strategic - ? Strategic Business Partner

  5. Risk Management Perspective • Captive Paid Losses vs. TPA Paid Losses • Who is minding the store? • Risk Management: staff capacity/skills • Captive Manager: insufficient invoice detail • Claims Administrator: claimant focus • Result? • Over payments by captive • Excess of retention • Occurrence or aggregate • Solution? • Actuarial Reconciliation/Monitoring

  6. Risk Management Perspective • Managing Expectations of Senior Management • Singular end of year actuarial analysis can lead to unexpected year end adjustments • Executives don’t like year end surprises!!! • Solution? • Actuarial Early Warning Systems • Quarterly actual vs. projected analysis • Estimate year end income statement effect • Estimate future capital requirements • Result? • Allows management time to react and plan

  7. Risk Management Perspective • Risk Management Support for Board Presentations • Demonstrate captive financial strength via: • Premium to surplus ratios over time • Reserve to surplus ratios over time • Equity stress testing at various confidence levels of reserves • Income statement stress testing by comparing current year premiums to reserve risk • Reserve risk = variability from expected

  8. Risk Management Perspective • ROI Support for Investment in Risk Control & Claims Management Initiatives • Cost savings projected and realized for specific frequency reduction initiatives • Cost savings projected and realized to limit average claim size • Benchmarking • Frequency & severity trends by state • Analyze retail stores separate from distribution centers • compare to self over time and to similar risks in the same industry

  9. Risk Management Perspective • Geographic Strategy Assistance • Pricing the risk • Florida coastal properties • Growing the business • State specific profit pockets • Audit Support • Not simply providing information to the audit actuary • Review the audit actuary conclusions • Represent the client’s specific issues that may be overlooked by the audit actuary

  10. Risk Management Perspective • Captive Financial Strategy Analysis • Asset/Liability Matching • Estimating optimal investment mix of fixed income investments & equities given surplus, reserve durations, and reserve risk • Is my captive under/over capitalized? • Effectively rating the captive • Based on underwriting & investment risk • Collateral reduction • Collateral support from captive • New product introductions & recommendations • Analyze risk/reward tradeoffs

  11. Broker Perspective • Submission Assistance • Garbage In = Garbage Out • Identifying & quantifying trends • Effects of Changing TPAs • Differences in claim definitions • In WC, medical only vs. indemnity • Reserving for ALAE • Differences in reserving philosophy

  12. Collateral Analysis/Negotiation

  13. Excess Pricing – Keep the Carrier Honest

  14. Analyzing Risk/Reward Tradeoffs

  15. Summary • If you truly want a strategic business partner, find an actuary who: • Knows your industry • Brings a strategic business solution mindset instead of a technical solution mindset • Learns your company’s culture & develops solutions accordingly • Looks at their proposed solution from your perspective before they deliver it to you. • Anticipates questions and is prepared with responses • Builds rapport with your management • Develops trust by acting with integrity

  16. Summary Q&A

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